FinancialEdge: Will The Greek Crisis Affect Your Retirement?

There seems to be something universal about the human fascination with disaster. Although everyone decries those who slow down to look at an accident on the highway, it is probable that everybody has done it. So it is only natural that the ongoing crisis and drama in Greece captures a lot of attention over here. This isn't just about voyeurism, though, as the ongoing crisis may well have long-term ramifications on your retirement. (Find out how to determine whether you're on the path to a comfortable retirement , or financial ruin. See Will Your Retirement Income Be Enough?)

Defaulting to an Older Europe?
Greece has not been kicked out of the euro yet, and nobody seems to be seriously discussing the idea of Greece withdrawing (or being forced out). Nevertheless, it cannot be excluded as a potential outcome. Greece may find that the cost of staying in the currency union is just too high and unpalatable for its people and may feel that going back to the drachma, and the ability to devalue/depreciate the currency, is too useful to ignore.


Continue to the full text:
http://financialedge.investopedia.com/financial-edge/0711/Will-The-Greek-Crisis-Affect-Your-Retirement.aspx

FinancialEdge - Disbanding The Euro - A Worst-Case Scenario

Although the title of this column mentions the worst-case scenarios for the collapse of the Euro, that is not quite what it is about. Instead, it is more about the probable negative outcomes should the Euro go away. If I was to talk about true "worst case scenarios", I'd have to talk about the risk of virtual economic collapse in Southern Europe, competitive devaluations throughout Europe, the risk of less-democratic governments in some areas of Europe, and, ultimately, the outbreak of war as political demagogues pander to financially desperate populations and rile them up with notions that other people/countries are responsible for their problems and must be punished. 

Only time will tell if we are past the worst of the debt crisis in Europe, or simply enjoying a calm amidst the storm. In either case, the crisis in Greece and the fears of its spread into Spain, Italy and Portugal have led many financial analysts and commentators to seriously consider what had once been mostly the domain of crackpots - the notion that the euro could collapse and vanish altogether.

This is no small matter. Of the 10 largest economies in the world, four use the euro as their currency. Roughly 330 million Europeans use the euro every day, while nearly 200 million people use currencies that are pegged to the euro (many of them in Africa). It is also the second most-used currency as a reserve currency, with roughly one-quarter of the world's reserves held in euros. 

For the full column, please continue on to:
http://financialedge.investopedia.com/financial-edge/0610/Disbanding-The-Euro---A-Worst-Case-Scenario.aspx 

Has Europe Risen To The Challenge?

This is a bit out of date now, as it seems like the market has more or less digested the ECB rescue package and deemed it "good enough ... for now".

After seeing punishing increases in interest rates, declines in the euro and chaos in the equity markets in response to slow and unsteady action on Greece, the ministers of the European Union decided to try to get ahead of the next round of worry and launch a massive liquidity measure for its members. The announced package immediately sent the euro higher along with equities of all stripes, but especially those exposed to the financial chaos in Europe.

What HappenedEarly on Monday morning, the finance ministers of the EU announced an enormous liquidity package designed to restore faith in the euro and the solvency of its members. The three-part program is worth almost $1 trillion and it consists of 60 billion euros in loans, 440 billion euros in future loan guarantees and as much as 250 billion euros in funding from the IMF.
  
The full column can be read at: http://financialedge.investopedia.com/financial-edge/0510/Has-Europe-Risen-To-The-Challenge.aspx

Greece: The Worst-Case Scenario

This (http://financialedge.investopedia.com/financial-edge/0510/Greece-The-Worst-Case-Scenario.aspx) went up yesterday afternoon, so I apologize for the late posting.

While there has been a great deal of attention paid over the last few months to the nascent recovery in the United States, the ongoing Greek sovereign debt crisis in Europe is a reminder that there are often long-tail effects to recessions and global economic shake-ups. 


How Did This Happen?What has happened is the result of a long series of bad decisions. The establishment of the euro effectively gave Greece access to a huge amount of relatively cheap debt, but Greek officials did not put the proceeds of this debt to good use. Since the euro came into existence, Greece's ratio of debt to GDP has stayed above 100% and the country ran persistent deficits in excess of 10% of GDP. Ultimately, when investors (and, belatedly, the ratings agencies) realized that the emperor had no clothes, rates on Greek debt began to creep up, and matters culminated in the S&P downgrade of Greek debt to "junk" status on April 27 of 2010.

For the rest, please click on through to:  http://financialedge.investopedia.com/financial-edge/0510/Greece-The-Worst-Case-Scenario.aspx

My Humble Solution To The Greek Crisis

Please note - this is intended as satire, not a serious proposal, nor a political commentary.

I think I have arrived at an easy way for Greece to get itself out of this criss.

