For those interested in financial/economic types of crises, the next couple weeks might be a time to observe what happens to ordinary Greeks as their country totters on the edge of dropping the Euro and switching to another currency--call it a New Drachma, if you will. Possibily relevant and enlightening for us here in the US. Certainly a foreshadowing of things that might later play out for our friends in other Eurozone countries like Ireland and Spain.

I had commented a while back on the slow motion bank run going on in Greece as Greeks slowly took out a significant chunk of their savings out of the banks. According to some reports, a whole lot of money has drained all of a sudden this week as the Greek government founders.

However, there are apparently no long lines at banks and ATM's (from what I've read so far), so it's not your typical vision of a "bank run," at least not yet. It could be businesses and the ultra wealthy moving the last remaining chunks of money electronically and not ordinary Greeks doing the withdrawing, since most ordinary Greeks probably don't have a whole lot of savings left at this point anyway.

Anyway, it's one thing to see a currency devaluation in a developing country, but it's going to be a shock to see folks still holding a high profile currency like the Euro in bank accounts suddenly given devalued New Drachmas instead. Poof! Like seeing your stock portfolio crash by 40% (unfortunately, many of us did experience that in 2008).

I don't think the society will unravel, although surely people will be hurting and many in a really bad way. On a more macro level, things may not be as bad as many predict. Then again, the recent crash and burn of MF Global and a $2 billion loss at JP Morgan remind us that at least in the banking/finance worlds, things are so complicated and highly leveraged (and worse things I won't mention) that it's hard for anyone to really know what the ultimate damage might be in this scenario.

Or...this post might be premature. Maybe it's not the time for Greece to drop the Euro, just yet, although I believe that's a foregone conclusion. We shall see.

IMO based on what I've read over the last several months, Greece will exit the EU and Greek currency will revert to the Drachma. What the Greek people are doing by removing their money from the bank(s) in Euro currency, is trying to preserve value, because the Drachma will come out at some rate relative to the Euro and then it is expected that the Greek gov will seriously devalue the Drachma. Money left in the bank will automatically convert to the Drachma once they make the shift, so people are pulling their accounts in Euro cash.

Greece cannot inflate the way the European Central Bank and the US FED do while they are part of the EU monetary system (Euro). Once Greece makes the break their sovereign debt can be paid in their new sovereign currency -- Drachma, which the Greek gov/Central Bank will control. Greece can value the Drachma as they choose and then pay their debt in the highly devalued currency.

$.02

We have relatives in Germany and Eastern Europe (non-Euro). Our worry is that the Greek exit is going to rock and de-value the Euro and all European currencies. Everything is related and tied into each other.

While the dollar may be less affected then the European currencies, if you have relatives in the line of fire, so to speak, you may want to check with them to insure that they are as ready as they can be.

From the looks of things they might be better off converting their euros to swiss francs or dollars.

On a positive note, in many parts of europe families own their homes, the extended family is still intact, and they're used to getting by with less. Which means its easier for them to pull resources and get by in austere times. Not to mention there's usually a few family members in each household who grew up in a village and still know how to farm or garden. This is especially true in southern europe. And cities are more conducive to walking or using public transport.

I can't blame anyone that can ditching now before the currency shift.

From what I have read about the whole mess it appears like people holding Greek debt domestically are going to be the ones that get screwed the worst. They will get paid off in worthless new currency.

Its unclear just what will happen to Greek debt denominated in Euros held outside Greece. There is considerable question about just how Greece could force debtors outside the country to accept the new currency, as by EU law they can't just re-denominate external debt like they can internal debt. But it is also not clear if they can legally even pull out of the monetary union. It seems like the rest of the EU is prepared to let them leave the monetary side of the union without any fuss about it though. Probably glad to get rid of them.

It has always amazed me throughout history how lenders are dumb enough to loan money to sovereign entities without really giving a thought to how it will be paid back. It is just always assumed that sovereign entities will pay it back, no matter what, yet virtually every country has defaulted on its debt. In fact, that is the norm for most countries throughout history.

Debt crisis: Greek euro exit looms closer as banks crumble

The truly major lenders are hardly dumb. Look, the money lent is not even really "owned" by the lenders (whether private or national) in the first place. It's not "money in the bank" that is lent--it is money created out of thin air that is then loaned out. These lenders profit off the interest payments, not the return of principal. They don't care that much about the principal and they know that it will probably never be repaid. Actually, like a credit card balance, they just want them to keep rolling the debt over because the longer you have an outstanding balance, the more interest you pay over time.

Ever wonder why so many of Greece's creditors agreed to 50, 60, 70% "haircuts" on the principal of their loans to Greece just a short while ago? They don't need the principal back. And they know that Greece needs to borrow a whole lot more, so they'll just replace the old loans with new ones in a short time and pick up where they left off.

