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Trading Lessons

Greece to Print Counterfeit Euros or IOUs, Hyper-Inflation Beckons

Stock-Markets / Eurozone Debt Crisis Jul 06, 2015 - 04:27 PM GMT

By: Nadeem_Walayat

Stock-Markets

The shock decisive NO referendum vote as the Greek electorate fell for Syriza propaganda that painted a picture of Greeks being the victims of the evil Troika has seen mainstream press focus turm (perhaps after googling) turn to Greece's banking system collapse that remains closed with as little as Euro 50 per day being allowed for withdrawals, as the banks are fast running out of Euro bank notes with cash points expected to completely run dry by Wednesday.


As an example of Syriza propaganda, Varoufakis repeatedly and highly convincingly stated that the Greek banks would re-open Tuesday and that he had a 'secret' deal that would be signed upto Monday. All towards misleading the Greek people into effectively committing suicide.

“A deal is in the offing”, and it is “more of less done”,

No’ vote would lead to accord that will have debt relief included.

Greek banks are not insolvent and will re-open on Tuesday.

Instead reality is that there will be no deal this week, or even next week, and the Greek banks will remain closed for some time.

Therefore In the wake of Greece having run out of currency, and without ECB flooding the Greek banks on a daily basis with billions of euros (which I doubt they would) then Greece has only 1 of 2 options-

1. Print counterfeit Euros without ECB permission.

2. Print IOUs - as a prelude to a new currency.

Both of which will be highly inflationary and have contagion risks that I will illustrate later in this article.

In this respect the mainstream press herd is going into over drive AFTER the NO vote to warn of the possibility of Greece printing Euro notes without ECB permission as illustrated by a google search.

The Guardian - With a return to the drachma unwanted, could Greece just print its own euros?

Monday 6 July 2015 15.42 BST

Faced with shuttered banks and ATMs all but drained of cash, but with most of its citizens saying they would rather stay in the eurozone than revert to the drachma, could Greece simply decide to print its own euro notes?

It is certainly physically capable of doing so: the Greek central bank owns a press in Holargos, a suburb of Athens, that once printed drachma and is currently one of 14 high-security currency printing works across the eurozone producing euro banknotes.

But actually going ahead and printing unauthorised notes would amount to a declaration of war on the European Central Bank.

A similar building consensus is taking form in the BlogosFear as illustrated by the popular Zero Hedge financial blogging site:

Greece Contemplates Nuclear Options: May Print Euros, Launch Parallel Currency, Nationalize Banks

07/05/2015 23:41 -0400

All of which of course, is meant to suggest that there is no formal way to expel Greece from the Euro and only a slow (or not so slow) economic and financial collapse of Greece is what the Troika and ECB have left as a negotiating card.

However, this cuts both ways, because while Greece and the ECB may be on the verge of a terminal fall out, Greece still has something of great value: a Euro printing press.

It may not get to there: according to Telegraph's Ambrose Evans Pritchard who quotes what appears to be a direct quote to him from Yanis Varoufakis, Greece will, "If necessary... issue parallel liquidity and California-style IOU's, in an electronic form. We should have done it a week ago."

California issued temporary coupons to pay bills to contractors when liquidity seized up after the Lehman crisis in 2008. Mr Varoufakis insists that this is not be a prelude to Grexit but a legal action within the inviolable sanctity of monetary union.

In other words: part of the Eurozone... but not really using the Euro.

My article of 2nd July (indexed as 1st July) stated that regardless of the outcome of the referendum that Greece will likely PRINT EUROS much of which is today being echoed in articles right across the mainstream press and blogosfear:

02 Jul 2015 - Forget Drachmas Greece Syriza Government Could Instruct Central Bank to Print Euros!

In the face of this crisis, Greece does have the nuclear option, one that could threaten to blow the whole euro-zone apart as what apparently no one is reporting on is the fact that Euro's in Greece are printed by the Greek central bank. Therefore Syriza faced with empty bank vaults could just command the Greek Central Bank to start printing Euros without ECB authorisation, which would instantly result in a devaluation of Greek Euros that would be marked down in value against other nation Euros.

Greece printing euros would instantly wipe out the value of the debt denominated in euros as well as wipe out most of the value of savings and purchasing power of earnings i .e. Greece would effectively be printing money to inflate its way out of the crisis and thus the Greek inflation rate would soar.

The reason why this is so dangerous is because contagion would be immediate in that German Euro notes would be deemed as being the most valuable and those of the PIIGS nations being marked down in value as each Euro note serial number is marked with the country of origin prefix as the following Italian euro note illustrates that is identified by S -

List of Euro country of origin prefix:

Belgium Z
Germany X
Estonia D
Ireland T
Greece     Y
Spain     V
France     U
Italy     S
Cyprus     G
Luxembourg 1
Malta F
Netherlands P
Austria N
Portugal M
Slovenia H
Slovakia E
Finland L

So, for example someone shopping in a store in Greece and eventually the other PIIGS would be able to buy MORE with the same denomination German Euro note marked with an X then the notes of other euro-zone nations and especially that of Greek Euro bank notes marked with an Y.

Whilst today the suggestion that Greece could start printing euros without permission may seem impossible, however so did Greece defaulting on the IMF loan and a collapse of its banking system just a week ago!

So all this talk in the media of it being impossible for Greece to launch and print its own currency for many months if not years is WRONG, for Greece already has printing presses ready that can immediately print Euros without limit.

In fact Greece may have been stealthily stock piling currency paper and ink in readiness of detonating its nuclear option. In fact Greece may already be printing billions of euros in secret that will only start to become apparent when Greece as if by magic is able to start to relax its capital controls such as limits on withdrawals. In fact the euro notes would be just the tip of the money printing ice-berg for the Greek central bank only needs to press a few buttons to electronically print tens of billion of euros and then eventually in the hundreds of billions as Greece goes through its own hyperinflation event and we will probably see inflation take off in all other euro-zone nations except Germany.

Think it can't happen ? Well Greece lied about its debt for a decade! So lying about printing euros without permission would be in character of successive Greek governments.

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By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2015 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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