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What If You Had An Italian Bank Account? Or A Portuguese Bond?

Though it might yet drag on for weeks, months or even years, Greece's drama can end in one of only two ways: Continued austerity which consigns its most vulnerable 50% to an endless "capital D" Depression, or some form of temporary dictatorship complete with capital controls and wealth confiscation -- and a then "capital D" Depression. Either way, some of today's Greek kids might grow up without ever holding a job in a legitimate business. For more details, see Greece's hideous choice: More austerity or collapse.

But Greece was never the main story. At best (worst?) it's an illustration writ small of what's really coming, as the eurozone's bigger weak economies travel the same road. Italy, Spain, and Portugal will soon need (more accurately demand) a Greek-style bailout, though with a twist: There isn't enough money available anywhere to bail out economies of that size sufficiently to allow them to remain in the common currency union NOR to manage the debt writedowns that would instantly hit the major European banks if those countries withdraw from the euro. So whatever Greece does, the real crisis is on its way. Here's a good Zero Hedge analysis of what comes next.

To understand this convergence of inevitable and imminent, put yourself in the shoes of an Italian with a local bank account. You're seeing the footage of Greeks queuing up around the block only to be greeted with "No Money" signs when they finally reach the ATM. And you're drawing the right conclusion: Get your money out of the local bank and under your mattress, into a tin can buried in the back yard, or into a Swiss franc account even at the cost of a negative interest rate. Later, when Italy has left the eurozone and returned to a much-devalued lira, those euros/francs will be worth twice as much as they are today.

Or buy gold just in case Italy gets bailed out with a trillion newly-created euros, causing that currency's value to plunge. Just don't leave it in the local bank to be confiscated by the government.

All it will take is a few tens of thousands of like-minded Italians, Spaniards and Portuguese to crash their local banking systems. But why would it be only that many? Why would anyone with money in those banks, even if they're far more optimistic than our hypothetical Italian, not empty their accounts just to avoid the turmoil caused by the pessimists?

And why would anyone lend money to those countries for five or ten years, which is what you do when you buy one of their bonds? That banks, governments and hedge funds around the world have gorged on eurozone debt while writing hundreds of trillions of dollars of derivative "insurance" on them is something historians will be scratching their heads over for decades.

 

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