Greece Bank Outflows

There was a remarkable graph on Bloomberg today. It just “flashed” by as background to a “Talking Head” statement.

I’ve not found that particular graph (yet…) online, but did run into another graph about as good.

The difference? The one on Bloomberg was about a decade long. It showed Greek bank deposits slowly rising, then dropping, having a “bob up” and then the last couple of years just being a hard drop. This one is shorter term, mostly showing the drop (but not the context).

There is also a very well done report with many more data points on all of Europe here:

http://www.rba.gov.au/speeches/2011/sp-dg-141211.html

There is a lot in that link, and well worth the look / read. I’m going to link to a couple of the graphs here, but realize this is just a ‘taster’ and not the whole meal…

What is the core problem?

Euro Area Government Debt

Euro Area Government Debt

What is the Keynesian Fix?

EU Central Bank Lending Percent

EU Central Bank Lending Percent

What is the effect in the Markets?

As investors globally vote with their wallets…

Value of Greek Bonds vs Face outstanding

Value of Greek Bonds vs Face outstanding

Can you say “Run On The Banks”?

Euro Area bank deposits

Euro Area bank deposits

It looks like Spain is starting it’s ‘roll down’ so I’d put it as ‘next up to bat’ after Greece.

End Game?

So what happens when these graphs are extended forward? Since there is very little in the graphs to indicate that the policies in use have had any effect in changing the trend lines, what happens when they are extended to their logical end?

The Central Banks own all the debt as the commercial banks end up with no deposits. Euro debt rises until the lenders will give no more. The borrowers are repudiating “austerity” and any action that will result in repayment of the debt.

When that point is reached, Greece pretty much must exit the Euro. Folks are “voting with their wallet” that any Greek deposits are not “safe”, even in Euros. Banks with no deposits can not make loans. They are insolvent and collapse. This can be propped up for a while by the Central Banks, but pretty much only if that bank can expand the balance sheet to cover ALL national debt. Government can continue to spend as long as it can print (even if the economy is in the dumper and tax revenues are down) but the Euro Monetary Union rules limit the ability to print…

So there is only one way out of this that I can see.

Greece must leave the EMU zone. That, then, lets the government print drachma and it lets the Central Bank expand the balance sheet at will. The only other path, economic growth from limited government consumption of the net national wealth (i.e. “austerity”) has been taken off the table by the voters; and depositors have seen the writing on the wall and “The Money has left the building”…

Also of interest is that a lot of that money looks to have wandered off to France. One can only wonder what will happen to those deposits now that France has elected a Socialist who wishes to do more of the same policies in France that caused issues in Greece, Italy, and Spain.

One bright note:

Despite an ugly looking Central Bank loans line, Ireland has stabilized due to aggressive addressing of the problem. The private deposits leaving Ireland has stabilized “lately” but still does not look so good. One would like to see an upturn in that line.

Play it forward

What happens AFTER Greece leaves the Euro?

Well, looking at those graphs, and considering the NINI problem in Spain is getting worse, not better: Once Greece gets relief by blowing off their lenders, Spain and Italy can’t be far behind. That, IMHO, will so stress France and Germany that the Euro Zone will need to have a breakup into North, where some small countries will “hang on” around Germany in a Euro; and a South, where each country will return to their own currency and the “Inflate to forget” solution to excess debt. Less clear to me is what France will do. I could see it sticking in the Euro until things get much worse, possibly several years.

That kind of instability will ripple around the world, but will benefit the US Dollar. How much will depend on our next election. If Obama wins, we take a hard core turn to unfettered Socialism as he will have no more elections to face (and has stated he intends to act with a freer hand after the election). If the Republican wins “it will depend” but we will likely get a more austere “government spending” play ourselves and a stronger dollar. (It depends on which Republican wins – the convention isn’t over yet – and on what happens in congress…)

As Germany is the only engine of growth in Europe to speak of (and enjoys advantages from the Euro structure) it would likely cease that function in a Euro Zone reduction. A destabilized German economy is “not good” either.

All in all, it looks to me like a worse “mess” is baked in the cake and there is no way out (other than ways that neither the people nor their governments will even think about; and may be psychologically unable to recognize. Perhaps they can be talked into a vacation in Austria…)

It really is amazing to me how much power a consensus in ‘broken beliefs’ can have. Destruction of entire economies and destabilizing of the world. All it really takes to “fix it” is to limit debt to less than long established safe levels.

Government debt less than 80% of GDP (and preferably as close to zero as possible) and with a long term trend around zero; rising in recessions AND falling in time of surplus.

Annual Deficits average of zero over 5 years.

Tax take under 18% of GDP.

Mortgages with 20% down.

Markets allocating capital.

Why that is so hard for the world to learn is beyond me…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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13 Responses to Greece Bank Outflows

  1. E.M.Smith says:

    On CNBC an announcement that 700 Million Euro have left the Greek banking system…

  2. TIM CLARK says:

    Why that is so hard for the world to learn is beyond me…

    Ditto

  3. adolfogiurfa says:

    They really KNOW, that´s the business!

