Greece Is Screwed And So Is The Rest Of The World

greece protestors

Photo: Twitpic

There’s no getting around it.Greece is Screwed. So is the World.

Bloomberg reports today that the “Euro Gains on Greece Plan Optimism; Dollar Rises Versus Yen on U.S. Yields.” 

In other words, Bloomberg (and the general financial press) is reporting that the financial world is completely wrong, has gone insane, and is otherwise delusional when it comes to the “Greek conundrum.” Whether it’s policy ignorance, political indifference, or willful absence of sound decision making, the business press and world could not be more wrong about where Greece is headed.

And make no mistake: this erroneous thinking WILL drive us into a global-wide Depression. 

Here’s why Greece is inevitably screwed and what its means for the rest of us:

  • HISTORY: No matter how optimistic the rest of the world, Greece’s survival depends upon Germany’s good-will. Why? Historical wrongs, atrocities, and, you know, a few World Wars. Because the European Union is a product of political optimism but economic ignorance – created with the idea that if the world bound Germany and France together in a single political and economic entity, the economic “pie” would grow while the two nations would be forced to play nice together – people think “Well, Germany’s got this. They’ll rescue Greece before things get too bad.” Sadly for these mis-informed (or, worse, ignorant) optimists, there’s only so much German money to go around.  At some point, the German people will stop economically apologizing for WW2 and start letting things “sort themselves out.” Greece will inevitably be that point. And from there, the economic dominos will fall.
  • POLITCAL, um, OPENESS (aka, SLUTTINESS): Let’s be honest: in the mid-2000’s, the European Union played fast and loose with membership, letting in second- and third-tier economies, like Greece (and, frankly, Ireland and Portugal, not to mention Spain, Romania, and…well, you get the idea). This tacking of the economic fates of the “anchor” nations (i.e. Germany and France) to those of smaller, “evolving” (aka less “productive”) nations, all in the name of “political unity,” has created this mess that no amount of political will can clean up. That is, the European Union only works so long as the “anchor” countries lift up and support the economies of the “smaller” nations. Of course, there are only so many levers the German and (again, to a much lesser extent) French governments can pull to save economies such as Greece, and no amount of European “let’s hug this out” political good-will can change that these countries are economically stretched to the limit. 
  • STREET RIOTS?: The citizens of Germany (and, to a lesser extent, France) are all but threatening mutiny at the idea that they will be the ones economically propping up an (in their opinion unwilling-to-change) Greece. Conversely, while citizens of Greece are protesting at the same time the idea of “economic austerity,” designed to curb the damage) simply in the name of political unity, there may, literally, be riots in the streets of Europe the next few months if the natural economic course of things (i.e. a Greek default) are not allowed to play themselves out. The political tone deafness of the world’s pundits are grossly underplaying this threat to social stability.  Look for riots in the German streets, should Greece be kept from defaulting.
  • FUNDAMENTALS: While Greece is pledging to “change” in order to receive ROUND TWO of European Union bail-out dollars, the country clearly hasn’t learned it’s the lesson to be gleaned from teetering on the brink of financial ruin.  The economy as it exists pre-and-post-crisis is fundamentally the same, as is the nation’s spending and taxing habits.  A constant drain on the European Union’s coffers, Greece has done little, if anything, to enact and enforce the fundamental financial and economic changes necessary to save the economy from default.  Given that the European Union can only pump so many dollars into this financial sink-hole – while Greece seems unable or unwilling to change – default seems the only viable option.

Given these Euro-realities, (and misreads from the world at large), then, the end-game is clear: no matter how much and how often Germany (and the rest of the European Union) throws “emergency financing” at the financial-disaster-that-is-Greece, the Greek economy will (and almost has to) default.  When, you ask? 

Brace yourselves…

Within the next 12 months, with the Euro strained to it’s financial breaking point, the Greek economy will plunge into the abyss, dragging down not only the European Union but also the broader financial world. This will lead to an economic depression the likes of which we haven’t seen since 1929.  Why is that? 

When the Euro inevitably collapses in value, investor dollars will split between the USD, Swiss Franc, and Japanese Yen, severely depressing the majority of the other 1st world economies. With these central importers rendered relatively economically helpless, commodities prices will collapse, leaving the world’s 2nd and 3rd tier economies and exporters even further depressed, creating a global financial crisis and chasm that will take nearly a decade to render itself right again.

Furthermore, so goes Greece, goes the European Union; that is, the EU as we know it will cease to exist.  Instead, this default will lead to a permanent fracture between the member-states, leaving a core of “financial foundation” countries (France, Germany, and maybe 2-3 others) left to clean up the continental economic mess. It could very well take decades to reverse this seemingly inevitable and nearly-irrevocable economic damage.

While the business press (and general punditry) is desperate to explain away a potential Greek default, we must instead prepare for the inevitable one that IS coming. We can dance around, ignore, or paint pretty financial pictures over the economic realities of the situation, but make no mistake: Greece will default, and with it will go the entire world economy. Instead of hoping it away in a last-minute reading of the economic-tea-leaves, we’d be best to prepare for the inevitable.

And don’t say I didn’t warn you. 

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