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.