Banks are particularly worried. “Banks and companies are starting to finance their operations locally,” says Thomas Mayer who until recently was the chief economist at Deutsche Bank, which, along with other financial institutions, has been reducing its risks in crisis-ridden countries for months now. The flow of money across borders has dried up because the banks are afraid of suffering losses.
Or does this mean that they’ve run out of “Other people’s money”?
The people at the Fed are lucky that the Euro is collapsing. That is the only reason that they can get away with keeping interest raters so low. But like everything else, there will be a day of reckoning.
≤}B^)
This reminds me of the Aesop fable of The Boy and the Filberts (nuts). A boy reached into a jar and grabbed as many filberts as his hand could hold. But his hand was so full that he could not withdraw it from the jar. Unwilling to let go of some of the filberts so he could withdraw his hand with *some* nuts, in frustration he broke down and started to cry.
In this case, the European leaders are so bound and determined to not even temporarily let go of a failing country, so that its economy can be fixed, that they are threatening to destroy their European economy. And, they are crying in frustration over the unfairness of things.
A reasonable way of dealing with this problem would be to split the very small economy of Greece off from Europe, temporarily, and restore the Drachma as strictly an internal currency of Greece. Outside of Greece the Drachma would be worthless, but all business in Greece would have to be done via the Drachma.
The way to resolve the two currencies is to create a third currency controlled by the ECB, used only by banks and governments, as a buffer currency. This would allow the ECB to purchase anything the Greeks produced for export at somewhat inflated prices, and sell the Greeks what the rest of Europe had in surplus along with essential things, like pharmaceuticals, not produced in Greece, at somewhat a discount.
Nobody would loan the Greek government a dime, so if they spent a Drachma more than their tax revenues, it would become instant inflation. So they would about have to have a balanced budget, by hook or by crook.
But if they could just tread water for a few years, their economy would stabilize and improve, and eventually the Drachma would achieve parity with the Euro.
Realistically, however, the European leaders are too greedy and bound and determined to keep reinforcing defeat that they will never let Greece go until the rest of Europe is falling apart as well.
Natural selection, I suppose.
I can hardly wait for my next Porsche 991 to go on sale for $36,000 USD!
Eventually Greece will decide to leave...minutes before it is kicked out. The ensuing chaos will serve as a warning to other countries as to what can happen to them if they do not “play ball”. IMHO this may take one to two years to occur. In the meantime Euroland will continue to kick the can down the road until there is greater stability.