Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

This New Currency Could Wipe Out the Euro

Currencies / Euro May 28, 2015 - 06:15 PM GMT

By: Investment_U

Currencies

Sean Brodrick writes: Greece, the cradle of Western civilization, is poised to rock the world again.

For a country with gross domestic product equivalent to the Miami metropolitan area, that’s no small feat. But it could rock the financial world in an old-fashioned way that many historians would recognize - by printing money.

The situation in Greece is much more dire than most people realize. You may have heard that Greece recently made a $494 million payment on $32 billion that it owes the International Monetary Fund (IMF).


That’s just a piece of the $353 billion in bad debts the Greeks have borrowed from every bank, Dick and Harry. But if Greece can cover its debts, the crisis is over... right?

Wrong. Greece “paid” the IMF by using a special drawing rights account at the IMF. In other words, it borrowed money to pay debt. It’s the equivalent of using your credit card to pay the mortgage.

This isn’t going to end well. And the end game may be in sight.

Multiple economists are now saying Greece needs a “dual currency” regime. In other words, the Greeks should start printing their own currency again, right beside the euro. And the Greeks might be foolish enough to listen to them.

Time to Roll Out a New Trojan Horse?

Sure, governments print money all the time. But there was a time when rolling a wooden horse into a city was no big deal, either. And sometimes, as the Trojans found out - and as the Europeans may be about to find out - such an event can be catastrophic.

Here’s the deal...

Greece seems at loggerheads with Europe over the conditions attached to its bailout. The Iron Bank of Brussels is demanding that Greece slash pensions, clamp down on wages and sell state assets. So far, Greece is refusing these demands.

The clock is ticking.

If Europe (read: Germany) stops funding the Greek government, which runs in the red, then Greece will have no way to issue more euro-based debt and no way to pay state employees, pensioners and anyone owed money by Greece.

The European Union funds about 3.3% of Greece’s budget. That doesn’t seem like a lot. But the EU also underwrites the debt that Greece issues. That is a big deal. Greece has already had two bailouts since 2010, for a total of 240 billion euros ($267.5 billion).

The Dawn of a New Currency

Greece used to have its own currency, the drachma. I used it myself when I honeymooned there decades ago with my first wife (She Who Must Not Be Named).

Flash forward to today...

Now proponents of a dual-currency regime are saying that Greece should start printing its own currency again. This one probably wouldn’t be called the drachma. Since it would be printed alongside the euro, maybe they could call it the “greuro.”

If Europe balks at lending Greece more money, proponents of the new currency say Greece could start paying state employees with greuros. They would have no choice but to accept it.

Greece would also be able to solve its unemployment problem by putting people to work on infrastructure projects. Sure, they’d only be paid in greuros. But the logic of dual-currency proponents goes, “at least they’ll be working and getting paid something.”

All external debts denominated in euros would continue to be honored in euros. All existing bank deposits would be maintained in euros. Hopefully, that would prevent bank runs while the new currency is slowly introduced.

How Things Could Go Terribly Wrong

Let’s say Greece does start printing a new currency and paying people with it. Any shopkeeper who sells imported goods would probably close up shop. The alternative is jacking prices sky-high and hoping the new currency doesn’t fall so far, so fast, that even new prices don’t make up the difference.

And that’s only the start of the problems. Greek banks could easily go bust as they are unable to pay loans made in euros.

So, this path pretty much implies that Greece nationalize its banks. Hey, I thought this was supposed to be a path out of financial crisis?

Finally, we could see a good ol’ fashioned panic. That’s when people reject the new currency, buy and hoard what they can with dwindling euros, and the Greek economy stagnates into chaos. Simple items like toilet paper could become unaffordable luxuries. (See Venezuela for an example of how that can happen.)

And what if economic unrest in Greece spills over its borders, affecting other members of the European Union?

That’s just one way it could go bad. Let me tell you about another...

What If Things Go Terribly Right?

Let’s say Greece introduces the greuro and things go differently. Confounding all the naysayers (like me), the greuro actually works.

People are paid in something a little better than Monopoly money, but the economic stimulus actually gets the economy moving again... The banks survive (maybe even thrive)... Greece focuses on local-sourcing former imports... The economy booms!

Well, if that happens, that would be HORRIBLE for Europe as it exists today.

Because, suddenly, all the nations that have chafed against the austerity choke collar that German bankers impose on them would see a path to prosperity. And it will be paved with new, national currencies. The euro might shatter like it was printed from glass.

And then, well, who knows how that could go? There’s $13.6 trillion in European publicly held debt ($27,000 per person). No one can see the future, and I don’t want to get too scary, but this could work out like one of those Greek fables where one little thing goes wrong and brings down an empire. In this case, an Empire of Debt.

What Would You Do in the Greeks’ Shoes?

I have only the greatest respect for Greece and the Greek people. Movies like 300 may be pumped up with hype, but there’s no arguing the fact that we wouldn’t have Western civilization as it is today without Greece and its long and storied history.

But if I lived in Greece, and I even entertained the thought that my government might start issuing a new currency, I would do two things.

  1. Get my hands on as many euros as possible, and stash them away. Not in a bank, either.
  2. Buy gold and silver. Heck, I might do that if I lived somewhere else in Europe, too, just to diversify. Because once a government starts fiddling with a currency, there’s no telling where it will end.

I hope the Greeks find a way out of their problems. And I hope the smarter ones are making preparations just in case things don’t work out.

All the best,

Sean

Source: http://www.investmentu.com/article/detail/45449/greece-new-currency-could-wipe-out-euro-eurozone#.VWd2c03bK0k

http://www.investmentu.com

Copyright © 1999 - 2015 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in