Will a Grexit cause another GFC?
- Thread starter TheEnd
- Start date
F**k knows.
It all depends how the ECB treats a default.
If European banks, especially German, are forced to write off the loans then a lot of European banks could suddenly become insolvent overnight leading to a chain reaction that could take them all down.
But the ECB could just as easily change, bend or just ignore the rules and allow the banks to not recognise the losses, for the sake of 'the system'
Or they could just print more money with QE and lend more to Greece
It all depends how the ECB treats a default.
If European banks, especially German, are forced to write off the loans then a lot of European banks could suddenly become insolvent overnight leading to a chain reaction that could take them all down.
But the ECB could just as easily change, bend or just ignore the rules and allow the banks to not recognise the losses, for the sake of 'the system'
Or they could just print more money with QE and lend more to Greece
I don't claim to be any of expert on the Greek sovereign debt, the Eurozone, the IMF, the ECB or monetary policy. This just my 0.02.
To bring back one of the buzzwords of the 2007-2010 era, "financial contagion".
Greece as an economy is a minnow compared to the major players in Europe...but so was Thailand back in 1997 right before the Asian Financial Crisis.
Thats the insidious latent power of the contagion phenomenon.
Regardless of whether a Greek default leads to Grexit, the Euro will languish in the short-term especially against the USD and CHF.
The pressure will mount on any peripheral Europe nation with large sovereign debts to service.
To resurrect another unwelcome term, the PIIGS. In no particular order: Italy, Spain, Portugal.
We're going to find out if the CDS (credit default swap) underwriters are over-exposed, just like AIG was back in 2009. Could happen exactly like 2009 again, then it'll be global in 12 hours.
A Greek sovereign default would probably be deflationary, it will slow down Euro-denominated monetary velocity all across Europe.
Without intervention, expect to see European equities cooling off, businesses reducing inventory, putting off expansion, unemployment trending upwards. Basically, conventional deflationary spiral.
Unless...the ECB already commenced their equivalent of QE in January (http://www.ft.com/cms/s/0/aedf6a66-a231-11e4-bbb8-00144feab7de.html), 60 billion per month already. Not difficult to envision the ECB expanding their QE to protect the integrity of the Euro zone.
As for gold & silver, who the heck even knows anymore?
To bring back one of the buzzwords of the 2007-2010 era, "financial contagion".
Greece as an economy is a minnow compared to the major players in Europe...but so was Thailand back in 1997 right before the Asian Financial Crisis.
Thats the insidious latent power of the contagion phenomenon.
Regardless of whether a Greek default leads to Grexit, the Euro will languish in the short-term especially against the USD and CHF.
The pressure will mount on any peripheral Europe nation with large sovereign debts to service.
To resurrect another unwelcome term, the PIIGS. In no particular order: Italy, Spain, Portugal.
We're going to find out if the CDS (credit default swap) underwriters are over-exposed, just like AIG was back in 2009. Could happen exactly like 2009 again, then it'll be global in 12 hours.
A Greek sovereign default would probably be deflationary, it will slow down Euro-denominated monetary velocity all across Europe.
Without intervention, expect to see European equities cooling off, businesses reducing inventory, putting off expansion, unemployment trending upwards. Basically, conventional deflationary spiral.
Unless...the ECB already commenced their equivalent of QE in January (http://www.ft.com/cms/s/0/aedf6a66-a231-11e4-bbb8-00144feab7de.html), 60 billion per month already. Not difficult to envision the ECB expanding their QE to protect the integrity of the Euro zone.
As for gold & silver, who the heck even knows anymore?
As I understand it, an official 'default' will trigger a number of credit default swaps and that is the tipping point.
Though this has been anticipated for so long I actually think it will be some distantly related black swan that will start paddling into sight once Greece is done with.
Though this has been anticipated for so long I actually think it will be some distantly related black swan that will start paddling into sight once Greece is done with.
Another curveball among many is if the USD does rally on the back of uncertainty in Europe is emerging markets with a decent amount of US denominated debt such as Turkey, Brazil, Indonesia, South Africa etc - Turkey especially is already on shaky ground.
Caput Lupinum said:
What do you think about the possibility of the Danish Krone de-pegging with the fall in value? Surely Europeans will be flooding them with purchases just like they would have if the Swiss were still pegged? I'm thinking about taking a CFD position on it, but I haven't heard much about it (surprisingly). How long can they hold out when they're acting as a live boat for savvy euro holders?
I could be wrong but I don't think the Danish central bank has a mandate to change the currency peg. That can only happen through the Danish parliament so any move to de-peg would be obvious to the market. Their setup is a bit different from the Swiss. I would assume that they will continue to add to their cash reserves and keep pushing their rates further into negative territory in the short-term
This time there's been a lot of notice so I'm guessing contagion risk is much less and I'm guessing it is central banks (such as the ECB) that hold a lot of the Greek debt rather than the private banks.
I reckon the contagion risk might have been contained for Greece. There has been so long in anticipation of the outcome, the only reason Greece will be allowed to default is if the Troika are prepared for it.
However, what they can not be prepared for is a contagion of other financially distressed states deciding to also repudiate their debts if Greece gets away with it.
So it was interesting to see Costa Rica posturing this morning:
http://www.zerohedge.com/news/2015-...ral-governor-says-debts-are-not-payable-refus
A few countries starting to think about first-mover advantage and Iceland's recovery on the tail of a Greek default might challenge the best laid plans of central bankers.
However, what they can not be prepared for is a contagion of other financially distressed states deciding to also repudiate their debts if Greece gets away with it.
So it was interesting to see Costa Rica posturing this morning:
http://www.zerohedge.com/news/2015-...ral-governor-says-debts-are-not-payable-refus
A few countries starting to think about first-mover advantage and Iceland's recovery on the tail of a Greek default might challenge the best laid plans of central bankers.
I'm sure that's a relief to Puerto Ricans
https://theweek.com/articles/563288/moral-divide-heart-greek-debt-crisis
http://www.abc.net.au/news/2015-06-...d-to-know-about-the-greek-debt-crisis/6581818
It's been inevitable for a while, and there are definitely some prepared. Most so, those who engineered and will profit from the chaos.
TheEnd said:
Kicking a can, down the old dirt road,
Where tandem trucks, carried their loads.
Down to the stream to soak my feet,
Sure feels good in this beastly heat.
Kicking a can by the grapefruit trees,
Waltzing right through all the honey bees.
Taking a grapefruit that looks just ripe,
And cutting it open, with my pocket knife.
Kicking a can down the railroad tracks,
Laying nails on the rails, as the train comes back.
They'll make the perfect arrowheads,
Once the train comes back, and crushes them flat.
Kicking a can in the setting sun,
The day is over, but I had my fun.
Gonna get some supper and then to bed,
Wish I was kicking a can instead.
~ Juan Olivarez
IMO I don't think that Greece will be the one that that causes the "great unwind". The Greek economy itself is very small in the scheme of things, even with the derivative time bomb just waiting to be tripped I feel there is still a lot of money out there to keep the game going. Greece may well be the catalyst, but it going to take a bigger scare than this. That's not to say it shouldn't be underestimated.
The metals have also been fairly quiet. The average Joe is picking up a few bits and pieces but the money that moves the price is not worried enough yet.....
At the end of the day though, they still fitted life rafts to the unsinkable "RMS Titanic"
The metals have also been fairly quiet. The average Joe is picking up a few bits and pieces but the money that moves the price is not worried enough yet.....
At the end of the day though, they still fitted life rafts to the unsinkable "RMS Titanic"
TheEnd said:
talking bout GFC and money how is the job going? Are you still employed?