International finance is a game, and if you want to stay in the game, you have to play by the rules, even if they don't make sense to your average person. It's similar to asking why the Chinese would keep buying billions in Treasuries when the US is continually debasing the dollar, which is akin to giving your alcoholic, unemployed father money for booze everyday. "That's crazy! Why give your father money?!" you think, until you hear the logic that this guy's father only beats his mother when he needs more booze, so letting him get booze keeps the peace and let's this guy continue living his life. He lives to play game for another day.

This post probably sounds like crazy talk to someone who hasn't heard these ideas before, but it is what it is.

More evidence that Fiat Currencies just do not last the test of time. Real stuff(food, water, clothing, tires, knowledge, skills, health etc and etc) is Real wealth. Pieces of paper (money) is ultimately worth the value of pieces of paper.

One method to preserve wealth is to stock up on stuff you use anyway. Then when your currency tanks, you've lost nothing. As prices rise, you gain.

We Are Watching The Greek Banking System Die Right In Front Of Our Eyes The article is from the 16th so he said it before I did

The real question is why did they wait 'til now? There was no question as to the ultimate outcome, Greek exit from the EU and Euro was a given quite a while ago. It was just a matter of how far down the road they could kick the can -- now we know.

For a rather detailed discussion of what's happening with Greece and the rest of Europe (it's not just Greece), there is a good audio interview at Alasdair Macleod: All Roads In Europe Lead To Gold or on Youtube at Chris Martenson & Alasdair Macleod on YouTube 48 minutes

Alasdair Macleod indicates that the bank runs we've seen in Greece in recent weeks is just the tail, Greek money has been leaving Greece for a couple years. So what does a German who has been responsible & productive and has been saving his/her entire life do now that the Euro is being debased (LTRO) due to the irresponsibility of other non-German Europeans?

My fear is that it will not be limited to Europe. The big U.S. banks are also exposed to the European debt situation and Bernanke is talking QE3 based on problems that are lingering here already.

from what I can see ... Europe is breaking up and the dream of a "united Europe" is dead. The politicians in Brussels are fighting this idea tooth and nail - but the breakup is inevitable. The current economic and financial arrangement is just not sustainable in the euro community.

there has been much talk about how the exit of Greece will be "good" for the country. I think the exit will happen over the next few months. But it will hardly lead to salvation for the Greek economy. Much more likely is that the country will plunge into a full-fledged economic depression and a high level of political uncertainty i.e. anarchy.

We are witnessing the complete re-alignment of Europe.
These are events that will re-shape history books. Right now - they are our daily headlines.

Pete2

Greece has pretty much already reached that point, it seems. The economy has been contracting for the past four years (already one of the worst post-war depressions) and still shrinking and the national government is already in shambles and paralysis.

The unemployment rate is very high (officially 20%, 50% for the younger generation) but many people are technically still working but just not getting paid. Many Greeks have endured significant pay cuts and many others have gone on for many months unpaid based on the promise of eventually getting paid. Eventually, I suppose many of these workers are just going to stop going to work and then the wheels of society are really going to fall off. Who knows if there will be much of a safety net left at that point for all the unemployed and people needing health care.

The Greeks are still hanging in there. We haven't seen a physical run on the Greek banks (yet) but arguably, perhaps your average Greeks have already pulled their money out slowly over the past couple years and don't have money left to rush out and withdraw anyway. News reports indicate that companies wire their receipts out of Greece on a daily basis now, which looking back, probably accounts for the massive amount of money withdrawn from the Greek banking system and what the news article was reporting on.

Now there are reports of an impending energy crisis where gas and electricity supplies could be shut off to...any region in the country, it sounds like. The whole country? That's not clear, from the reports. Oil supplies are still flowing, for the time being, but only just. It's more complicated than this, but essentially people are not paying their electricity bills so the electric utility can't pay the natural gas suppliers so both the electricity and/or gas supplies could be shut down for lack of money/credit. I suppose that means your natural gas powered kitchen stove will also be affected (do they use those in Greece?)

According to ANSAmed (I saw it first reported by Reuters):

Greeks are still scrambling to secure loans to keep the lights on. I'm not sure if having national elections scheduled a week from now helps or hurt this process. Spain's floundering banking system and economy is increasingly in the news this past week so it's almost like a following the fortunes (or lack of it) of different teams in a sports tournament in the news.

I read an article about a trend for city-dwelling Greeks to return to the small towns they came from. Hard numbers are hard to come by, but one recent survey indicates two-thirds of Greeks have considered a move to the countryside, most of them permanently.

The article focuses on one young lady in particular, and points out one of the advantages of rural living--her ability to grow her own food, keep some beehives, etc. She hates small town living (and she grew up there), but she didn't really have any choice but to leave Athens. I don't have any roots in the countryside, nor do any of my close friends, so making this kind of move would be tough for me if things ever came to that.

You can read the article here .

Well, the Greek elections are tomorrow. Could mean everything. Could mean nothing, too, if there is no clear winner.

