Greece Defaults…Now What?
The main criminals in charge finished their summit overnight and came up with a grand solution to Europe’s debt crisis. Here it is.
Every private holder of Greek debt will take a 50% loss on the value of their bonds.
This amounts to a loss of 100 billion Euros on the 200 billion Euros privately held. The additional 150 billion Euros held by the ECB and IMF will not take the 50% loss. How nice for them.
The banks and pension funds that own these bonds will be recapitalized by the governments of Europe so the end result is the Greek government gets to officially be forgiven 100 billion Euros to be assumed by other European nations.
The last time I checked the rest of Europe was also in debt up to their eyeballs with countries like Italy, Spain, Portugal and Ireland on the brink of default themselves. Where does the money come from to forgive Greece 100 billion Euros and not have the banks and pension funds that take these losses suffer the consequences?
Somewhere in Europe or maybe even here in America the digital printing presses are getting fired up. The effect of this announcement has been an across the board jump in the price of everything. Stocks, gold and commodities are all up big while bonds and the dollar are down. This is TARP Europe, the next bandaid on the global financial system.
Don’t believe for a second that anything has been fixed. The debt that has been defaulted on by Greece has really just been spread around the world to take the focus off of Greece.
If you are Italy or Spain today what exactly is the message to get from all this?
If you just get yourself so far gone that your country stands on the brink of collapse the rest of Europe will rush in and let you spread your misery equally around Europe. Why cut your spending or raise taxes when you can wait to be saved once you get to the edge of the cliff.
Greece was tiny with a debt of 350 billion, Italy and Spain are a trillion each. Spreading that kind of pain around will not go unnoticed, not that we don’t already have mobs in the streets of nearly every European capital.
If you haven’t prepared yourself for the eventual spiraling of this collapse then you have precious little time to do so. Paper assets will soon be only valuable as toilet paper which may become the most valuable paper you can get your hands on.
Gold, silver, food, water, guns and ammo. These will be the currency of the near future now that the Greek domino has fallen. Global socialism is about to fail in a way the world has never witnessed and yet this too shall pass.
Why 9-9-9 Won’t Lower Prices
It’s being argued that Herman Cain’s 9-9-9 plan will lower prices due to the corporate income tax rate being lowered from 35% to 9% and that these taxes are rolled into the cost of the products. The idea is that the large drop from 35% to 9% for the corporate tax rate will more than offset the new 9% national sales tax being added.
With a simple example I can prove that this is a false premise.
Let’s look at the example of a car tire which is essentially composed of two components, rubber and steel. The companies that produce these basic commodities probably have a fairly low profit margin of about 5% so for each million dollars in sales they only make about $50,000 in profit.
On a million dollars in sales they would have to currently pay 35% of the $50,000 in profits which works out to be $17,500. If the corporate tax rate is lowered to 9% this drops to $4,500 for a savings of $13,000.
The 9% national sales tax would apply to the entire million dollar purchase so if Goodyear makes a million dollar purchase of rubber they would have to pay $90,000 in sales tax. If you assume that the rubber company will pass on the entire $13,000 of corporate tax savings in the price of their product then the net result will be an increase in cost of $77,000 on a million dollar purchase which is a 7.7% increase. They could choose not to pass on this savings which would make the cost even higher.
So now a tire that used to cost $100 will cost at least $107.70 and the consumer will now have to pay a 9% national sales tax when they buy the tire. This will be in addition to any state or local sales tax you already pay. So instead of paying the 5-7% sales tax you currently pay you would be paying 14-16%.
The end result is that a tire that used to be $100 that would end up being $106 after a 6% sales tax will now cost $107.70 plus 15% sales tax for an end price of $123.86. This is a 17% net increase in the final cost to the consumer. That’s a full decade’s worth of inflation.
This does not take into account the fact that all companies need to purchase many things besides raw materials like office supplies, computers and coffee. All of these things would now cost 9% more and that cost would get rolled into the cost of their products.
9-9-9 is a plan to increase tax revenues to the government and allow companies to keep more of their profits to spur reinvestment. It will increase economic growth but it will also put a large burden on middle and low income persons. Like all ideas, it should be debated on it’s merits and fully analyzed for its effects.
Update:
It’s been commented that raw materials may not be taxable under the new national sales tax so this entire argument is invalid.
