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Guest Post: The Only Way Forward Is To Accept Reality: Default Is Not The End Of The World
Submitted by Charles Hugh Smith from Of Two Minds
The Only Way Forward Is to Accept Reality: Default Is Not the End of the World
The catastrophe isn't default, it's "extend and pretend."
Unwelcome crises are part of life. What's unnatural isn't crisis, it's pretending that life should be nothing but a smooth, uninterrupted rise in consumption.
Yes, I'm talking about Greece and the EU. The situation is somewhat analogous to finding out your total cholesterol is over 300. Gee, I thought I was eating well, and was in pretty good shape... alas, that was all wishful thinking; normal is 180. At 300, you're at serious risk of long-term health problems.
So the European Central Bank injects 120 billion euros of "medicine" to cure you, and a year later your cholesterol readings are 395. Hmm. The "medicine" didn't work; instead, it actively prolonged and deepened the crisis.
Humans need time to accept new realities, and to make necessary adjustments. People lose their wealth, they adjust. They lose their successful careers, they adjust. They face health crises, they adjust. This kind of wrenching adjustment is not abnormal, it is utterly normal.
Cholesterol at 300 is a crisis. We need to drop that 120 points down to 180. Everything about our lifestyle has to change to deal with this reality. So we go through a period of adjustment to the new reality. Sometimes the adjustment period is wrenching. People have to give up much of their lifestyle. But denying reality doesn't help, and bemoaning the pain don't help, either; both of these responses actively hinder the adjustment.
I was interviewed Saturday evening by guest hosts Paul Vigna and Ina Parker on the John Batchelor WABC radio program, and the topic was (unsurprisingly) Greece. Both Paul and Ina asked good questions, and so my primary aim was not to ramble too long or incoherently. (Who knows if I succeeded or not.)
One of their questions spoke directly to the central issue: "If Greece defaults, what happens next?"
I answered that Greece goes through a re-set, a painful but brief period of adjustment, and with the bad debt gone, then the economy would be cleared for new businesses to take root.
The Eurozone debt "crisis" is nothing but another credit cycle, in which debt expands beyond the carrying capacity of consumers and economies. Debt then contracts as uncollectable debt is written down; borrowers go bankrupt and their remaining assets are auctioned off (if they put up collateral; if not, then tough luck, lenders, you blew it and will have to suck the entire loss). Insolvent lenders are also declared bankrupt and dissolved.
There is absolutely nothing unusual about this cycle. Impaired debt is renounced and the system is purged of bad debt. Once the economy has been cleared of garbage, so to speak, then everyone can stop pretending and start dealing with reality. Businesses will be able to start up in a transparent and open market.
The world does not end. Life goes on. We were threatened and bullied in 2008 that the insolvency of the U.S. financial sector would trigger the end of civilization, but it was just another lie: life goes on.
The "doom and gloom" view (of which I am proponent, I suppose) is typically categorized by the Mainstream Media as a stubbornly negative insistence that "the world will end." While there is certainly a contingent who espouse that, in my view "doom and gloom" is not predicting the end of the world--it's just predicting the end of the Status Quo.
That's a key difference.
The Status Quo in Euroland is unsustainable. Last year's "fix" fixed nothing; it only deepened the pain and stole a year from those who could have used that time to make needed adjustments to reality.
It would be better for all involved if Greece defaulted on 100% of its debt and left the euro currency. Imports would instantly become very expensive in the new currency and so Greece would have a chance to build a balanced, productive economy that wasn't dependent on debt. All the banks who made the predatory loans to Greece would go bankrupt--good riddance to them all. If the ECB also goes under, so much the better.
Regardless of the shrill cries that civilization will end if lenders go belly up, life goes on. "Extend and pretend" only prolongs and deepens a crisis. "Doom and gloom" is the recognition that new conditions apply and the old way is unsustainable. Nobody likes hearing that, but it is the only way forward.
Greece, Please Do The Right Thing: Default Now (June 1, 2011)
Ireland, Please Do the World a Favor and Default (November 29, 2010)
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If Greece defaults?!??!
These fools still think its avoidable.... we are so screwed.
Happy Fathers day. I just returned from a very nice meal with 'my' clan. I adore them! The deal was: If my short EUR/USD dipped to the right place, I would pay for a meal out together.
The meal was great. We loved it.
Thank you TYLERS.
If you people didn't do what you do, I would still think that the 'drudge' was cutting edge 'news'.
I really do love you guys and I appreciate what you do.
