The Big Crisis, the one in which entire countries go bust, has begun. It will not unfold in a matter of weeks; these sorts of things take months to complete. But it has begun.
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 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.
This process will be spreading throughout the globe going forward. Indeed, the FDIC has proposed precisely the same “bail-in” program if a “systematically important financial institution” were to go belly-up in the US.
Greece just took a hit… and once again it’s depositors that will take it on the chin. But this process is only just begun. Similar Crises will be spreading throughout the globe in the coming months.
This process has already begun in Europe. It will be spreading elsewhere in the months to come. Smart investors are preparing now BEFORE it hits so they are in a position to profit from it, instead of getting slaughtered
At the end of the day, the “Greek” issue is in fact a “debt” issue. And Greece is just a drop in the ocean of debt sloshing around the financial system.
High school students, even those who are borderline-failing their SATs, have a better understanding of economics and job growth than Washington bureaucrats.
