Tag Archives: Occam’s Razor

Don’t Expect Big Changes To The EU With Regard To Greece

Occam’s Razor is in effect here.  Although it would be a lot of fun to watch the fireworks if Greece were to leave the EU and default on its sovereign debt, I’m not selling tickets to that show.

It’s pretty simple:   If Greece leaves and defaults on its debt, it will trigger the financial nuclear bomb bank credit default swap OTC derivatives daisy chain that is embedded in every big western Too Big To Fail Bank.  My bet is that Deutsche Bank and Morgan Stanley would be among the first casualties.   The ECB and the Fed can not allow that fuse to be lit.

On the flip side, if Greece were to leave, revert to the drachma and print its way out of debt, it would create massive hyperinflation.  Unlike the U.S. $4 trillion QE, for which most of the money remains contained inside the banking system – for now, anyway – Greece would be dropping helicopters of cash outside its banking system.  The entities receiving that money would turn around and dump it for euros and dollars and the drachma would crash, creating massive hyperinflation and complete chaos in Greece.

Neither side of this issue wants either of those two respective outcomes.   Thus, the proverbial debt can will kicked down the road a bit further and the northern European countries will see some more of their wealth transferred to Greece via some kind of debt restructuring that does not trigger derivatives default events and does not force Greece to print zillions of drachmas…

I was opining to some colleagues yesterday that it seemed like both Greece and the ECB member countries were beginning to move off their initial negotiating stances.  This article confirms my view:   Greek Stocks Surge On ‘Creative’ Debt Plan.