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The REAL Reason Greece Matters For Investors
The Greek drama continues.
The process thus far has been along the following lines:
1) Greek Prime Minister Alexis Tsipras states publicly that he is confident that a deal will be met because Greece is willing to compromise.
2) Tsipras then refuses to compromise behind closed doors with EU officials.
3) Tsipras tells the media and Greek citizenry that the EU is evil and is attempting to enslave Greece.
This process has been maintained for over five years now. This only further illustrates one of my central themes: everything in Europe is about politics.
Europe as a whole is socialist in nature. You will never hear a discussion of “how involved should the Government be in the economy?” in most of Europe; it is just assumed that the Government should always be involved a large degree.
The question is whether it should be a lot (the public sector accounts for 30% of jobs in Germany) or almost entirely (the public sector accounts for 56% of jobs in France).
When more than one in three people are employed by the public sector in one form or another, everything is driven by politics.
The best example of this, of course, is Greece.
Greece has been and remains a fiscal basket-case for three simple reasons:
1) The Government attempts to employ as many people as possible even if it makes absolutely no sense to expand the Government workforce.
2) The Government pays WAY above what the work requires (on average public sector wages are 150% of private sector wages and most employees receive pensions equal to 92% of their salary at retirement).
3) Greek culture not only embraces, but celebrates tax evasion (so there is little Government revenue to finance all those overpaid bureaucrats).
The level of fiscal insanity goes above and beyond anything you’re likely to see.
Consider the Greek metro system. It takes in €80 million in annual ticket sales… and spends over €500 million in salaries.
There is a word for an entity that spends over SIX times its annual revenues on employee salaries… it’s bankrupt.
This sort of scam is endemic in Greece. Anyone from pastry chefs to hairdressers and other services-based sectors can retire at age 50 and receive a pension equal to 95% of their salary.
Suffice to say, the Government payouts are extreme.
Unfortunately, Greek taxpayers don’t want to fund it. Greece has a population of 12 million. Less than 5,000 of these individuals report taxable income of more than €90,000.
Put it this way, less than 0.01% of the Greek population claims it makes more than €90,000 per year in salary. This for a country that has over 60,000 individuals with investments of over €1 million… and those area simply the individuals willing to admit it!
The effort that goes into this subterfuge is staggering. In 2010, the Greek tax authorities began using satellite imagery to target Athens homes with swimming pools (a sign of wealth). Only 324 Greeks claim to have such homes in Athens. The satellite study found nearly 17,000 homes with pools before an enterprising Greek began selling pool covers that look like a normal lawn.
Simply put, in Greece we have a bloated bureaucracy that pays exorbitant salaries and pensions in a culture that goes to great lengths to hide its wealth/pay taxes.
Greece however is not the REAL issue for Europe. The REAL issue concerns the derivatives trades that are backed by Greek debt.
Modern financial theory dictates that sovereign bonds are the most “risk free” assets in the financial system (equity, municipal bond, corporate bonds, and the like are all below sovereign bonds in terms of risk profile). The reason for this is because it is far more likely for a company to go belly up than a country.
Because of this, the entire Western financial system has sovereign bonds (US Treasuries, German Bunds, Japanese sovereign bonds, etc.) as the senior most asset pledged as collateral for hundreds of trillions of Dollars’ worth of trades.
The global derivatives market is roughly $700 trillion in size. That’s over TEN TIMES the world’s GDP. And sovereign bonds… including even bonds from bankrupt countries such as Greece… are one of, if not the primary collateral underlying all of these trades.
Greece is not the real issue for Europe. The entire Greek debt market is about €345 billion in size. So we’re not talking about a massive amount of collateral… though the turmoil this country has caused in the last three years gives a sense of the importance of the issue.
Spain, by comparison has over €1.0 trillion in debt outstanding… and Italy has €2.6 trillion. These bonds are backstopping tens of trillions of Euros’ worth of derivatives trades. A haircut on them would trigger systemic failure in Europe.