Yes, I am drunk. I'm only drunk though because I'm hurt. Blah on forever, you people are good:)
Yes, I am also serious. I love you people. You are good.
Happy Fathers day. I just returned from a very nice meal with 'my' clan. I adore them! The deal was: If my short EUR/USD dipped to the right place, I would pay for a meal out together.
The meal was great. We loved it.
Thank you TYLERS.
If you people didn't do what you do, I would still think that the 'drudge' was cutting edge 'news'.
I really do love you guys and I appreciate what you do.
Yes, I am drunk. I'm only drunk though because I'm hurt. Blah on forever, you people are good:)
Yes, I am also serious. I love you people. You are good.
Ok, we got it the first time. Have another drink. You'll need it for the information that's coming down the pike from ZH.
Tyler, do you have the statistics that show how much greek ( and for that matter spanish-portugal-ireland ) debt is held by the Euro banks? I can't find the great chart in the NYT which shows the cross holdings, this article http://www.economist.com/node/18560535?fsrc=rss talks about the smaller German banks and the Corporate risk from default.
How much capital do these banks need to cover a default? Is the ECB going to step in like the FED and rescue them by printing Euros? How much greek debt does the FED have vis-a-vie the IMF? Have to wait to find out what is in the other Asset category I guess.
It does seem impossible for these governments to cut and and or grow their way back to a a balanced budget so that they can start to actually restructure their debt.
I guess my question is do these banks have enough Tier 1 capital to absorb loses on their sovereign debt portfolios? I believe the answer is no, just trying to get some more definitive answers. 0 hedge for 1yr and 43 weeks. Thxs
these figures were 'easily' available from Euro Banks: Stress Test 1 ...the thorough research that passed all the Irish, Greek, Portugese and Spanish banks (who all subsequently went/are about to go, bankrupt)
...so please refer to the new one, Stress Test 2: Cooked Books - The Sequil... inside this obsiqious, opaque, fraudulent document you should find precisely nothing about the numbers you seek
...please note it also doesn't have the ECB in it, who are bankrupt/insolvent at this point in time
Chin up everyone, it's looking fucking good
It is natural to indulge in the illusions of hope. We are apt to shut our eyes to that siren until she allures us to our death...
Saw this chart the other day - don't remember the numbers but France was on top, followe dby Germany about 25% lower.
Read my lips: There will be no default.
Bankers aren't going to take haircuts. Simple as that.
They'll print money and loan it to Greece (and Spain, etc) till the Euro is worthless.
how anticlimatic for this greek comic tragedy.
http://www.youtube.com/watch?v=eeOHEU7Ykyg&feature=player_detailpage
Yes. Default is not the end of the world ... neither is another $10T in dancing electrons on a computer terminal.
Everything is so dangerous that nothing is really very frightening...
The "extend and pretend" isn't a reflection of our unwillingness to accept reality. It is a practical reflection of these, that kicking the can successfully for six months more may be the difference between a big final bonus before retiring... or not. It may be the difference between another four year term in office or not. Our executives, portfolios, and elections are built around winning in the short term. Why? Because our laws (in the US and EU) don't allow the polity to take back the winnings of the can-kickers. Simple. The guys at the top aren't stupid. They are selfish. And we say "that's fine" by our actions. I was adamantly for a Balanced Budget Amendment, but the whole thing got brushed aside in favor of abortion rights or not, new war or not, BS... and the pork vote-buying machine. We don't need lectures about denial. We need people to f'g think.
Sovereign countries do not need to
borrow money from private banks.
Repudiate the odious debt.
The problem with advising calm and insistence that "it's not the end of the world" is simply this:
If Greece takes some action of that sort, and does not appear to suffer 10's of thousands, or hundreds of thousands of OUTRIGHT DEATHS, then Ireland and Portugal will do the same the week after.
Icelanders already did it.
Iceland defaulted on what? $20 billion?
That's no small amount but realistically it is still small enough that a bank the size of BAC, HSBC etc could hold it all and face default and yet still not face a liquidity crisis. On the otherhand a default of $15 trillion which is mostly held by the Federal Reserve, China and Japan in that order will:
-Send the USD to zero when people realise the notes backing it is worthless and remove your ability to maintain $1 trillion trade deficit that probably accounts for $3-4 trillion in domestic activity.
-Remove the ability for government to spend $4 trillion annually thus further reducing GDP to probably half of current amounts or worse.
-Cause a massive crisis in China and Japan which will send them back a decade, however ultimately once things stabilise both China and Japan will have massive manufacturing capacity equal to 20% or more of GDP ready to be utilised whilst USA has much less capacity.
