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Greece's Collapse Was a Reversion to the Mean… Who's Next?

Phoenix Capital Research's picture




 

Because of the rampant fraud and money printing in the financial system, the real “bottom” or level of “price discovery” is far lower than anyone expects due to the fact that the run up to 2008 was so rife with accounting gimmicks and fraud.

 

The Greek debt crisis, like all crises in the financial system today, can be traced to derivatives via the large investment banks. Indeed, we now know that Greece actually used derivatives (via Goldman Sachs) to hide the true state of its debt problems in order to join the Euro.

 

Creative accounting took priority when it came to totting up government debt. Since 1999, the Maastricht rules threaten to slap hefty fines on euro member countries that exceed the budget deficit limit of three percent of gross domestic product. Total government debt mustn't exceed 60 percent.

 

The Greeks have never managed to stick to the 60 percent debt limit, and they only adhered to the three percent deficit ceiling with the help of blatant balance sheet cosmetics...

 

"Around 2002 in particular, various investment banks offered complex financial products with which governments could push part of their liabilities into the future," one insider recalled, adding that Mediterranean countries had snapped up such products.

 

Greece's debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period -- to be exchanged back into the original currencies at a later date.

 

http://www.spiegel.de/international/europe/greek-debt-crisis-how-goldman-sachs-helped-greece-to-mask-its-true-debt-a-676634.html

 

The above story for Greece is illustrative of the story for all “emerging markets” starting in 2003: tons of easy money, rampant use of derivatives for accounting gimmick, and the inevitable collapse.

 

From a big picture scenario, in 2003, the global Central Banks abandoned a focus on inflation and began to pump trillions in loose money into the economy. Because large banks could loan well in excess of $10 for every $1 in capital on their balance sheets, global credit went exponential.

 

The effect was sharply elevated asset prices that greatly benefitted tourism-centric economies such as Greece.

 

As I stated in our issue Price Discovery:

 

If the foundation of the financial system is debt… and that debt is backstopped by assets that the Big Banks can value well above their true values (remember, the banks want their collateral to maintain or increase in value)… then the “pricing” of the financial system will be elevated significantly above reality.

 

Put simply, a false “floor” was put under asset prices via fraud and funny money.

 

Take a look at the impact this had on Greece’s economy.

 

Below is Greek GDP dating back to the 1960s. Having maintained a long-term trendline of growth the country suddenly saw its GDP MORE THAN DOUBLE in less than 10 years after joining the EU?

 

 

In many regards, this “growth” was just a credit binge, much like housing prices, stock prices, etc. By joining the Euro, Greece was able to borrow money at much lower rates (2%-3% vs. 10%-20%).

 

Rather than using these lower rates to pay off its substantial debts, Greece funneled as much money as possible towards Government employees (nearly one in three Greek workers).

 

As a result, Government wages nearly doubled to the point that your typical Government employee was paid 150% more than his or her private sector counterpart. Add to this a pension system in which retirees are paid 92% of their former salaries and you have a debt bomb of epic proportions.

 

In simple terms, Greece from 2003-2010 was an economic boom driven by incomes, which were in turn driven by cheap debt NOT real organic growth. Thus, the collapse in GDP was yet another case of “price discovery” in which asset prices fall to economic realities…

 

Another Crisis is brewing. It’s already hit Greece and it will be spreading throughout the globe in the coming months. Smart investors are taking steps to prepare now, before it hits.

 

If you've yet to take action to prepare for this, we offer a FREE investment report called the Financial Crisis "Round Two" Survival Guide that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.

 

We are making 1,000 copies available for FREE the general public.

 

We are currently down to the last 25.

 

To pick up yours, swing by….

 

http://www.phoenixcapitalmarketing.com/roundtwo.html

 

Best Regards

 

Phoenix Capital Research

 

 

 

 

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Mon, 08/10/2015 - 00:39 | 6408796 Ajax_USB_Port_R...
Ajax_USB_Port_Repair_Service_'s picture

The thing with Greece is like this:

Say you owe Visa 20,000 dollars and your minimum payment due this month is 600 dollars. You call Visa and explain that you haven't got the 600, but you'll try to bring down your living expenses so you can make payments in the future. Visa thinks that is just great! Visa sends you a check for 600 dollars to deposit into your checking account so you can pay your Visa bill.

Repeat this scenario every month. The Visa bill is getting paid. No problems here!

Mon, 08/10/2015 - 00:33 | 6408789 ClowardPiven2016
ClowardPiven2016's picture

Darn it...only 25 reports left and that was as of Saturday at 4:45. I guess I won't even bother thrying to get one.

Sun, 08/09/2015 - 22:55 | 6408623 latoya121
latoya121's picture

 

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Sun, 08/09/2015 - 22:52 | 6408611 latoya121
latoya121's picture

 

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Sun, 08/09/2015 - 18:46 | 6407957 jusman
jusman's picture

Being of Greek heritage, I generally visit every 2 - 5 years.  I recall a trip in 2005 when I went "Huh? What happened?"  All of a sudden, Athens was booming, with a huge new Airport, subways, glitzy stores, and it certainly was NOT the Greece I remembered.  I had to travel inland to small villages to see the Greece, of what, my last visit just a few years back.

Well, seems it was all on credit, and the Greece I loved (back before the credit fueled boom) is on the way back.  