In short, the EU’s worst nightmare is a debt haircut or debt forgiveness for Greece because it opens the door to Spain or Italy asking for similar deals down the road.
And that’s when you’re talking about REAL systemic risk.
It’s coming…
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Interesting analysis of the unreal social state built up in Greece that's a microcosm of the entire West but also the fact that no one wants to pay for this socialist utopia.
The far larger take away from this article is the instability of "The global derivatives market [that] is roughly $700 trillion in size."
ANY losses like from a Greek, Italian, Spanish, Irish, French financial crisis could topple the entire global economy like in 2008.
Few realize the hidden Western Black Nobility central bankers controlling most of the global economy, through their callous greed have now put the world in great peril.
It's not entirely the public's fault that they have adopted unsustainable bloated governments.
Our hidden rulers through their control of news, movies and education have promoted so called "progressive" and socialist agendas to make the masses
dependent on Big Government. This is all part of their plan for centralized control over the entire world.
I thought for a minute, this article was about the US. I'm in Maryland, and if 1/2 the residents either don't work for the Government or get an Uncler Sugar check, I'll kiss your ass.
On Broadway.
And give you 15 minutes to draw a crowd.
And sign a release so you can post it.
Dude everything you write is probably logic- but markets have never been rational anbd have their own dynamics- so you wanna be right or clever?
your company strategy has been a total failure-markets are soaring for 7 years - you have been wrong 4 years!!!
You are not wrong for 1 -2 years!- 4 years!! That is elimination of capital if you are short!
So Dude - it doesnt matter if markets are crazy- your investment strategy has been losing alot ...
ofcourse we will see a huge correction in the future but you didnt adopt yourself to the Hft machines and specially to QE implemented by the central bankers!
you should be very disappointed ...!!! Still you have the guts to write same symphony for 4 years!!!!
Tax evasion as a way of life isn't all bad.
"Keeps the size of Government down" that's fer sure.
Greece actually has a budget surplus ironically.
"Ah, but the cold, cruel logic of Mr Market speaks" indeed.
"PHOEEEEEENIX CAPITAL."
What are we talking? Ten apartments in Tuscon?
You know it's bad when even Arizona wants to ban solar energy...
I think the author has it right on this issue. Thanks for the article.
expose usury & the worlds debt problems will go "poof" and it's gone... hence few people are ever taught genuine economics, rather than the current 2+2=5 nonsense being smashed into our kids heads at school. Expose zionist jews usury, get rid it NOW
I don't know if Greece is right or wrong. Who is to say that they are wrong if there are enough people willing to produce for the country. They have housing. They have food. They have clothes, medical and entertainment.
The problem is that the whole money system is bogus. There is no rational basis for money, the way it is currently used. All it currently is, is a vehicle of slavery implemented by those who have a monopoly creating it over those who cannot create it and need it because the control system, maintained by force demands that it is so.
A step outside the box to view the system for its ridiculousness will show you everything you need to know ... and you will most likely wonder "are we insane?".
That being said, I do not know of a better system as long as there are those who believe that they have the right to live parasitically off of the rest of us and demand we do what they want us to do. Will those entities (maybe people) ever change? I hope they would but believe they are so emotionally and socially retarded that there is no hope for them. (The irony is that they believe they are superior and have the right to both rule and prevent us from knowing truths that they have kept hidden)
Fact is, Greece would never have been able to maintain such profligacy if there was an actual monetary system in place that forced countries to work with what real, tangible assets they have on hand.
Without the usury aspect, it'd be like having no crackheads because crack was never invented. But since financial crack exists, we have financial crackhead addicts, and pushers all too willing to hand a round out "for payment later"
Sounds a lot like the US/Iran Nuclear negotiations. The Mullahs continue to call for the death of America while Obama says trust me, there's nothing to worry about.
Yeah, but Obama is addressinig the Iranians when he says that.