Tuesday, June 30, 2015

News Note: Update on Greece

This is still a fluid situation so we really don't know how this will turn out. So below is just a quick bullet point list of what we know at this point and also the seemingly strange twists that this is taking.


- Greek PM Tsipras called for a referendum of the Greek people to decide if they want to accept or reject the deal being offered by the creditors. This caught everyone by surprise.

- Strangely, the referendum was scheduled several days AFTER the deal on the table would no longer be legally available, so we have to wonder what the thinking was there

- Greece requested an time extension on their debt payment until after the vote. The IMF and the other creditors refused the request.

-Greece also made one last ditch new offer which was also rejected.

- The payment due the IMF was officially declared to be "in arrears" by the IMF. The IMF uses strange terms in order to avoid calling a default a default for whatever reasons. It may be to avoid problems with derivatives.

- Angela Merkel states that no further negotiations will take place until after the vote in Greece on July 5th. This is also strange since the Euro group has already said that by the time the vote takes place, the deal will have expired. So I am not sure what negotiations she means.

- Despite all this, we are told the Euro group plans to meet again in the morning as if it might be possible for further talks to take place before the vote.

-Strangest of all. If the Greeks vote "yes" to the deal, they are voting yes to a deal that the Euro group says won't exist by that time. Also, the current Greek government is hinting they will just walk away and resign if the vote is yes. If you think all this cannot get stranger, you would be wrong if all that happens. The Euro group would be left trying to "negotiate" a deal they say would no longer exist with no one on the other side to talk to. What could go wrong?

My added comments:

I will just confess that I have no idea what is going on here. Both parties are acting strangely to me. At times it seems like they both do not want to make an agreement for some reason. All you can do is just guess at what each side is really thinking or trying to do.

Whatever they are trying to do, I believe one thing will stick in the minds of all the people directly involved and the general public watching this around the world. We clearly have a significant failure on the part of the officials the public has trusted to prevent these kinds of things from happening. If this situation goes south and millions of people get hurt, no one is going to care about the finger pointing done by both sides to try and blame the other side.

The bottom line will be they failed the people. The system will have failed the people. Many people are already very suspicious of those in charge of the present system. I see that all the time in doing research for this blog. If this mess in Greece ends up a monumental failure, many more people will be joining that list all over the world. 

Many people in Greece blindly trusted that the leaders involved here on both sides would not allow a situation to unfold where they have to stand in line and hope they can get enough money to buy food next week. You can be sure the rest of the world is watching this and taking mental note. And they should be.

Jim Rickards points out that in a complex system one event can cause a "tipping point" where a herd mentality takes over and people lose confidence in the system in mass. He uses a simple example. He says imagine you are in a movie theater with a hundred other people. At first, a couple of people get up and walk out for some reason. The rest don't really pay much attention to that. But then several more get up and leave more quickly for some reason. Now there is an uneasiness is in the theater. When several more jump up and quickly head for the exit, a "tipping point" is created and a mass panic move to the exits ensues. Everyone wants out at the same time. Most of the people don't even know why they are trying to get out. They just see everyone else leaving and assume something is very wrong.

Right now, Greece may be just a couple of people leaving the theater. But the rest of the people in the theater are watching. If they see people in Greece suffer from being cut off from money they thought was safe in the bank (or even worse have their money confiscated in a bail in to save the bank), more money is going to start exiting the system all over the world. This is what is at stake for those in charge. I hope they realize that if they lose the confidence of too many people a tipping point can be reached. Once too many people lose confidence, sometimes it cannot be regained until the entire system is rebooted with different people in charge. The idea it cannot happen is very foolish if you study history at all.

While we can always find some humor in a tough situation (like the crowdfunding campaign to save Greece that made the news today), this is a serious situation. Real people are being impacted and the potential for significant loss of confidence in the system is in play. Hopefully, those in charge "get it". If they are playing a game of bluff or chicken, they are gambling with a lot more than just Greece. Admitting to the public they have failed would be better than the public thinking both sides have been involved in some kind of ego gambling match with people's financial lives at stake. Finger pointing after the fact will only make it worse in terms of public perception. 

Let's hope this gets resolved in a calm way as soon as possible. In that regard perhaps Greece has it right. If they can't ever pay off this debt anyway, they might as well default now and move on. Either way it's going to be very tough on the Greek people for awhile. 

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