The Greek Showdown

A time bomb is ticking in heavily-indebted Greece.

If it goes off - with Greece repudiating its international debts and exiting the Euro currency in a "Grexit" -- the damage could be severe worldwide.

If this southern European nation of fewer than 11 million people halts its debt payments, the future of the Euro currency and even the global economy could be plunged into uncertainty.

If this occurs, no one can be sure whether nothing more will happen"¦.or Greece becomes, as many experts fear, the little rock that could trigger an economic avalanche and devastate the global economy.

The assassination of one Archduke set in motion the falling dominos that produced World War I, caused the deaths of between 15 million and 50 million people, and changed the political landscape of the entire world forever.

To an outsider, the issue in Greece might look simple - with Europe using pressure to collect debts run up by one small, free-spending deadbeat nation.

In this White Paper we will explain why many economists warn that trying to collect these Greek debts will almost certainly fail - and is not worth the terrible risk.

We will show you the hidden secret behind this new currency, the Euro, that has ensnared Greece and several other European nations -- including, ironically, the powerful nation that conjured the Euro into existence.

This matters urgently to all of us because Greece is not the only nation that has gone hopelessly deep in debt by using this month's credit card to pay the minimum required on last month's credit card bill"¦.to daisy chain itself into unpayable debt.

Nearly all the major world powers have done likewise, including the United States.

As a result, the entire global economy today is an economic illusion pasted together using trillions of faith-based fiat paper dollars, other currencies and magically created paper instruments such as derivatives.

We are living in an economic mirage of wealth conjured out of thin air.

We are all Greeks looking for someone else bearing gifts to bail us out of the mess that now ensnares us.

The chaos in Greece could become the finger-snap, the "wake up" call that breaks this hypnotic spell, the pinprick that pops the balloon of our money itself and causes the entire global economic house of cards we have built since the era of World War I to collapse.

We can all feel the instability, the sense that the avalanche is coming soon, that things have been piled up to the breaking point and are about to give way.

We see Greeks frantically withdrawing what money they can from their bank accounts before the bank doors are locked, as they were during the bank seizures in Greek-speaking Cyprus in March 2013. Today they are fleeing before capital controls are imposed and collapse happens. Those in Greece's bank runs are doing what they can while their money is still accessible and has some value.

Your survival instinct should already be sounding alarms. You need to be taking precautions now, shedding high-risk paper investments and diversifying into assets that cannot be run by the trillions off a printing press or that are denominated in dollars.

Greece may have reached the end of what it is able - or willing - to pay on its debt.

On June 5, 2015, Greece did not make its scheduled, required payment to the International Monetary Fund (IMF) - invoking a little-used option to put off that payment and three others, totaling €1.6 Billion [$1.8 Billion], until the end of June.

Greece took this step, the New York Times reported, because its creditors refused to release €7.2 Billion ($8.06 Billion) from the international Greek bailout program until the Greek government signs a new deal to honor its debts.

Greece for years has asked for debt relief and paid its due debts by asking for additional bailouts, concessions and loans.

Now the creditor-representing "Troika" - comprised of the European Central Bank (ECB), the IMF and the European Commission -- have finally told Greece, in effect, "Enough"¦.stop pretending to pay your debts to us with our own money while making your debts bigger!"

Greece's response was to postpone the payment due and enter into negotiations full of bluster and threats, insisting that a new deal be reached to further provide Greece money and ease its debt terms.

"We're 18 Euro countries that have commitments," said Finnish Prime Minister Alexander Stubb of the 19-member Eurozone, "and then there's Greece, which has demands." [1]

A run on Greek banks withdrew more than $2 Billion from accounts in only three days as emergency negotiations were scheduled for Monday, June 22, 2015. While the European Central Bank rushed in billions to sustain liquidity, economists called it a coin flip whether Greece's banks would be able to open on Monday morning.

Whatever the negotiators decide on such days of crisis and panic, Greece will continue to be highly risky no matter what deal might be signed or bookkeeping gimmicks agreed upon.

One expert who would rather not push Greece to the breaking point is Milan's Bocconi University adjunct finance professor Marcello Minenna. He has proposed one of many compromise ideas: a 16-year "bond" structured so that Greece would acknowledge its obligation and keep paying $8 Billion each year of its $352 Billion debt to creditors - but creditors would effectively agree in the end to write off at least half of this huge uncollectable debt. [2]

Greece has already been given huge gifts. In May 2010 the Eurozone and IMF gave Greece a "rescue package" worth €110 Billion ($148 Billion). In 2011 a second bailout was needed amounting to €130 Billion ($173 Billion) in a deal that included a 53% reduction in Greek debt to private creditors and a giveback to Greece of any Eurozone central bank profits on Greek debt.