According to this news report, the lights will stay on for now after the government released funds frozen by the bankruptcy of a couple small utilities. Sounds like it is only a temporary fix, though.

This CNBC article mentions Greeks are stocking up on non-perishable food leading up to the election. Sounds like it's primarily a measure against a potential loss of purchasing power if the country leaves the Euro, or maybe a hedge against a disruption in supplies. Medicines are already hard to come by in Greece.


And according to this this CNBC article, sounds like a lot of major bank employees in the NYC area are working this weekend, preparing for a potentially volatile day in the markets on Monday, after the results of the Greek election become apparent.

I'm still surprised that there hasn't been any outright bank run there. Either most people don't think Greece will leave the Euro, or else most folks just don't have much money left in the banks. Maybe the results of the election will shed some light on this question.

My understanding is that everyone who had any money has already moved it into other currencies.

Here is a related article getting a lot of press.
It addresses the the impact of a banking holiday in America in a worst case scenario.


http://www.survivalblog.com/2012/06/20-r...-nightmare.html

Correct link is http://www.survivalblog.com/2012/06/20-r...-nightmare.html

I have found these recent articles to be quite thoughtful and useful. They are stark and sobering, but free of hysteria.

http://www.edmontonjournal.com/news/Euro...3389/story.html

http://www.edmontonjournal.com/news/Fish...9223/story.html

http://www.edmontonjournal.com/news/Fish...4430/story.html

Thanks, Doug. Good articles. Maybe a wee bit of hysteria. I haven't read any other articles that say something like:

The reality of small town living is that while there are some opportunities to grow your own food the job prospects are probably as bad or worse than in larger cities.

Why would they need to move money that is denominated in Euros? I am not sure a new government could just convert them to a new currency like they is possible with Euro denominated Greek sovereign entity bonds.

They could potentially start a new currency, but even that is difficult to make work.

The reality of the PHRASECENSOREDPOSTERSHOULDKNOWBETTER. state is hitting Greece hard, as it is a few other European states. You can only steal at the point of a gun from the productive for so long before the productive realize that it is no longer worth the effort to continue being productive.

The US and Canada are not as far away from this point as we might hope. In the US only about 10-20% of the population are net tax payers. The rest pay no taxes at all, work for or are retired from government (directly or indirectly), or receive government benefits that exceed the net taxes they pay. How do you deal with that situation long term.

The two main fears would be loss of the money in the case of a bank failure and loss of purchasing power through a forced currency conversion.

In the first scenario, bank deposits are guaranteed by national authorities in the EU, but if your national government is broke and starved of Euros, how will you be made whole again if multiple banks fail? Even if you're a die hard supporter of the Euro, your money is gone. So to avoid that loss, you withdraw your Euros from Greek banks and keep them in the mattress or else deposit those Euros in a bank elsewhere, say, Germany, where you feel it is safer. This lack of a central FDIC-type institution is seen as one of the weaknesses of the current EU structure because bank deposits may migrate based on real or perceived weakness in one of the member nations.

In the second scenario, national authorities certainly could forcibly convert any bank deposits into a new currency and is one of main reasons for starting this thread--to observe what actually happens. One day, you discover your bank is closed, the ATM network is shut down, your debit card won't work anywhere and you can't check your online banking account. It's the cruelly festive sounding "bank holiday". Over the next few days or week, your one thousand Euro bank balance could suddenly be converted to one thousand New Drachmas and the banks and ATM machines stocked with new currency.

You can kick and scream all you want but the ATM or bank teller is only going to give you the new currency if you try to withdraw your money at that point. Various capital controls will almost certainly be put in place, such as making it illegal to carry Euros out of Greece (although the authorities will gladly welcome tourists bringing in Euros from outside Greece). The new currency will be worth less than the Euro, so suddenly you have significantly less purchasing power.

It's certainly not an easy thing to do and Greece will break all sorts of contracts and treaties and become an international pariah for a while, but it has happened many times, mostly in places like South America and Africa. It's possible that the government will renegotiate certain obligations and continue repaying them in Euros, primarily from its tourist industry, I imagine. No one knows what the details might be. And let's not forget that all these European countries converted to the Euro not that long ago, so it's not that impractical a thing to contemplate.

It happened in Iceland when they let their banks go bankrupt rather than bail them out and force the bank's debt on the public. Iceland is now one of the fastest growing economies in Europe. It was not fun or easy, but what they did allowed them to clear the books of old debt and start rebuilding.

Greece is not necessarily Iceland.

And they even put the then-prime minister on trial (funny, but not a single banker...)

But Greece is definitely not Iceland. And Iceland was still using its own currency, the Krona. And they are relatively energy independent compared to Greece. Importing energy requires hard currency so prices will be high under a devalued currency (they already are, actually, because they're getting energy right now primarily on credit).

As I mentioned in a post yesterday, regardless of the outcomes of the election, it sounds like keeping the lights on is going to be an issue again very soon after a temporary reprieve.