The government crisis in Greece was initiated by the ECB bailing out the Greek government by monetising the government bonds that the national banks had purchased. The ECB needed to do this because the Greek government was no longer available to inflate their currency when they had joined the Euro.
In effect the ECB was indirectly financing run away government spending that was completely unsustainable.
This is exactly the situation in the USA as of today.
Things came to a head in Greece when the ECB stopped monetising the Greek debt in 2008 and left the Greek government holding the bag, the bag being a huge debt load which it is was unable to service.
This video by Philip Baguss explains the dynamic between the Greek government, the national banks in Greece and the ECB. I hope this explains how the ECB was able to get the Greek government in such a mess.
Here is the video,
So how did the Greek government respond to the ECB tapering?
First of all the Greek government was “bailed out” by the IMF/World Bank/EU/ECB through official loans.
The Greek government then proceeded to raise taxes massively, for example a 4 percent increase in Value Reduction Tax (VAT) and created new taxes such as the national property tax which came in addition to the existing property tax imposed by local governments.
The Greek government then proceeded to slash benefit payments. This came in the form of delaying pension payments, for example if you were due to get a state pension at the age of 55, you could now find you were only eligible for the state pension at 60.
And the Greek government reduced the size of existing pensions massively.
The Greek government also reduced the value of state benefits whether it be reduced disability benefits or reduced unemployment benefits.
State wages were cut massively, in many case the salaries were reduced by half.
The Greek government then promised to make doing business and starting a business easier by streamlining the tax system, by increasing the flexibility in the labour market and promising that taxes will be reduced “next year” and that the economy will start to recover “next year”.
None of these things were done and in fact it is now harder to do business in Greece than it was pre 2008, for example the Greek government has declared that businesses must file what amounts to an annual tax return every month, a proposal which led to accountants going on strike for 3 days.
It should be noted that at no point did the government’s power reduce in any way since 2008 and if anything it has increased.
As I stated above redundancies have been minimal (the government still has the same number of people dependent on a salary) and government regulations are the same if not worse than they were in 2008.
The number of people dependent on government hands outs has increased and pensioners and especially those who have paid in tens of thousands of Euros over their working life are being held hostage.
The title of this article was “Fed Tapering – How Greece Shows the Future”.
I believe there is a very good chance that the US government will follow the exact same template as that followed by the Greek government.
The results of this template for the USA will be the same as in Greece which will be as follows.
A massive consolidation of the banking sector into a tiny group of mega banks. In Greece this has meant 4 banks.
A ballooning of unemployment, which has served to increase government’s control
Salaries of government workers being slashed (which may not include the military & police)
Pensioners and retirees being held to ransom through reduction in pensions and delay of payments.
A ramping up in taxes and the creation of new taxes, leading to..
A cratering of GDP
A cratering of the stock market to around 25% of its peak value.
A ramping up in government controls of cash purchases.
A huge reduction in the literal mobility of the population through a tripling of gas prices and huge taxes on personal vehicle ownership.
A parabolic rise in tax debts to the government transferring government debt onto the taxpayer.
What can Americans do to protect themselves should the Greek template be followed in the USA?
I do not have many ideas unfortunately.
Many people, including myself believe that holding commodities will protect people from a dollar collapse. However if the USA were to follow the Greek example there will be no dollar collapse. The US government will not print itself out of trouble. Instead it will increase tax revenues to pay the interest on the debt.
So a bet on Gold or Silver may not be the answer although some argue that the price of the Gold and Silver are being artificially depressed and need to rise anyway but that is a separate issue.
So if you are looking at a cratering stock market, an increase in government controls, a cratering of GDP and relatively small dollar depreciation what can you do to protect your wealth?
If you have money in the bank already, great, I would recommend you protect that money by buying precious metals should your bank go belly up or should the US government follow the Cypriot template of bail ins. I should stress I am recommending precious metal here not to make money but to isolate yourself from government measures.
Buying land is a tough call as the government could tax you into the poor house. I could just as easily recommend selling property to reduce your exposure to government taxation.
If you feel things are going down the Greek road having an alternative country where you can move to would be an excellent idea in my opinion.
If you have your money in stock, I personally would be getting out as soon as possible
Generally I believe you need to focus on reducing your exposure to government taxes and seizures.
This is all hypothetical, many say the Fed will print the dollar into toilet paper which I think is the most likely scenario but if they don’t…..