Unfortunately for Greece, its greatest days were long before the advent of the modern world and concepts like "patents", "trademarks", and "copyrights". But why should that stand in the way? There have been more than a few retroactive patents awarded in the past, and we in the United States have seen fit to grant patents for things like genetic sequences -- something that no man created, but rather just happened to be the first to find.

So, why shouldn't Greece be allowed to hold a patent on arguably its greatest invention?

Democracy.

Now, I know, Greek democracy (or rather, Athenian democracy) is very different than what we call democracy today. In fact, I daresay Athenian democracy would be barely recognizable to Americans as democracy. But let us not quibble over the details.

According to the Democracy Index, roughly 50% of the world today lives under democracy (be it perfect or imperfect). That's about 3.4 billion people, folks.

Now, when the U.S. launched military operations against Iraq, one of the stated reasons was to bestow democracy upon the Iraqi people (along with eliminating potential WMDs, getting rid of Hussein, and holding him accountable for various human rights violations and terrorist activities). So far, our operations have cost America about $704 billion dollars.

Iraq has a population of 31.2 million people. So, if we allow for one-third of the motivation being democracy, that gives us a price of $7,500 per person for democracy. And for the purposes of this exercise, we'll just treat this as a one-time payment paid by the current generation forever more.

Now, the Greeks being fair-minded people won't charge us that established "retail" price that the United States has paid. Instead, they'll grant a perpetual license for 10% of that amount - really a rather reasonable amount when you look at patent licensing agreements for novel technology and innovation.

Do the math (10% of $7,500, multiplied over 3.35B people) and you get a sum of $2.5 trillion. That is what the world, collectively, owes Greece for the right to use democracy.

So, given that the total outstanding sovereign debt of Greece is only about $400 billion, maybe the fairest approach is to call the whole thing even.

Please note - this is intended as satire, not a serious proposal, nor a political commentary.

From Sons of Athens ... to Sons of Anarchy

Thanks Greece.

Virtually every financial system is built upon a certain level of trust and good faith amongst its members, and Greece seems to have taken up the role of "turd in the punchbowl". Greece basically lied their way into the European Union, gorged on cheap debt, wasted it on unproductive assets, and then turned around and held the financial system hostage with a version of "bail us out … or else!".

Of course, anybody wasting their time bashing on the Greeks is overlooking events a little closer to home. Let's see … lying to get favorable loans, using those loans foolishly, and then whining, wheedling, and begging for a bailout. Where have we seen that before?

Oh yeah, that's right. We did that too.

Now we have the S&P lowering Greek debt to "junk" (way to be on the stick ahead of time, guys … oh wait, we've seen that before too!), Greek 2-year notes yielding about 19%, and a lot of people nervously watching Portugal, Spain, and Ireland for signs of weakness.

Think about that for a moment … Greek 2-year notes are yielding almost 19%. That's like credit card rates. On second that, maybe I shouldn't have said that … Capital One (COF) may soon be seeing a flood of applications from Athens at this rate.

The scary part, though, is how long this could last. Latvia went into crisis a little while ago and even massive cuts to government wages, pensions, and spending (and other austerity measures) didn't help much. Greece, then, could be looking at quite a few years of high taxes, a sharply contracted public sector, malaise, and discontent. Not too many countries have the capability to withstand that, and there could be unrest as a result (as seen a few years back in Argentina).

It's almost a given that the "market" won't be much help here, and the rescue package will have to come out fully-funded by other European countries. On top of that, you're probably looking at wage cuts of 20% or higher as part of the package, and I don't think many Greek civil servants will be happy about that. Worse still, after 12 or 18 months of that, it may still not be enough and Greece may opt to default/restructure that debt and send more ripples of chaos through the market. Simply put, we're talking here about a program that would take four or five years … and that's assuming that Portugal and Spain don't fall over and make it even worse.

In the meantime, a lot of banks have gotten smacked already. Several German and French banks have (or had) major exposure to Greece, with names like Commerzbank, Credit Agricole, Societe Generale and BNP Paribas among them. The damage there is probably already done, but I'd be very cautious around any banks heavily exposed to Spain … or frankly almost any European country at this point.  After all, plenty of British banks have loans on the books for vacation homes in Spain, so you can never just assume a bank in Country X is safe.

Sooner or later, this storm will pass. The U.S. economic recovery isn't heavily predicated on Europe at this point, though chaos in the credit market can quickly become a global issue. But that isn't to say that the fallout won't cause some chaos and hairy days. Expect talk to begin about creating a mechanism to boot out European Union countries that can't get their stuff together, and should the Euro actually collapse … well, that's probably a really good day to own gold (and probably dollars as well, because as messed up as we are, we're not that bad).

Here's hoping the sons of Athens figure a way out of this mess before it gets too much worse.

(Disclosure - I own shares of Societe Generale)