Greece has had little hesitation in borrowing more and more. It has promised, and then mostly reneged on its pledges, to reform its financial policies and behavior in exchange for these previous rescue payments and debt reductions. The Troika now distrusts Greek promises, both because of broken past agreements and the reality of Greece's situation, which is stark.

The unemployment rate in Greece is currently around 27 percent for adult workers and above 49 percent for young workers.

Greece's banks have been hemorrhaging money in late June 2015 at the rate of more than $2 Billion every three days. Those who can are taking their Euros out of the country, even if this requires paying Greece's special tax on cash.

Other Greeks, paradoxically, are rushing to buy new cars while they still have money left in Euros. Many, in a classic financial "flight from paper fiat currency into things," are fearful that the government will seize their Euros and replace them with new Drachmas, run off printing presses by the billions that will be hyper-inflated and have no purchasing power. Greece could thus monetize at least part of its debts while expropriating citizen Euros to pay the rest. [3]

Weeks ago the radical-leftist Syriza government enacted a law that empowers the government to confiscate citizen retirement accounts, among other things. Similar laws are being created and used in many other countries, as we document in great detail, and show how to escape them, in our forthcoming book "We Have Seen The Future"¦And It Looks Like Baltimore," to be published in Summer 2015.

In the long run, Greece today appears to be a doomed country. Who will invest in a country run by anti-capitalist radicals eager to expropriate any wealth that arrives? The best and brightest young Greeks are fleeing in search of jobs and opportunity, and so are older citizens with their life savings in Euros.

As it has elsewhere in the world, socialism is literally destroying the vital life force that economist John Maynard Keynes described as "animal spirits," source of the optimism and self-confidence needed to embrace the future.

Greece's fertility rate - the average number of babies women give birth to in a nation - has plummeted to 1.34 and continues to fall. Merely sustaining a population requires that on average each couple has 2.1 children. Like the rest of socialist Europe, Greece is far below the birth rate needed to thrive and grow. It faces demographic doom.

We explored the implications of national fertility rates and why they change in our 2010 book The Inflation Deception: Six Ways Government Tricks Us"¦And Seven Ways to Stop It! In this book we analyzed the birth decline in Europe, documenting that the Greek fertility rate was then 1.37. Greek fertility has continued to fall. [4]

Under the collectivist policies of President Barack Obama, America's fertility rate has also plunged to far below replacement rate at 1.84. Here, too, socialism and Progressivism cast their shadow as the anti-human ideology that kills the human spirit, enterprise, civilization and life itself.

After World War II much of our planet experienced a baby boom. Eurosocialism, wherever it is imposed, apparently causes a baby bust and a death spiral towards extinction.

Even if Europe and Greece find a way to kick the can a bit farther down the road, this will almost certainly involve compromises that leave Greece with a heavy, ultimately unpayable debt burden for many decades to come.

Greece will remain a basket case and potential trigger for economic chaos no matter what happens in 2015, and prudent investors should promptly diversify their assets to protect against the range of risks and dangers this could cause. Such diversification is wise in any event, but with Greece acting as an explosive wild card, doing such diversification has become more urgently important and needs to be done.

Greece's Prime Minister Alexis Tsipras, who was an ardent Communist in his youth, is playing a weak card hand as forcefully as he can. Here is part of what he knows:

If Greece renounces its debts to other Eurozone nations and abandons the Euro, leftist political parties in other nations - such as Podemos ("We Are Able") in Spain - may demand that their countries do likewise.

If this first domino falls, no one knows how many other countries might fall away from the Euro and undermine the fragile unity of Europe, which accounts for roughly 25 percent of U.S. trade.

Germany and the EU now face a possible lose-lose situation. A few possibilities:

If Greece leaves the Eurozone, political pressure will build among the other relatively poor PIIGS countries [Portugal, Italy, Ireland, Greece and Spain] that use the Euro to do likewise.

If Germany and the EU bail Greece out by forgiving and covering even more of its debts, then the other PIIGS countries will understandably demand the same debt help that Greece got"¦.and will feel discriminated against if they do not get it.

Germany, the richest and most powerful country in continental Western Europe, might lose face if it backs down in fear of what tiny, poor Greece might do. This could prompt many other nations to see Germany as a country that can be pushed around.