I also had an old girlfriend from Montreal that fell in love with a Greek, and they had this dream in the early 2000s to build a goat farm and make cheese on Naxos.  Everyone said no problem, easy to get loans ... and it was ... for a while.  Then with a lovely big (empty) barn built, and the lower level of a house, no more loans.  All got sold off in bankruptcy.

So it was all a sham, and Greece SHOULD return the path they had before the injection of the Euro.

My uncle was involved on the board of an aluminum plant in Greece.  ALUMINUM!!! That takes cheap energy. OK, Greece may have some bauxite, but the processing takes HUGE amounts of energy.  What were they thinking???

So there seems to be a bit of a correction happening.  Sigh....thank god for tourists (as I will be in just 3 weeks!)

 

Sun, 08/09/2015 - 15:42 | 6407425 PoasterToaster
PoasterToaster's picture

These things are always portrayed as a problem with pensions.  As if buying our way out of our slavery is the problem.

How are we enslaved in the first place?

Sun, 08/09/2015 - 16:13 | 6407490 Mountainview
Mountainview's picture

Greece, as Bosnia and Kosovo, is a European theme park where Brussel subsidized public bureaucrats hinder normal people to do real productve business with a hope to make a living out of it. With the new plan the game will go on. If you call it reversion to the mean, it's a reversal to a pityful mean.

Sun, 08/09/2015 - 18:38 | 6407929 Antifaschistische
Antifaschistische's picture

I believe they are currently a great distance from the mean....at this point, they have just corrected the direction.

Sun, 08/09/2015 - 13:38 | 6407186 logicalman
logicalman's picture

When money IS debt and the banksters write the rules, how can anyone be surprised by the mess we are all in?

 

Sun, 08/09/2015 - 04:49 | 6406468 Peter Pan
Peter Pan's picture

Before Greece can revert to the mean it will actually sink below the mean. The reason for this is that debt has a deleterious effect which makes the economy swing wildly in the opposite direction before it can hopefully (although not assuredly) recapture the pre-boom period.

What the rest of us need to understand is that this reversion to the mean will one way or another be felt by all nations that have over borrowed.

Sun, 08/09/2015 - 03:25 | 6406422 Joe A
Joe A's picture

Don't always like Phoenix's postings but they are spot on on this one.

Sun, 08/09/2015 - 01:56 | 6406346 Kprime
Kprime's picture

Can you say Detroit, Illinois, California, Your State Here ______.  The whole US Fed Gov.

"your typical Government employee was paid 150% more than his or her private sector counterpart. Add to this a pension system in which retirees are paid 92% of their former salaries and you have a debt bomb of epic proportions."

Sat, 08/08/2015 - 20:28 | 6405900 Richard Whitney
Richard Whitney's picture

Greece profited from the Goldman deal; they made money on it. Netherlands had already done the same some time before Greece. 

Back when the EU was making those late Friday announcements about Greece, one particular Friday they made that "It was Goldman" accusation. Which they had to walk back on the following Monday because another country had already done the same thing, and it wasn't the cause of the Greek crisis anyway.

Greece was admitted January 1, 2001. The Goldman transaction was initiated more than a year later. So Greece was admitted long before any Goldman deal.

The EU always knew about the problem of Greece, and chose to look the other way and went ahead on the admission process.

Sat, 08/08/2015 - 20:18 | 6405882 PrimalScream
PrimalScream's picture

Puerto Rico ... next up

Sat, 08/08/2015 - 20:03 | 6405860 fowlerja
fowlerja's picture

Everything is going to be okay...don't you remember the 12 hour ...into the wee hours of the morning...where Merkel and Tsipras hammered out a deal...what... this meeting meant nothing but show?..I am shocked!

Sat, 08/08/2015 - 18:58 | 6405767 tarabel
tarabel's picture

 

Must be one crappy report. They used to be down to 15, now they've got 25. I guess 10 people gave them back even though they were free for the asking.

Sat, 08/08/2015 - 17:40 | 6405604 we built this city
we built this city's picture

Dude this is brainwashing.

 

Same mantra every 3 days ....

 

So far youve been epically wrong!

 

This reminds me of very dark  regimes

Sat, 08/08/2015 - 20:59 | 6405750 messymerry
messymerry's picture

Dude, this is not brainwashing.

In this article, he is right on the money.  Greece is in fact sleeping in the bed they made. 

Everybody knows this party is almost over.  Nobody knows exactly when the music is going to stop. 

When it does, Kaity bar the door.

;-D

Sun, 08/09/2015 - 08:50 | 6406621 RaceToTheBottom
RaceToTheBottom's picture

I am guessing Ireland had the same chart.  Many small countries that ran to the Euro were doing it to get the free money and the they ran into the WS Bankster buzz saw...

Sat, 08/08/2015 - 17:38 | 6405603 KnuckleDragger-X
KnuckleDragger-X's picture

France will be the interesting one to watch since their economy can't support their socialism and taxing the rich didn't work. Germany ain't really doing that great either, but right now they can bluster their way through, but that'll change as more EU countries start wobbling.....

Sat, 08/08/2015 - 22:25 | 6406074 Aussiekiwi
Aussiekiwi's picture

 

Yes unfortunate how proposing to tax the rich in France 75% to pay for their Socialist dream was met by the rich moving their assets overseas and the French Government actually losing money, they thought they could tax the rich with impunity and they would just sit there and take it as that is the Socialist way, they could not imagine anyone taking steps to protect themselves.

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