For certain industries the cost of raw materials is a major cost factor while for others it is much less. Any company with employees that need to travel a lot to conduct their business will have to pay the 9% tax on airfare, hotels and other travel expenses. The cost of computer equipment, cell phones and data services will all most likely qualify for the new tax.
Something else to consider is how little of what we purchase at the retail level is made in America anymore. The corporate tax reduction will have no effect on foreign manufactures meaning no price reduction on imported products.
The point to come away with is that nearly everything you need to live will be instantly 9% more expensive the day after 9-9-9 becomes law while the reduction in the cost of goods is unknown and in my opinion unlikely.
Failure Is Not An Option
Today President Obama announced that all American troops will be out of Iraq by the end of the year. While this amounts to a failure on his part to secure a deal to allow the number of troops he wanted to stay in Iraq to stay, it is actually a great success as far as the country is concerned.
There’s a tongue in cheek saying in my field of software development;
“Failure is not an option, it’s a feature”.
Failure has been the primary feature of this administration and once again it’s the failure to get something done that is the success.
The Greek Domino
I can say with near certainty that global economic system will collapse at some point in the next year. What this means is that the major financial institutions we know and use will shut down and disappear. A major restructuring will occur and for a short period of time the entire system of electronic money will not exist.
This process is going to get under way in one of three ways. Either the current Greek government will give in to the people and default or the government there will be overthrown and all existing debt defaulted upon. Either way, this is the Greek default everyone is scared to death of. The third event will be Germany dropping out of the European Union and replacing the Euro with a new Deutschmark. This will happen one way or another either before or after Greece defaults.
So what exactly is the big deal about tiny little Greece defaulting on their debt? Little Socialist Greece has amassed a public debt that is 160% of what their entire economy produces in a year. Despite making cutbacks to government spending they still need to borrow over 8% of their GDP to fund their government each year. This debt is not being bought by the Greek people the way it is in Japan but is in fact being bought by banks all over Europe. If the value of these bonds were to be marked down to their real value most European banks would be forced to close. The value of the Euro would drop like a stone as people rushed to get rid of the currency and get their money out of banks.
Our government has decided to help the stability of the Europeans by agreeing to swap large amounts of Euros for Dollars to ensure that European banks have enough foreign currency on hand. When the Euro plummets in value our Federal Reserve will be left holding massive amounts of worthless currency that it will have to write down. The global credit market will go completely dry.
How this is handled by the world’s governments and banks is anyone’s guess but the end result will undoubtedly be a leveling of the world’s economies. While this may seem great for someone in Somalia, the average person in America and Britain will find this quite shocking. A person living at the poverty level has an average income of $400 a week in the US and about $8 a week in the rest of the world. Try to imagine those two numbers coming closer together and the reaction that will take place here in America.
Greece cannot get out of this situation. When they fire government workers they end up getting generous unemployment and other benefits. They also stop paying any taxes so the net result of eliminating government jobs there is practically nothing. They are incapable of putting together a balanced budget and already have a debt too massive to ever repay. Delay and prepare has been the policy on Greece for two years but time has run out.
Hundreds of millions of people believe that their future will be financed by the repayment of all this debt. They invested their savings for decades into the safety of government debt and will soon find themselves holding nothing but worthless paper. The repayment of debt that has occurred has only been through issuing new debt to repay the old. Once confidence is shattered and new money stops flowing in the ability to repay will be lost.
Right now the system stands like an enormous pattern of dominoes that continuously is being shaken. So far many pieces have swayed but none have fallen. Once the first piece falls there will not be much time until the last domino drops.
Come to Your Own Conclusion
President Obama and House Minority Leader Nancy Pelosi have thrown in their support for the Occupy Wall Street protests going on worldwide. They are joined in their support by the Communist Party USA, the American Nazi Party and the ruling Communist Party of China.
For only the 2nd time in modern history the Communist party will not be running a candidate in the 2012 Presidential election. The only other time was 2008. They say they do not endorse any candidate but you come to your own conclusion as to why they believe they don’t need to nominate a candidate, again.
Bottom Up, Top Down and Inside Out
Bottom up, top down then turn everything inside out. This isn’t the latest J-Lo dance step, it is the plan to transform the world, to remold it nearer to their heart’s desire.
