Greece has Defaulted and So has Everyone Else

May 31, 2011
Protestor's graffiti in Greece.
(Translation: "Vote for Ali Baba, he only has 40 thieves.)
"In the directors 'opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable."

Directors of corporations big and small are obliged to make such statements, as shown above, in the accounts of the corporation, otherwise they could well be personally responsible for any further debts incurred by their corporation by continuing to trade when the entity is in fact insolvent.

The funny thing is that politicians are not required to make any such statement and are never personally responsible for the mess they leave behind despite the catastrophic consequences to their nation, their citizens and the future. They simply walk away with their full pensions and entitlements regardless of how the nation fared.

The truth is that virtually no politician could sign such a statement because they are fully aware of the precarious nature of their nation's finances as well as the world's economic system.

Greece is currently in the eye of the storm that is brewing in Europe and clearly would have defaulted in 2010 had it not received any assistance. It is now even clearer that its Prime Minister does not have reasonable grounds to believe that Greece will be able to pay its debts as and when they become due and payable without the provision of further loans by Europe and the IMF.

Then again, it's not just Greece but also Spain, Italy, Portugal Ireland and finally the USA amongst many others who are propping themselves up with fictional expectations, fictional money, fictional statistics and fictional calculations. It's not just the accrued debt of these nations along with their current fiscal deficits that is daunting. It is also the insurmountable size of their unfunded pension and medical obligations.

The Europeans will no doubt not allow Greece to default in the legal sense as they would not be able to stem the tide of cascading defaults occurring across Europe. But I repeat, there is no package that will save any nation against the eventual tsunami of unfunded liabilities. There will be great relief when Greece signs the new deal which in reality is just a reprieve from execution. The markets will rise and the fools in Europe will rejoice.

However, until such times as politicians are obliged to sign on the dotted line, making themselves personally responsible for any worsening fiscal situation, we are condemned to spiral towards the economic drain.

Until they are obliged to mortgage their homes, their businesses and the retirement accounts as a sign of good faith and unless they commit their own sons and daughters and grandchildren to the battlefields of this world, there will be no changes.

Until certain members of congress are subject to the same rules and penalties for insider trading as the rest of the population, they will continue to outperform the professional fund managers.

Until government stops harassing girl scouts selling cookies on the front lawn of their home and instead rounds up those bankers that raped the system with arrogant callousness, there can be no faith in justice.

So while they try to prop up Greece, Portugal and Ireland, and whilst the USA can continue to print, it seems that everything will be OK. But it won't. Even a fool with a broken calculator can see that the figures do not add up.

And so what is the bottom line? Well the day arrives when the expectations of citizens far outweigh the means and the savings of government to make good on prior promises. This is what unfunded liabilities really are and at that point war will decide who gets what....because the printing press can no longer delude and denude the populace.

Greece and the others are already in default because they cannot make good on their unfunded liabilities. Legally it may not have happened, but in practical terms the outcome is set in concrete.

Do you have gold and silver?

Here is one "clever" man's response:

"I've never been that fond of gold and also it's too heavy. You could fit $25 million of rubies in your shoe with your foot in it and actually walk around and not feel uncomfortable because there's that kind of concentrated value."

Jeffrey Gundlach

CEO & Co-Founder of DoubleLine Capital

How many of you have entrusted your fiat fiascos to such men? That is what I would call a death wish. In fact Mr Gundlach might be surprised to know that $25 million in gold weighs the same as $25 million in $50 notes and takes up less space.

Dear readers, all nations have in effect defaulted on their future obligations (if not their current ones) and for those of you that understand this point, you are given the precious opportunity of preparing yourselves for the eventual reckoning that will take place once the general populace wakes up with an empty stomach and an angry disposition.

The smarter and better managed economies of Europe will steer clear of getting mixed up with the basket cases of Europe. If they don't (and it looks that way) they will in the fullness of time of time understand what is meant when they say, "sleep with camels and you will wake up with fleas."

If Greeks think that the worst part of austerity is over, then they will be sadly disappointed by the new measures the government will put into effect shortly and the new package she will be offered by her European partners. Tax free thresholds for pensioners, salary and wage earners and self employed people will be reduced, value added taxes will be further increased as will the cost of fuel and heating oil. On top of that, property valuations will be adjusted upwards despite the fall in property values and that in turn will lead to other tax increases. That's right, last years European straight jacket will seem like a mink coat once the new screws are turned.

The Europeans have already indicated that they want to run tax collections and the sale (fire sale) of public property. Who knows, the people might accept such an arrangement if the Europeans promise and deliver on the prosecution of those politicians who literally sucked the country dry with secret commissions and cosy deals over the last 30 years.

In fairness to the current socialist government in Greece, it must be said that many of the changes they have tried to make are necessary, but the number of changes being pushed, the time frame allotted as well as the general world economic climate made a successful outcome highly unlikely from the outset and simply antagonised the populace and accentuated the downturn.

Right now, any European holding Euros as a major portion of their wealth is worse off than the man who has bet on the slowest horse in the race. Slow horses eventually cross the line. What is not so clear is whether the Euro will get over the line or whether it will be dead on arrival by the time this crisis resolves itself.

So which will it be? Unfunded liabilities denominated in fiat or fully funded assets such as gold and silver?

Sydney Australia

Gold is impervious to rust.

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