Greece has had between two and three bailouts since its debt crisis began in 2010 (depending on what you believe constitutes a bailout). As stressful as the numerous rounds of negotiation have been from 2010 until 2015, Greek leaders have never before floated the idea of default.... until now.
Greece said Sunday that it won’t have the money it is due to repay to the International Monetary Fund next month unless it strikes a deal with international creditors over further rescue funding.
Interior Minister Nikos Voutsis told privately owned television station Mega that Greece is scheduled to repay EUR1.6 billion ($1.76 billion) to the IMF between June 5-19, but the payments cannot be met.
“This money will not be given,” he said. “It does not exist.”
This is a clear warning shot to the Troika. It’s the first time a Greek leader has threatened default publicly. Greece officially runs out of money in two weeks. So this situation will intensify.
I expect we’ll see greater volatility as a result. The general trend for the Euro is down, but there will be sharp “relief” bounces based on rumors and innuendos from any Euro “official” who wants the Euro to remain intact.
The Euro comprises 56% of the basket of currencies against which the US Dollar trades. So any Euro weakness will push the Dollar higher. This in turn will force Oil and commodities lower (as well as the stock market indexes for countries that derive most of their economic strength from commodities).
Will Greece default or is this a bluff? The larger implication is that Greece may be the straw that breaks the proverbial camel’s back: a Greek default or breakup from the Euro would, trigger considerable US Dollar strength.
The long-term US Dollar chart predicts a move to 120 in the coming months. The impact this will have on all asset classes will be severe. There are over $9 trillion in borrowed US Dollars sloshing around the investment world today. A move of this magnitude in the US Dollar would implode a significant percentage of this (remember what the US Dollar did to Oil in the second half of last year).
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