To be honest I'd love to see USA default, at least there might be a degree of peace in the world after 235 years of constant warfare.
FUCK!
ILLINOIS IS MORE THAN GODDAMN 20 BILLION in DEBT !!!
*Sputters.....
Iceland didn't really default. They just didn't bail out the banks. That's not defaulting.
The Global Bank Cartel is not happy with you C.H.S. Not happy at all...
I doubt they'll be too upset with him.
Firstly, a default -- and subsequent recovery from it -- does absolutely nothing to address the underlying systemic issues. They'll even lend Greece more fiats (after a brief period of mourning) for a second/third/.....nth time around.
Secondly, Rothschild (or Rockefeller) could fully bail out Greece from the petty cash tin that his steward uses to pay the stable boys, if he were so inclined. He wouldn't even notice it missing!
I'm a proud doomer and gloomer.
Sure it will suck, and then you die, but then it won't suck anymore.
Enough already......Greece, Greece, Greece. there are 3 choices, Sink, Swim or tell the rest of the world to fuck-off and start all over again, out of the Eruro.
Its not that complicated that it needs to be brought forth in every other ZH news event.
No way, I gotta see the live shots when whatever happens is announced on said square in Greece.
It might be a good indication how it's going to play out in Ireland and the rest of the PIIGS. This could well be the inglorious end of the EU, Eurosocialism, and NWO dreams ---- and has implications for the Obamao experiment as well.
Junked you. Stop your whinging. Start your own blog and cover what you want.
Pass the popcorn, bitchez!
The rich have nothing to lose..except "losing" a few investors..and some future profits.
Things will be back eventually..Weimar Republic, Japan, Argentina.. It may take a decade for things to recover.
Pain is nothing new, just re-lived..at the cost of others.
Sound economics? Accepting reality? Don't be ridiculous. We're busy running a global Ponzi and you're talking transparent markets. Lol.
Bailouts and Bonuses...that's what this is ALL about.
I thought this was what it was all about...
http://www.youtube.com/watch?v=3kDAsF_dhwM
Hey if people like getting anal raped by banksters, let them say you're too negative. They deserve what's coming to them.
Good Nigel Farage clip from the current "Things that make you go hmmm...."
Farage fears civil war in Greece, predicts military will seize control of Greece.
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/6/18_MEP_N...
It should download and open with Windows Media Player.
If a repudiation of the debt by the lead donkey on the debt trail could cause a cascade of copycats, then I think a military takeover of the lead donkey could do the same. As a result, I suspect should that occur, then citizenry of indebted nations should take a long hard look at how they proceed and seek to avoid a similar conclusion... proactively...
• Summary for Week Ending June 17th
The key releases this week will be...
existing home sales on Tuesday,
new home sales on Thursday,
and durable goods
final estimate for Q1 GDP on Friday.
economic cholesterol
A soft, drawn-out default (keeping the EE intact and Greece in the Eurozone)
rather than a catastrophic one is theoretically possible, but politically unpalatable
to the ruling party. Achieving a small primary surplus goes through undoing so
much partisan pork barrel, cronyism etc that it amounts to the final scene in SAW
-- chopping off your own foot.
Five Stages Of Bankruptcy
1. Denial and Isolation.
2. Anger.
3. Bargaining.
4. Depression.
5. Acceptance.
I think we are at 1.5
I'm thinking more ~3.5ish
What is the tradeable value of this post?
the usa will not allow any bond holders (except gm) anywhere in the world to become impaired. They sure the hell won't allow a domino effect nor will they allow a reduction in bank bonuses. [/sarcasm i wish]
Banksters are still in denial.
"Who gives a shit, it's gone." -- Major League
http://www.youtube.com/watch?v=CNocWHXlc4Q
Stages of Grief:
http://en.wikipedia.org/wiki/K%C3%BCbler-Ross_model#Stages
The stages, popularly known in its abbreviated form DABDA, include:[2]
Denial is usually only a temporary defense for the individual. This feeling is generally replaced with heightened awareness of possessions and individuals that will be left behind after death.
Once in the second stage, the individual recognizes that denial cannot continue. Because of anger, the person is very difficult to care for due to misplaced feelings of rage and envy.
The third stage involves the hope that the individual can somehow postpone or delay death. Usually, the negotiation for an extended life is made with a higher power in exchange for a reformed lifestyle. Psychologically, the individual is saying, "I understand I will die, but if I could just have more time..."