On the other hand, if the Troika and Germany crush and further impoverish Greece and force it out of the Eurozone, Germany may be blamed for setting in motion the forces that sank Europe's currency challenge to the global power of the U.S. Dollar and the continent's attempt to create a superpower United States of Europe to rival the United States.

Many pundits have assumed that if Greece abandoned the Euro, it would go back to its previous currency the Drachma, which Athens might attempt to print in huge quantity to monetize its debts with fiat paper legal tender.

This, however, is by no means inevitable. Greece's new leftist Prime Minister is of the Syriza Party (an acronym for Synaspismos tis Rizospastikis Aristeras, which in Greek means "Coalition of the Radical Left," the Greek word for left having the same root as "aristocracy"). He was elected in January 2015 by promising to end the austerity that the Troika imposed on Greece to pay foreign debts, has met with leaders of the BRICS (Brazil, Russia, India, China, South Africa) nations and might join them through China's new challenger financial rival to the U.S.-led World Bank.

Global wars are now underway that involve not only terrorism but also currencies. This coming October the International Monetary Fund (IMF) might move to end the U.S. Dollar's privileged monopoly status as the Global Reserve Currency by granting elevated status to the Chinese Yuan/Renminbi currency. We explore the open and hidden ramifications of what this could mean in We Have Seen The Future"¦And It Looks Like Baltimore, out this summer.

To pry Greece away from the West, China and Russia might offer financially-weak, symbolically-important Athens ways to distance itself from dependence on either Euros or Dollars. Greece might be invited to use this alternative global reserve currency.

This, in turn, might help seduce some of the other PIIGS nations into leaving the Eurozone. Great Britain never joined the Eurozone, but its victorious Tory party has promised voters a say in whether to leave the European government"¦.and an exit by Greece might give impetus for such a Brexit by the British, who have already cozied up to the new Chinese bank. [5]

If the IMF and Greece take such steps, the value of the U.S. Dollar might plummet, potentially devastating those whose savings are held in fiat paper dollars or in dollar-denominated stocks, bonds and other instruments.

If Russia and/or China rescue Greece, this might greatly increase their standing in parts of Europe"¦.in effect, blurring the once-bright Cold War lines that separated East from West, Right from Left, and American-led NATO from the Soviet-ruled Warsaw Pact. Europe's independence and solidarity have already been altered by dependence on relatively cheap Russian natural gas pipelines. [6]

Russia and China probably have enough economic problems of their own and would rather not want to become sugar daddies of a profligate little dependent like Greece - unless they want its Mediterranean seaports for their warships.

Millions of Greeks would prefer facing European debt collectors and remaining a member of the North Atlantic Treaty Organization (NATO) to having their nation turned into a Cuba-like colony financially dependent on Russia or China. Many Syriza zealots, however, might be delighted to rule in such a collectivist satrap.

Even if the Greek situation does not cause an immediate collapse, it is setting forces in motion that make major economic dislocation in Europe and the world more likely because the economic sins of Greece are in many ways only a miniature version of the borrowing, spending addiction and self-delusion of our world's largest financial powers. We are Greece.

One faction of the radical leftist Syriza Party-run Greek Government now has proclaimed that Greece should never pay any of these "odious" debts at all, and has argued that the banks of Greece's largest creditor, Germany, should instead pay Greece reparations for Nazi occupation of their country during World War II, in an amount equivalent, they claim, to one-third of Germany's current entire Gross Domestic Product.

In our 2014 book Don't Bank On It! The Unsafe World of 21st Century Banking, we explained the deeper origin of this new currency, the Euro:

The Eurozone was intended to have a disciplined common currency that should give Germany an advantageous trading position with neighboring, Euro-using nations. Some saw it as Germany's third attempt to conquer Europe in the 20th Century, this time with economic power instead of tanks and bayonets.

What German policy miscalculated was that some Eurozone nations, especially the PIIGS - Portugal, Italy, Ireland, Greece and Spain - would be offered large loans by banks that assumed Germany would ultimately pay any such debt to keep Euro nations from defaulting. The PIIGS were intoxicated by the multi-billion-dollar credit cards they were offered as Eurozone members, and they spent like drunken teenagers, running up huge debts that they could not pay when the global economy slid into recession.

From Germany's point of view, the result has been a nightmare of more than $600 Billion worth of bailouts, with never-ending pressure to do more. [7]

The biggest PIIG, per capita, devouring such bailouts from German savers and taxpayers has been Greece.