I’m not surprised if you don’t know who the man speaking in this video is. Van Jones is the former Green Jobs Czar who mysteriously resigned in the middle of a holiday weekend back in 2009 after his radical past was exposed by the new media. He’s a self described communist revolutionary who believes in replacing our current system with an entirely new system of eco-socialism. Having such a man visit the White House should be a scandal of Watergate proportions but he was in fact recruited to work at the White House by Obama’s senior adviser Valerie Jarrett. Do some research on Van Jones and Valeria Jarrett and their role in the Obama White House.
The first clip is from the Glenn Beck show airing almost a year ago. At the time it was crazy to think that people would be rioting in the streets in major cities all across America but if you look at the news today you will find “Occupy Wall Street” rallies taking place all over the country. The press keeps saying these protests are grass roots and don’t have a coordinated message but nothing could be further from the truth.
The Occupy Wall Street protests are the bottom up movement being organized by those at the top. The radicals of the 1960’s have gone from fighting the man to being the man without changing their point of view. They still have the same goals as back then but now they are in power, now they call the shots. When the riots broke out in the 60’s the government cracked down to protect ordinary Americans and end the chaos but this time it will be different.
This time the government is organizing the protesters to help them grow large enough and to cause enough chaos that the average American is going to beg for something to be done. The former street radicals now in office organize with the labor unions, universities and various leftist organizations to fund and promote the street protests. They enlist as many useful idiots as possible to show up clueless as to why they are there but determined to affect change. The radicals at the top don’t care what happens to these people or what they want, it’s their agenda and they will do whatever it takes to bring about their fundamental transformation.
So once the protests reach the point where the government can no longer ignore the pleas of the citizens they will “begrudgingly” be forced to bring the top down, to clamp down with an iron fist to end the chaos. In this case, since those at the top are really one in the same with the street rioters they will also see the legitimacy of the protesters demands and agree to the needed reforms to help end the violence.
This is the trap, how they remold the world nearer to their heart’s desire. The coordinated message of these protests is “End Capitalism” and “Justice and Freedom for All”. Their list of demands includes a $20 an hour minimum wage for everyone whether you have a job or not. What they are demanding is not freedom or justice but in fact welfare and freedom from responsibility. What they in fact seek is the return of slavery to America. This time slavery will not be based on race but on ability, those with the ability to produce will become the slaves of the unable or unwilling masses. How else can you guarantee everyone a $20/hour living wage if their are not many slaves working to produce what they require.
From each according to his ability (Producers produce all that you can)
To each according to his need (Everyone makes the same, only what you need and nothing more)
This is the communist manifesto, the fundamental transformation, the hope and change of our generation. This will be the result of turning everything inside out after the bottom rises up forcing the top to come down and restore order. By this time next year the world will have been reshaped unless an unforeseen miracle takes place.
The Fabian Window shown below depicts the remoulding of the world nearer to the hearts desire that the Fabian Socialists and American Progressives seek. The world is being heated up like a piece of iron upon an anvil ready to be remoulded. Upon the shield is their emblem, the wolf in sheep’s clothing. They will hide their intentions to deceive the masses into supporting their humanitarian cause. They will tug at the world’s heart strings talking of injustice and poverty painting themselves as warriors for the people.
Wolves in sheep’s clothing.
A Look Back
The headlines today at businessinsider.com
“Live: The Crash of 2011”
“ROUBINI: Recession Is At This Point Unavoidable, And It Could Be Worse Than 2008”
I posted the following just over a year ago on my old blog at http://www.fortapopka.com. I thought it would be interesting to revisit what was said and compare it to what’s actually happening now.
June 23, 2010 – The Hoax, the Crash and the War
When all is said and done this year will best be summed up as the great hoax. The hoax will be followed by a crash in 2011 that will lead to the war of 2012. Since I don’t have a crystal ball in my possession the timeline could of course be somewhat different when this goes from being a theory to being history but there are some very powerful milestones that will dictate this timeline.
I’ve discussed on a few occasions the various factors that are contributing to the hoax of 2010 and will result in the crash of 2011.
In summary we have a known set of large tax increases set to kick in on Jan 1, 2011 to go along with the dwindling of government stimulus spending.