During the fourth stage, the dying person begins to understand the certainty of death. Because of this, the individual may become silent, refuse visitors and spend much of the time crying and grieving. This process allows the dying person to disconnect from things of love and affection. It is not recommended to attempt to cheer up an individual who is in this stage. It is an important time for grieving that must be processed.
In this last stage, the individual begins to come to terms with her/his mortality or that of a loved one.
Seems to me the constitution removes the ability for the USA Federal level government to default on debt, it's funny to see how the constitutional types are quick to ignore this part when they can see a quick way of making decades of excess and grandour fade away.
In reality a default would mean:
1. A instant global depression.
2. A quick recovery.
3. United States with no manufacturing output and no ability to borrow to expand output.
4. Relative economic power would shift further to China, Japan, Germany, Australia, Canada Brazil and any nation that a) has surplus export capacity b) doesn't ignore it's debts.
5. Millions of Americans would become wetbacks as they cross the border to Mexico and Canada to find lucrative remittance based jobs mowing lawns and cleaning pools for $2/hour.
Whaaa? Mowing the Great White North?
Or enduring death by a thousand cuts trying to mow dirt and gravel down south?
America would annex Canada and a small war would break out.
shall not be questioned necessarily equates to cannot default? You're forgetting the golden rule of judicial constitutional construction and interpretation... "what result do we want?"
High cholesterol is good. It prevents you from melting!
How many times have these countries defaulted before? It's old hat for them.
Why is it so different now? Someone is always left holding the bag and the world
goes on.
Debt slaves or default to be free...Their choice.
JUBILEE!!!! 50 years! Wipe it all clean and start over.
Just like wetlands, all that bad stuff filtered out of the river as it goes from Mountains (Of crap) to the Sea.
Want a scoop?
Why aren't the news media mounting a 24-hour vigil outside any facility likely to get the drachma-printing contract? Because they WILL need them in a hurry and plans are likely NOW underway...
EURO ZEVON
Well, I went to the doctor
I said, "I'm feeling kind of rough"
He said, "I'll break it to you, son
Your shit's fucked up."
I said, "my shit's fucked up?"
Well, I don't see how--"
He said, "The shit that used to work--
It won't work now."
had a dream
Ah, shucks, oh, well
Now it's all fucked up
It's shot to hell
Yeah, yeah, my shit's fucked up
It has to happen to the best of us
The rich folks suffer like the rest of us
It'll happen to you
That amazing grace
Sort of passed you by
You wake up every day
And you start to cry
Yeah, you want to die
But you just can't quit
Let me break it on down:
It's the fucked up shit
Eh - look at it this way - we still have agriculture and we have a surplus of homes in the U.S. of A. So - the first couple of absolute requirements for life are in our favor. We may have to take up bicycle riding - kind of a bitch in winter...but...life will just have to slow down...
On the other hand - watching bankers hurl themselves from tall buildings - priceless.
For those drunk on power, reality is a muffled memory, drowned out by the sound and fury of their self-distraction. But reality is not to be conned. The morning after cometh. What cannot continue, will end. Greece is insolvent and it's all over bar the shouting. The bigger question is which dominoes fall as a result.
If Greeks go back to the Drachma, does that mean my 10,000,000 Drachma note will good again?
We live in a world where the average IQ is about 80... and the average expressed IQ of "leaders" is about 50. Make that 30.
The cure for "too much debt" is not "more debt". A freaking 4 year old knows this, and he is correct. However, what do you expect in a world where the lenders create what they lend out of nothing by pressing a few keystrokes? What could be easier? What if they don't pay? No problem, just create more and more and more nothing. And since they control the cops and military, who will stop this insanity, right? Right.
Greece: DEFAULT.
Everyone who is deep in debt: DEFAULT.
On the other hand, the infintesimal fraction of you who borrowed from someone who actually earned and saved the funds they lent you... you must pay back what you borrowed.
The rest of you... DEFAULT.
That's a good way to cure your addiction to debt too. Hopefully nobody will offer you more debt after you default... for a while at least. But that's the problem with pure fiat, fake, fraud, fiction, fantasy, fractional-reserve mumbo-jumbo... the lenders don't produce a thing, and really have nothing to lose. Their worst case scenario is... they retire a few years early with $140,000,000 savings instead of a few years later with $360,000,000 savings. Freaking gangsters, all of them.
Get this in your head. If somebody works their ass off for decades producing goods, and saves part of the goods they produced and traded for (hopefully gold), and they lend that to you... they are screwed (badly harmed) if you don't pay that back. So pay it back. However, you borrow from a predatory pervert bankster who simply types a few numbers on a keyboard to credit your debt, he loses nothing if you default (except in the extreme case, he retires a bit early... and rich). So get out of debt... default.