In our 2013 book The Great Withdrawal: How the Progressives' 100-Year Debasement of America and the Dollar Ends, we examined other facets of what the Euro really is:

During the 20th Century, Germany in two World Wars came close to conquering Europe. Both times it was driven back in part by American might embodied in our industrial heartland centered on Detroit.

In 1999, Germany began its third attempt to conquer the continent, this time via trade and economics. Its main weapon of choice has been a new currency launched that year called the Euro.

"¦[W]e have identified the Euro as Germany's Deutschmark in disguise, because through its position as the dominant economy in Europe Germany can largely control the Euro.

Germany's objective was to establish economic hegemony over the rest of Europe. Its aim was to turn the peoples of other nations there, who could not match Germany's wealth and productivity, into "Euro-peons." [8]

Short of total debt forgiveness, which is a precedent Germany is almost certainly afraid to establish (lest other nations conclude that the "Greeking" wheel got the grease and imitate its refusal to pay), the only way out of perpetual debt and decline for Greece would be to restore economic growth, more jobs, and prosperity.

However, who will invest in a Greece run by socialists eager to expropriate capitalist profits? And without investors, where will growth and prosperity come from?

The Germans and Troika find Greece's behavior especially troubling because the Greeks apparently have the ability to pay far more. Greece, for example, reportedly has gold reserves of 112.5 Tonnes of gold worth approximately $4.338 Billion. Unless its bullion has been rehypothecated and committed as collateral elsewhere, Greece could pay its immediate obligations without begging for more handouts merely by using gold, the perennially reliable asset. [9]

For its part, Greece had done fairly well in the decades immediately following World War II, with its economy and Drachma currency implicitly backed by American aid, tourism and the dollar. As we explained in our 2012 book The Great Debasement: The 100-Year Dying of the Dollar and How to Get America's Money Back, American taxpayers helped create the European democratic socialist welfare states by putting our nuclear umbrella over them as protection against the Soviet Union, and this freed money they otherwise would have spent on national defense to go into welfare spending instead. [10]

By the 1970s, however, the Arab oil embargo and the ascent of leftist politics put Greece on a downward spiral of debt, dependency and in some ways the culture of Boss Tweed and other city political bosses.

"Public employment grew by fivefold from 1970 through 2009 - at an annual growth rate of 4 percent," wrote Greek economist John Sfakianakis. "Over the same four decades, employment in the private sector increased by only 27 percent - an annual rate of less than 1 percent." [11]

This expansion of government patronage jobs has meant that roughly 28 percent of those still employed in Greece today are government employees in a system where, as Sfakianakis wrote, "[w]ages in the public sector were on average almost one and a half times higher than in the private sector." [12]

In some government agencies, wrote Sfakianakis, experts estimated that "overstaffing was considered to be around 50 percent," and employees were given pay increases based on tenure, not competence. Pensions for government employees are lavish, and early retirement became commonplace. [13]

Such government employment in Europe's socialist welfare states is not unusual. Italy, France and even Germany have more than Greece's 28 percent of their workforce as government employees. [14]

A London School of Economics and Political Science analysis by two Greek scholars concluded that as the Greek government employment bloated, the quality of services delivered to taxpayers went from bad to worse. One thing worse than a costly welfare state is a costly welfare state that does not even deliver the goods it promises. [15]

"The peculiarity of the Greek public sector is the large size and exorbitant public expenditure on wages," they wrote, "but also the low efficiency along with extremely low quality of services for citizens." [16]

Both of Greece's political parties that took power after the end of military rule in 1974 took turns expanding the government and the welfare state to create a way to reward cronies and entrench a constituency of government-dependent voters for themselves.

Onto the private sector, they "increased the taxes to unhealthy levels and risked a recession to protect their clientele in the state apparatus," acknowledged a former Greek finance minister, Stefanos Manos. [17]

"Government spending on public employees' salaries and social benefits rose by around 6.5 percentage point of G.D.P. [Gross Domestic Product] from 2000 to 2009, while revenue declined by 5 percentage points during the same period," wrote Sfakianakis. The government's solution to this, in addition to raising taxes, "was to borrow more." [18]

Thus Greece's debt grew and wealth was diverted from private workers to government ones, from the "makers" who created wealth to Greece's parasitic "takers" who devour it while producing far, far less.

"Our research has shown that an employee in the private sector contributes 17,000 Euros more per year to Greece's gross domestic product (GDP) than a public sector employee," says University of Athens economics Professor Giorgos Bitros.[19]

According to Professor Bitros, most Greek reforms have been implemented against the private sector, not the government sector, of the economy. [20]

After adopting the Euro as its currency in 2001, Greece found such borrowing easy. The reason was that creditors assumed they were no longer lending to high-risk borrower Greece, but to a nation of the new Eurozone whose debts would be backed up if necessary by the richest and most credit-worthy of all European nations, Germany, to protect the Euro.