Europe is rushing to push through a series of spending cuts and tax increases that will undoubtedly cause their economies to grind to a halt just as they have begun to recover. England has just announced they will raise their VAT tax from 17.5% to 20% starting January 1, 2011. Just like here in America the English economy will manufacture and purchase all they can in 2010 to avoid paying the increased VAT rate in 2011. That increased economic output is the great hoax of a continuing recovery.
So all of Europe and the United States have announced they will raise income taxes on the portion of the population with the greatest spending power.
The English also plan to make the cost of goods considerably higher through an increased VAT rate. This is where the problem compounds itself. The Europeans plan to reduce government spending by cutting benefits and eliminating government employees. In Europe, the percentage of people that work for the government ranges from high to off the charts insane(Greece).Having only had one course in economics I can still see that a combination of higher income taxes, sales taxes and reduced salaries will result in a large drop in consumer spending.
Europe has come to the conclusion that the time has come to tackle the problem head on and let the system hit rock bottom. They are willing to deal with the pain of the next few years knowing that once they get past it they have a good chance of a real recovery once their budget deficits are brought under control. They are a number of years ahead of us in their understanding of the dangers of unsustainable government spending.
Unfortunately our politicians don’t understand the dangers of unsustainable government spending and believe the solution to our problems is even more spending to bolster any part of the economy that is lagging. As the world economic superpower we have become used to being able to do what we want without needing the approval of the rest of the world. That situation is about to change.
Until now the United States has been the best of the worst economically making us the safe haven for investors worldwide looking for a safe place to invest their money. The European union nations now have a combined economy that is the equal of the US and for the first time in history China is now ahead of us in total manufacturing. If Europe succeeds in getting their deficits under control and maintains political stability they will become the safe haven along with China for worldwide investors.
Without the international flow of money pouring into the US who will be buying the trillions of dollars in new debt the treasury needs to sell?
The crash of 2011 will occur worldwide as government services are cut and the private sector is finally allowed to reach its natural bottom.
It will not occur overnight rather it will build as the year progresses along with public discontent.The war of 2012 will be setup throughout 2011 as villains and scapegoats are created to deflect blame from the true culprits. It will be said that it is not the fault of failed socialist government policies it is the obstruction of the opposition and the greed of the capitalists that is once again to blame.
The army of the socialists are being funded, organized and instructed as we speak. The international army of unions representing the low wage workers and government employees will take to the streets protesting the spending cuts and demanding government takeovers of greedy corporations.
They have been practicing in the streets of Greece and France over the minor cuts being proposed to stabilize those countries.
When the real crap hits the worldwide fan in 2011 the well oiled machine of SEIU will roll out the street war on private property rights. As industry after industry is demonized will this administration react like Hugo Chavez with forced takeovers? Everything they have done up until now indicates they will.The big question that remains is what will the reaction of the American people be?
The Europeans are used to continuous turmoil and turnover in their systems of government along with wide swings in economic and personal freedom. Americans have centuries of freedom and political stability engrained in our identity and I believe we will not be willing to accept an oppressive system being forced upon us. I can only hope that 2011 is also the year that Americans wake up to our history and learn about the founding of our country and the principles of our constitution.
If that awakening occurs then we will be able to restore ourselves by restoring the constitution. If not, we are on the road to a French revolution where we will simply replace one dictator with another and possibly end up in a worse place than where we started.
I’m unpleasantly surprised at how accurate this turned out to be even with the tax hikes being pushed out another year. The riots that were just getting going in parts of Europe have spread across the globe taking down Middle Eastern countries and setting Europe on fire on a regular basis.
I’m also sad to say that the end of 2011 crash that was predicted is now fully underway. Greece will be the domino that starts it all as the bailout must fail as the unions in Greece will not except the massive cuts required. With 1 million government employees in a country of 11 million the cuts being made are inducing a rapid depression there. Instead of taking the challenge head on the people of Greece are choosing to riot making the problem grow deeper.
When the Greek default occurs, the hundreds of billions in worthless bonds will flow through the global system like poison. Banks and countries will suddenly be exposed as people attempt to cash in their bonds and empty their accounts only to find that only a few pennies for each dollar actually exist in the system.
War is inevitable. The only question is who will side with who and what event will trigger its beginning? Keep your eye on any news regarding Turkey as this little talked about nation could be a central player in this war.
Wyatt's Torch 