Greece Defaults – Wall Street Underground

By Nick Guarino | July 3, 2015

Greece Defaults on It’s IMF Loan Financial Panic Looms

Greece Contagion Next

Greece’s became the first developed economy to default on a loan with the International Monetary Fund. The IMF is the lender of last resort and to not pay them back is a major “oh shit”.

It will not be the last lender Greece does not pay.

The IMF confirmed that Greece had not made it’s scheduled 1.6 billion euro loan repayment to the fund. As a result, IMF Managing Director Christine Lagarde, will report to the global lender’s board that Greece is “in arrears,” the official euphemism for default.

Greece has received nearly 240 billion euros in two bailouts from the European Union and IMF since 2010. The money has allowed it to stay afloat but at a high cost to its population, which has absorbed draconian increases in taxes, cuts to pensions, wages and public services.

Greece owes close to a trillion dollars to foreign lenders, counting interest. Mostly to highly leveraged hot shot investment banks and funds that grabbed Greek debt in mass because it pays the highest interest rates in the world. See blue line on the chart on the right.

Fears of a Greek default have unnerved financial markets on concerns that it would ultimately lead to the country’s exit from the euro common currency. The fate of Greece’s membership in the 19-nation currency bloc still hangs in the balance ahead of a referendum on Sunday, when Greek citizens will vote on whether to accept the severe austerity terms for continued international aid.

What they are not telling you is, the Greek debt default chain reaction has begin. They can’t throw Greece out of the European Union. If they try, there will be hell to pay. There is no mechanism to remove a member and the Greeks damn well know this. It’s a catch 22. If they keep Greece in the European Currency Union, it will cost them a trillion Euros.

Here is the game. Greece does not even have to default on it’s debt to solve it’s debt crises. Just leave the currency union and go back to the drachma. It can then declare it’s Euro Debt, Drachma debt and discount it 90%. And the Greek economy, banks and merchants can still accept Euros. Problem solved. At least for Greece… It’s an unmitigated disaster for the greedy banks that gobbled up Greek debt with both hands. They are in the fight for their lives to not take a haircut on the Greek debt they hold.

Not all members of the European Union are members of the Banking Union or Currency Union. England and Sweden are examples of just such a situation.

The Greek referendum, scheduled for July 5, is not about EU membership. The vote is whether to accept further draconian austerity. The Greek citizens are right, they have been reduced to abject poverty trying to pay back their massive debt that is twice GDP.

55 countries in similar situations have defaulted in the past hundred years. Greece will be number 56. The reason for all the strife is a Greek default on all it’s debts will bring down major banks. I want to explain to you how Greece plans on defaulting and how this will unfold.

It’s really pretty simple.

This is the first time in IMF history that an advanced economy has defaulted on a loan from the IMF. The lender of last resort. Putting Athens, whose economy has contracted by more than 25 percent since 2009, in the same bracket as Zimbabwe, Sudan and Cuba.

Fitch ratings agency cut it’s long-term rating on Greece to CC from CCC, saying the breakdown of negotiations had significantly increased the risk that Greece would not be able to meet it’s debt obligations in the next few months.

With it’s missed IMF payment, Greece is on a path out of the Euro, with unforeseeable consequences for the EU’s grand project to bind countries through a single currency and for the global economy.

Standard & Poor’s lowered it’s sovereign rating on Greece and said the probability of Greece exiting the euro zone was now about 50 percent.

“What would happen if Greece came out of the euro? There would be a negative message that euro membership is reversible,” said Spanish Prime Minister Mariano Rajoy, who a week ago declared that he did not fear contagion from Greece.

See the game? The last thing the Spin-Meisters of the Euro want or need, is a Greek default or exit from the currency union. That means they’ve got themselves a major problem. What to do with Greece? What the Euro-Meisters are figuring out is, it’s going to be very, very costly to keep the currency union together. If not impossible. Because although not spoken about in polite company. And spun to the contrary. Italy, France and Spain are in big trouble with their massive debts.

The hope was that Europe would fix itself and grow out of it’s financial crises. Well it has not. In fact, things are getting pretty ugly in Euro-land. Reality is dawning that there is no way to grow out of this.

Banks and Funds the world over are in extreme risk of the coming European sovereign nation debt default. European countries (Greece, Spain, Italy and Portugal) pay some of the highest interest rates in the world. Greek debt pays as high as 24% and until they officially default, it’s still sovereign debt.

Every fund and investment bank in the world holds 100 trillion dollars of soon to be worthless European and Greek debt. They scooped it up with both hands because of the sky high interest rate it pays… The truth is, none of them can afford to pay back the massive debt they issued. It’s not just the Greeks who are in a depression and entering default. The truth is, the sovereign debt of Greece, Spain, Italy, France and Portugal will never be paid back.