Banks from Germany and elsewhere rushed to offer fat loans to PIIGS nations that never dreamed they would ever be lent so many billions just for the asking. As Germany soon learned, its unwitting mistake was to open the door to giving almost unlimited credit to profligate nations like Greece.

Today we hear Greek Prime Minister Alexis Tsipras, whose far-left Syriza Party was voted into power in 2015 on a pledge that it would block any further austerity demands for employment or pension cuts by Greece's creditors, declaring such cuts essentially unacceptable and inhumane.

Such cuts, of course, would also directly target the power base of Tsipras' Big Government party. This may be why Tsipras has defied Greece's ancient democratic tradition and blocked all attempts thus far to have a public referendum on what policy the nation should follow.

Greece may have little future, but to understand today's events, it helps to remember Greece's large past.

Greece and its colonies ruled much of the Mediterranean 2,500 years ago. Ancient Athenians invented democracy, and Greece's great thinkers developed philosophy, mathematics, poetry and drama.

Perhaps the greatest ancient Greek achievement, however, was defeating huge invading Persian forces at Marathon in 490 B.C. and at the sea battle of Salamis in 480 B.C. These victories ushered in a Hellenic golden age.

Had the Greeks lost these battles, you might be reading this text in Iranian/Persian Farsi - and the history of the West would have become Oriental despotism.

Heavily outnumbered Greek soldiers saved Western civilization. Without them we would not be celebrating the 800th anniversary of Magna Carta this year. Imagine our world with no Bill of Rights, no elections, no economic or personal freedom. Greece single-handedly halted this invasion that would have Orientalized Europe.

Athens fatally overextended its military reach in the Syracuse expedition, which we compare with America's recent military risk in and around the Persian Gulf in our 2012 book The Great Debasement. [21]

And beyond this, in 334 B.C. a young military genius, Alexander the Great, invaded and conquered Persia, Egypt and parts of India. He brought along his childhood tutor, the son of the Macedonian royal physician. This tutor was Aristotle, the Greek philosopher who taught the West logic and scientific thinking.

Because of Alexander and the Hellenistic culture he spread, the New Testament would be written in Greek, and Egypt would have a Macedonian queen named Cleopatra. By then, Greece itself had been conquered by the rising empire of Rome, but the Western half of Rome would itself fall half a millennium later.

The eastern half of the Roman Empire, however, from its capital Constantinople (now Istanbul in today's Turkey) survived and thrived as the Greek-speaking center of Orthodox Christianity and deceptive "Byzantine diplomacy" until 1453, less than 40 years before Columbus discovered the New World.

The Byzantine Empire survived so long, in part, by producing the world's most reliable gold money, as we have discussed in our writings. They also perfected the deception of escorting visiting diplomats through a series of treasure caves with many rooms, tricking the visitor into believing the empire's wealth was vast by quickly moving the same treasure chests from a room just visited to another about to be seen.

The Byzantine Empire sent missionaries into Russia, converting it to a variant of Greece's Cyrillic alphabet and to Orthodox Christianity. Today Russia's President Vladimir Putin reportedly travels in the company of Russian Orthodox clergy, just as centuries of Czars did before him. (As Machiavelli wrote, "The Prince must appear to be religious.") It is easy to see where Prime Minister Tsipras learned his Byzantine guile, and why he and Mr. Putin feel at home in each other's company.

In 1453, Muslim Ottoman Turks overthrew the Byzantine Empire and would rule Greece itself until 1829, after Westerners such as the British poet Lord Byron had died in the struggle to win Greek independence.

For the Ottoman Empire, fighting on the Axis side during World War I blurred into the Greco-Turkish War. Between 1914 and 1923, up to 900,000 Greeks were killed. A million Greek Orthodox Christians fled from Turkey into Greece, and 400,000 Greek Muslims fled into Turkey.

The Nazi occupation during World War II killed 8 percent of the Greek populace, with many non-Communists like writer Arianna Huffington's mother fighting in the Communist-led resistance movement. The highly polarized politics after the war were replaced from 1967 to 1974 by a military junta, followed by socialist rule for 20 years starting in 1981, the year Greece joined the European Union.

In 2001, Greece joined the Eurozone, replacing its own Drachma currency with the Euro.