A Greek default: consequences for them, the Eurozone and US ?

[steve2470]

I keep reading how horrible a "disorderly default" would be on the world if Greece defaults. How bad would it be ? My info so far is that a default is all but inevitable.

Thanks for your time.

[tama]

1. How horrible would it be

if the whole banking sector was socialized? ECB would quite likely go bankrupt even with Greek default, not to mention chainreaction of defaults of Portugal, Ireland, Spain, Italy, Belgia, banks everywhere etc. Then ECB (fractional reserve about 7%) would need to ask new capital from member states. Not at all sure it would get it, or if it would get recapitalized, would that help anything in the long run - not.

All the efforts to save Eurozone are infinitely more horrible than accepting the inevitable.

If Fed and dollar go down with ECB, ie. sooner than later, even better.




PS: Waky wake up! It's just money, purely symbolic thing, you can't eat it! And the whole purpose of money as debt and interes is to rob natural resources from people to capitalistic parasites who create and control the money. And of course, if we still feel that we need some form of money, there are many systems far better than FIAT based on debt and interest.

[Katashi_itto]

2. Thats why the US will step in and try to bail out Greece.

Destroying the dollar in the process. The system trying to protect the status quo.

[bossy22]

5. how would that destroy the dollar?

How would bailing out a country who's economy is smaller than New Jersey's kill our currency?

If we gave greece enough money to absolve them completely of all their debts, it would cost us half of what the original TARP bill was supposed to cost

[steve2470]

3. information here at BBC:

http://www.bbc.co.uk/news/business-13798000

What would happen if Greece defaulted?

Europe's banks are big holders of Greek debt, with perhaps $50bn-$60bn outstanding. An "orderly" default could mean a substantial part of this debt being rescheduled so that repayments are pushed back decades. A "disorderly" default could mean much of this debt not being repaid - ever.

Either way, it would be extremely painful for banks and bondholders.

What's more, Greek banks are exposed to the sovereign debts of their country. They would need new capital, and it is likely some would need nationalising. A crisis of confidence could spark a run on the banks as people withdrew their money, making the problem worse.

That confidence crisis may spread to overseas banks, which could stop lending until the full extent of a default was known. It might be a repeat of the credit crunch that pushed European and the US into recession three years ago.

*end of excerpt, more at link above*

[bossy22]

6. I think the biggest issue would be the derivatives

The market may be aware of an imminent default but it still has no idea of the entire credit and counterparty risk in the financial system. I think a even an orderly default, if deemed a credit event, could lead to the seizing of the credit markets and another recession. It could be exacerbated also due to the reluctance of Europe to set up a TARP like program.

[Owlet]

4. Credit Anstalt 2.0?

Credit taps run dry for European lenders, setting scene for liquidity crisis.

Remember, Chairman Bernanke, the number one student of the Great Depression, believes it was the bank failures that took place in 1931 Europe that “made the Great Depression great.” In a 2009 conversation with the Council of Foreign Relations the Chairman stated,

"I think perhaps the most critical, in May of 1931, the Creditanstalt, which was one of the largest banks in Europe, failed, which generated a wave of financial crisis around the world. Up till early 1931, arguably the 1929 downturn was just a ordinary — severe but ordinary downturn. It was the financial crises and the collapse of banks and other institutions in late 1930 and early 1931 that made the Great Depression great."


Read more

[bemildred]

7. Part of the problem is that we are all interdependent nowadays.

And such large, highly-interdependent systems tend to be "brittle" and subject to catastrophic failures, like our centralized power networks that fail over large areas every so often.

Wheras with a large number of locally independent service areas, it is much rarer to see a large failure, problems stay local, and remediation and cleanup are modest problems.

And the thing is, it's a lot easier to keep the economy going than it is to start it up again, once you get it stopped.

And a lot of people can get hurt.

[Hawkowl]

8. It's bad for the banksters

If Greece defaults a lot of banks holding their bonds are going to take losses that they don't have reserves for. So they may have to be bailed out. Greece on the other hand will do WELL. They can leave the Euro, devalue their currency and rebuild without endless austerity and unemployment. Iceland did it and so did Argentina.

What has the establishment terrified is that if Greece defaults, leaves the Euro, and recovers fairly quickly, then others will follow. What is the benefit to Ireland, Portugal, Spain, and Italy to continue with 10 years of society crushing austerity when they can simply declare bankruptcy and be on the road to recovery in a year or two? This would destroy modern, fiat, fractional, speculative, corrupt banking! Once the voters figure this out, the world changes...

[bossy22]

9. you do realize that the "modern" banking system

has essentially been in existence since the medieval era? Things have changed in respect to financial products and electronics but the core principles haven't. Essentially there is no other alternative- except a monetary form of the barter system (a monetary system that is completely pay-as-you-go with no concept of credit).

I do not understand why many individuals on this board believe that if we destroy the banking sector this whole new system will pop up and everyone will be happy. All that would happen would be a destruction in the quality of life for all citizens and the eventual rebuilding of a banking system that would look very similar to the one that is currently present.

You can never have a healthy main street without a healthy, PROFITABLE, banking sector

[Hawkowl]

10. Different definitions of "new"

You and I obviously have different definitions of "new". To assert that the medieval banking system is in any way, shape, or form, similar to our modern system is to assert that a small tree dwelling hominid from 50 million years ago is the same as a homo sapien.

We have a fiat based system, medieval based upon precious metals. The dominant political system was fuedalism not democratic republics. Capitalism was a footnote with Mercantilism on the horizon. Usury, meaning charging ANY interest, was considered un Christian, a sin, consequently most bankers were Jewish and Arabic. I could go on, but you should get the picture.

A "new system" doesn't mean doing away with all banks. However, a new system will have to include breaking up huge banks into smaller, more manageable banks. Too big too fail means that the banking system is not robust enough to withstand failure. It would be as if the entire internet was based upon a dozen servers! A revision to the fiat system may occur. The Fed will probably be transformed. MASSIVE amounts of debt need to be wiped clean from the world. Seperation of banking, investment banking, and commodity brokerages, and insurance functions will happen and be much more regulated. That is what I mean by "new system".

[Turbineguy]

11. The problem is not Greece defaulting

the problem is the number of CDS's that vastly multiply the cost. For the owners of those things the default will be very profitable and suck all the money out of the world's financial system. In addition the owners of the CDS's want Greece to default.

Greece should buy default swaps and default. Then they'd have more money than they ever owed.

There's 600 trillion is CDS's to cover about 60 trillion (worldwide) in debt. It's like having all your neighbors buy life insurance on you. They would want you dead so they could collect.