Why did the bankers loan the 100 trillion dollars to countries everyone knows are dead broke?. Why would our banker buddies, hedge funds and retirement funds buy debt in dead broke, sure to default European bonds?

The answer is, it’s all about the yield and the banking rules that let them hide bad debt till the day of reckoning. Because Greek and European debt is sovereign debt, funds and banks can book the profits now. They can leverage the shit out of the debt and show impressive returns. If your friendly bank trader or your retirement fund manager buys safe, secure, sure to pay U.S. Government treasuries he only gets a yield of 2%.

He cannot keep his job doing that, he has to outperform US yields. If he buys safe debt instruments, he under performs and that means he joins the hundred thousand bankers losing their jobs each and every year.

The pressure to perform is enormous. See the game? What they are not telling you is, the Greek debt default chain reaction is about to begin. If they throw Greece out of the Euro, there will be hell to pay. And to keep Greece in the EU will cost them a trillion Euros. And if Greece declares it’s Euro debt, Drachma discounted debt, it’s lights out.

But it’s far worse than Greece leaving the currency union. Because Italy and Spain are not far behind. For centuries, countries that get into debt problems discount the currency and pay back creditors 10 cents on the dollar. I am sure you remember the Mexican currency devaluation of the 80′s. Investors got creamed.

There are many lessons to be learned from what is happening in Greece. First of all, you need to clearly understand how desperate things are.

According to the IMF, Greece needs another 50 billion in the next 3 years. That is overly optimistic to say the least. The IMF also said, the average debt maturity needs to be extended from the present 8 years to 40. Think about this. It’s untenable.

Now let’s look at what is happening on the ground in Greece. It is a modern day debt default. The first in this global deflation. There is a lot to be learned.

First of all, there has been no deflation. No wheel barrels of cash for a loaf of bread. Instead, just the opposite. A small envelope in cash lets you buy all the bread you want and they will throw in the bakery. There has been massive deflation. CASH is KING. In this case, if you were smart enough to stuff the First National Bank of your mattress, you are making a killing. The bargains are incredible. If you’ve got a little cash, you can buy bargains galore.


Look at the chart. Since the Greek crises has become public, gold, already on it’s recent lows has plunged. Look at the chart.

As you can see, Gold has plunged in value. Why? Because gold is telling you it’s a deflation, NOT,NOT,NOT an inflation.

The Greek crises is why the gold hucksters tell you that you need gold. They tell you government debt is massive and out of control. They tell you there will be a money panic. But as you can see, cash is king and gold is slowly plunging to it’s traditional low of $300.

ATM machines, when you can find one with any cash in it, gives you 60 Euros. Unless you have a foreign credit card and then you can get up to the limit of your card. Now if you go into a Greek business to cherry pick the bargains galore. You can’t give them a check obviously. And obviously they will take cash. But surprise surprise, they will also take your foreign credit card. I want you to think about it. We have seen this is often the case.

Let dead broke Greece go broke. Why keep the brain dead patient alive any longer? And the answer will surprise you. This is not about Greece.

What happens in Greece does NOT stay in Greece

In fact, the Greek crises spreads faster than an Ebola out break in a remote African village. The reason for what seems like stupid intransigence on the part of the IMF and the European Central bank, is not so stupid when you realize what’s next.

It’s about Portugal, Spain, Italy and maybe even France. All have sky, sky high unemployment. All have massive debts that they will never be able to pay back. All have economies, despite the spin, stuck on slow and slowing. And here is the punch line. All have suffering masses who are going to vote in anti-austerity candidates at their coming election.

And that brings down the German Empire know as the European Union. It’s all about money. The proposition is simple. If the Germans can force the masses to cough up every dime they have and live in abject poverty to save the Union, that’s what they want.

The EU experiment has failed. The debts are massive and the last thing the Germans want is a default. See, there are three ways to go here.

1. Bankrupt Germany and the worlds central banks as they come up with even more money to prop up southern Europe.

2. Bankrupt the worlds investment banks and funds as Mediterranean Europe devalues the debt they owe and go back to their pre-Euro currencies.

3. Their preferred method. Squeeze the shit our of the masses and reduce them to slaves, by confiscating their merger earnings to service their ever increasing debt load. This is about taxing them to death and stealing their retirements.

See, if they let Greek off the hook, the other dead broke European nations quickly follow. The stakes are enormous here.

This is all about the loan sharks squeezing the poor debtor. This gives new meaning to a pound of flesh and 4 pints of blood.

As you are seeing, the trading opportunities are stupendous. As are the lessons of how deflation’s work. We will be reporting to you Sunday night and Monday morning as we get results of the Greek referendum.

It’s my pleasure to guide you through this European debt crises. No matter the result, Greek and European debt will be deeply discounted and defaulted on. Whether they call it a default or not… There is no way around this fact of life. Sorry investment bankers and Funds.

Thank You,




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