Greek “collateral” damage

Yesterday we posted Bill Holter’s “Mother of all Margin Calls” article.  It describes the ramifications of changes to collateral needs in a highly leveraged, debt laden world.  Now consider we are on the ‘eve’ of yet another Greece debt repayment deadline.  But this time it seems more serious, much more serious.  The IMF have very publicly and firmly said they won’t allow an extension as they haven’t in 30 years.  Greece in pilfering local government accounts this week etc are clearly demonstrating they are indeed broke and simply may not have the choice but to default.  Both sides are saying a Grexit would be bad but possible.  And maybe in our modern world more tellingly, bookies have stopped taking bets on a Grexit as it seems almost certain.

So what does this have to do with that article?  Well it is real banks who hold a lot of this debt and it is so called Tier One capital/asset.  The writedown of such debt requires an increase in collateral to meet covenants.  Greece may not be that big but this is a very very strung out system.  Of course the saviour in such a situation may be the ECB using QE to bail out those banks… you know, with more debt… Our point is none of this is sustainable and it is all starting to feel very much like the final throes.   We will leave you with this quote from the last Hoisington Management Quarterly Review:

“Over the more than two thousand years of economic history, a clear record emerges regarding the relationship between the level of indebtedness of a nation and its resultant pace of economic activity. The once flourishing and powerful Mesopotamian, Roman and Bourbon dynasties, as well as the British empire, ultimately lost their great economic vigour due to the inability to prosper under crushing debt levels.”

The other economic constant over two thousand years is gold and silver’s roles as money, stores of real wealth, safe havens in the ensuing debt fuelled collapses…