Individuals and countries must re-learn how to grow organically, which means from savings (that is, previous production). Ditch the debt and swear it off forever.
DISCLAIMER: I've never borrowed a penny. So I don't advocate default because it benefits me. I'd rather live in a world where people are free, not slaves to debt and the predator-class who enslaves them.
I hope Greece pinches a loaf on the IMF showing the world it has balls.
http://www.youtube.com/watch?v=QVVHTBAA-VU
http://www.cnbc.com/id/43426068 The S&P could be bound for a correction of 40 percent or more in the next three years, according to a research paper issued by Universa Investments, otherwise known as the “Black Swan” fund for its affiliation with author Nassim Taleb.
“At current valuations…there is…a 20 percent chance of a well-over 40 percent correction in the S&P 500 within the next few years,” argues the paper, authored by Universa chief investment officer Mark Spitznagel.
The Dao of Corporate Finance, Q Ratios, and Stock Market Crashes (June 13, 2011)
http://www.universa.net/UniversaSpitznagel_research_20110613.pdf
There does not have to be a finality, something that defines the end. It all just becomes something else. Individuals will die, but the circus will continue. It always has up til now.
But where to make the money, or perchance survive?
There's the rub.
IF we (USA) r doing same "extend and pretend" what is difference? same game different part of globe we DONT have and WONT ever the $14Trill ...
This post is so simple. So elegant. So true. Yet, it is never discussed as a realistic alternative. Because there are a lot of idiot parties who would lose everything if it came to pass.
Imports would instantly become very expensive in the new currency and so Greece would have a chance to build a balanced, productive economy that wasn't dependent on debt. All the banks who made the predatory loans to Greece would go bankrupt--good riddance to them all. If the ECB also goes under, so much the better. – Charles Hugh Smith
Bravo! Charles Hugh. Take the microphone away from the bankers and give it to Charles Hugh Smith.
The banks are doing the talking. And they are handling the negotiations. It is their solvency they are talking about. It’s time to stop listening to G-Pap and Juncker and Trichet and Ackermann and Merkel and Sarkozy!! And start listening to Charles Hugh!!!!
Default is not the end of the World.. look at 2008 when the World Flipped Out! over lil ole' Lehman Brothers / others went Belly Up!
A National Default will be fine.. no worries! the World is ready for such stresses! given recent history and the ease with which those much, much smaller defaults were handled.
"Default is not the end of the world"
No, it's the end of this world.
Ready.
Grease has likely experienced a digital bank run, the gov't is insolvent, their tax system is corrupt and the Gresians are rioting in the streets. Sound normal?
completely agree
Default is nothing more than a Perception! He with the most XAG, and Aircraft Carriers calls the shots. Look @ this Libya N.A.T.O. fiasco!
Yep the more bailouts the worse. It would have been easier in any earlier step to default, and it will be harder the more they try to keep Greece from defaulting, but it will come no matter what they try. The sooner the better for getting past it.
It is best for the one being subsidized to continue the charade as long as possible. The person receiving the subsidy is at no greater harm by keeping the game going.
I believe it was the pirate Blackbeard or Lafayette who observed it made no difference if he drowned in three feet of water or ten.
It is best for the one being subsidized to continue the charade as long as possible. The person receiving the subsidy is at no greater harm by keeping the game going.
I believe it was the pirate Blackbeard or Lafayette who observed it made no difference if he drowned in three feet of water or ten.
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Financial crises are a normal and healthy response to misallocation decisions. Sure they sweep up a lot of innocents and ruin them too, which is one reason governments try to paper over them rather than let them run their course.
Ever increasing doses of moral hazard and government micro management makes the situation worse in the long run.
The long run is inconveniently ocurring now.
This is the foundation from which financial conservatism is built... funny how no one champions it, despite it being demonstrably true and incredibly obvious for that matter... I guess it would be a strange thing for someone to desperately seek a position of power only to vote himself impotent.
Financial crises are a normal and healthy response to misallocation decisions. Sure they sweep up a lot of innocents and ruin them too, which is one reason governments try to paper over them rather than let them run their course.
Ever increasing doses of moral hazard and government micro management makes the situation worse in the long run.
The long run is inconveniently ocurring now.
The only politician agreeing that "Default Is Not The End Of The World" is...
Ron Paul : http://www.businessinsider.com/ron-paul-were-defaulting-on-the-common-person-all-the-time-2011-6
Why? Because he cares about the people and not the banks!
Voters you know what to do...