By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
A standard prudent business practice is to plan for contingencies. Contingencies are future events that might come to pass, but will not necessarily occur. For instance, companies don’t expect physical disasters, but developing recovery plans for such events could pay off tremendously should such a crisis happen.
It should come as no surprise that governments and central banks do a lot of contingency planning, trying to anticipate different future scenarios. I am confident that plans are in place on what to do should Greece formally default on some of its sovereign debt.
Is it possible that the US government has moved beyond contingency planning to schedule a definite plan of action to manage Greece’s sovereign debt crisis? There are rumors circulating that specific steps are going to be executed beginning after the close of business on Friday, March 23.
I have to insist that these are to be considered rumors, even though they have supposedly been confirmed by sources within Barclay Capital and JPMorgan Chase. However, the scenario outlined is extremely plausible for happening at some point in the next several months, even if it turns out that the March 23 initiation date is a hoax.
According to the sources, the plan is that after markets close on March 23, all credit rating agencies will declare that the Greek government is officially in default on its sovereign debt. Over the weekend, all Greek bank accounts would be frozen to prevent the flight of capital, with a limited list of emergency exceptions.
When markets reopen on Monday, March 26, major banks will be instructed not to exchange Euros. All Greek financial and banking markets will be closed for at least one day.
One of the banking sources considers the plan so likely to occur that he has advised his Greek business customers and friends to sell their real estate (leasing it back if necessary), to empty all bank accounts, and to only hold hard currencies (specifically avoiding the Euro).
There are two problems with such rumors. First, they could be false. Second, they could be true. If true, these plans will only succeed if the general public is not forewarned. Therefore, I am writing this column to alert readers that such an event might be planned for March 23. To the extent that these rumors receive a lot of publicity, the plans for March 23 will not work and will likely be dropped.
However, if there are plans for a Greek default on March 23 and publicity forces the planners to change tactics, you can then expect the same plans to be executed on some other Friday before or after March 23.
A default on Greek debt is a virtual certainty even with the just announced bailout package that will supposedly enable the Greek government to meet its large March 20 payment commitments. The latest negotiations with Greece’s lenders are for 70% of the face value to be written off as bad debts. It was only a few months ago that the negotiations were trying to write off only 50% of the face value. The longer the process takes to reach any solid agreement, the greater the bad debt write-off will be.
In my judgment, it is not possible to achieve a satisfactory resolution to the Greek sovereign debt crisis. I think it is a matter of how soon, not if, Greece will default.
A default on Greek debt could expand the crisis with the Euro currency. This would inevitably expand to negatively impact all paper currencies. You may not have much time left to acquire safe haven assets such as physical gold or silver in your direct possession.
Even if you don’t want to consider the possibility that the global financial system could soon collapse in disaster, there are simple no-risk steps you can take to protect yourself. The first that comes to mind is to stock up on non-perishable food supplies and necessities like toilet paper, acquiring goods that are offered at sale prices. That way, should financial problems somehow be resolved, you will just consume the items that you purchased at bargain prices.
At any hint of outright Greek debt default or new restrictions on convertibility of any major global currency, expect the general public to rush to stores to lay in food and supplies. If you thought the long lines at gasoline stations during the energy supply crunches in past decades were terrible, you haven’t seen anything yet. The best time to prepare is right now.
Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.
A good column on the potential for Greek default, though I disagree with you on some of the particulars.
First, I think Greece will not be permitted to default this year. A Greek default could cause a CDS blowup. I do not think this will be allowed to happen during a US election year. The French elections are also close as well. No politician facing re-election would want to be held responsible for the disaster that would occur if the CDS do trigger and cause a meltdown.
Second, I think that should we have a Greece meltdown, it will be a very bearish event for the paper prices of metals. It will cause a collapse in the Euro and a massive spike in the US dollar. The US dollar spiking so strongly will probably cause a huge drop in gold and silver prices, similar to what we witnessed in 2008.
I do not think you will see “personal” level supplies of bullion become scarce until the contagion is very advanced, with countries like Japan/Germany/UK/France starting to go under. In fact, bullion sales seem to be slowing somewhat right now: http://news.coinupdate.com/gold-and-silver-eagle-bullion-sales-slower-after-brisk-january-1221/
Greece will ‘not be permitted to collapse this year’? That’s the funniest thing I’ve heard this year, next to all the ‘we’re saved’ rallies in the clusterf*** of the stock market. Greece WILL collapse this year, permitted or not, weedhopper, along with the entire global economy whether you believe it or whether you don’t. COMPRESSIVE DEFLATIONARY CONTRACTION.