If Greece is forced out of the euro in acrimonious circumstances – a 50/50 risk given the continued refusal of the creditor core to acknowledge their own guilt and strategic errors – the country will not only default on its EMU rescue packages, but also on its “Target2” liabilities to the European Central Bank.
In normal times, Target2 adjustments are routine and self-correcting. They occur automatically as money is shifted around the currency bloc. The US Federal Reserve has a similar internal system to square books across regions. They turn nuclear if monetary union breaks up.
A Greek default – unavoidable in a Grexit scenario – would crystallize these losses. The German people would discover instantly that a large sum of money committed without their knowledge and without a vote in the Bundestag had vanished.
Here’s a quick question for you. What do the following years have in common:
1853, 1906, 1929, 1969, 1999
Those were the peaks of the five massive, generational stock-market bubbles in U.S. history.
And, according to a new research report, we are back there again. Continue reading