  4. Jerry says:

    “Why that is so hard for the world to learn is beyond me…”
    50 % of the world is below average, many relentlessly so! See dimocrats/socialists/progressive……….label of the moment

  5. Sera says:

    My prediction: Germany will be the second country to exit the Euro, after Greece. Just wanted to mark that down for future reference. Germany may not have any wisdom, but they most certainly will realise that ‘staying in’ after Greece leaves would be foolish. Probably will end up with a ‘socialist’ union betwix France, Italy, Portugal and Spain with Greece wanting to join.

  6. George says:

    I agree, the Germans will leave IF the French get irresponsible. At some point the German taxpayer is going to get tired of bearing the burden of the less responsible countries and demand that their government do something about it.

    The fundamental problem we have here is that we have a unified currency without unified economic policy. it is somewhat similar to the situation we had in the US immediately prior to adopting the Constitution. Europe is working on a system much like our old Articles of Confederation and their currency is doing about as well as ours did.

  7. Pascvaks says:

    Imagine the shirt on the other back, ‘Zero’ wins (some say ‘O’ but he’s really a ’0′), the Red Eyed Commies retain control in the Senate, and the Stupid Flakes keep the House, all the Mexicans go home and we have to get off our fat ass and go to work at McDonalds, the Unions want higher wages for Government Motors, Truck Drivers, and all State and Federal Employees (including Teachers, Cops, and Firefighters), the price of trash collection goes up and those who don’t pay have their BIG GREEN trash cans taken away, oil-coal-gas-jp4 are banned by the EPA, uspo stamps go to $4, the web is nationalized and it costs $8 to send an e-mail or e-bank (there’s a hell of a “new” labor cost with the Fed Web, they censor everything except porn, and all employees are union waged), all churches and synagoges are closed and made into mosques, all private schools are closed and made into mosques, all GSA employees are authorized 60 day paid vacations in Hawaii twice a year, all post offices in towns and cities with less than 100K people are turned into mosques, all private medical facilities are nationalized and waiting times for all terminal cases are terminal, waiting times for non-terminal cases are programmed to be 50% in less than 5 years (unless you’re muslim, black, naitive-american, and live within 100 miles of a major ocean or great lake –the gulf of mexico doesn’t count unless you’re a native born mexican drug dealer living in the US illegally), and 99 out of every 100 Wal-Marts will close on 21 Jan 2013 if your state voted for Romney.

  8. adolfogiurfa says:

    @Sera: And…to my surprise: The US will follow Hugo Chavez “21st.Century Socialism”; his first step was to change Venezuela´s constitution, making a “constitutional congress” , parallel to the elected congress, in order to write a brand new “socialist constitution of the 21st.century”. His argument was that the original was faulted as it served only to the rich.
    Interesting times indeed!….Buy more popcorn!
    Before the light of dawn may shine, the darkest hours are yet to be lived.
    While ye have light, believe in the light, that ye may be the children of light…

  9. adolfogiurfa says:

    However…..then there came Destiny, dressing in a long black robe, carrying a crab in his right hand and put it on the dictator´s head, whispering at his ear: You are the son of the dark and when the dawn shines you must die forever, for the times of evil have ended and the sons and daughters of men must inherit the land you and your ilk have usurped.

  10. George says:

    That outflow from the Greek banks is even higher today: $894 million in a day. They are fearing a reintroduction of the drachma and so are withdrawing euros.
    http://worldnews.msnbc.msn.com/_news/2012/05/16/11729795-greeks-withdraw-894-million-in-a-day-is-this-beginning-of-a-run-on-banks?lite

  11. adolfogiurfa says:

    @George: It menaces to go beyond that: Just imagine Germany leaving the Euro too: Gotto burn all those Euros up, right now!…..Gold will boost for sure; there is no alternative, not even the US dollar, now suffering of a printing fever.

  12. E.M.Smith says:

    @Sera:

    Interesting idea….

    With France joining the Socialist Freebies To The People side… Just who IS for an expensive Euro? Germany and ???? So if the Greek exit takes long enough, and {France, Spain, Portugal, Italy, etc.} vote to “Bugger the Euro”, might it not make more sense for Germany to leave and make the Mark… and then everyone else can keep their debt and loans and all in Euro…

    Hmmm…..

    @Pascvaks:

    Um, having a bad day? ;-)

    I think the USA is orthogonal to the Euro issues…

    @George:

    Thanks for the update!

    @Adolfo:

    Lots of choices. Yen. British Pounds. Wine collections. Large diamonds. Land in Chile ;-)

    All folks need to do is spend it. Buy 6 months worth of canned and dry goods, for example. Few folks have enough cash in the bank to do that and have a load left over… Very rich folks will just move their 20,000 Euro to Swiss Francs or Yen or a London British Pound bank and be done.

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