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  Jim Kingsland

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  1/31/12
  My thought after completing yesterday’s post was to do a more extensive analysis of the European situation. The bottom line, is that you are hearing talk about only a “partial” Greek default instead of what has been a classified a full and hard default that would be “disorderly”, as envisioned by various Euro government officials and then dutifully regurgitated by the financial press which happens to be largely bought and owned by the same people who own modern day governments: the financial behemoths.

  We are in the 21st century land of derivatives (those weapons of financial mass destruction that Uncle Warren warned us about). The defaults and restructurings of even the recent past are just that: things of the past. To save me the time of writing all this out, go here to see the dozens of Sovereign defaults of the 1980s, though this data base goes back to 1800:

  http://mitpress.mit.edu/books/chapters/0262195534chapm1.pdf. Scroll down to roughly page 8, though the entire pdf is definitely worth the time to read.

  The simple truth of the matter is that in our ever more sophisticated modern society, there can be no full blown default (real credit event) and restructuring since such a credit event would then mean that parties (yes, the banks once again) who wrote Credit Default Swaps (CDS – quasi insurance to protect against default) would then have to make good on their CDS obligations, which would bust them.

  Remember, the OTC derivatives of today that now infect the financial system were not around in the 1980′s. Few even knew what a credit default swap was until around 2006 when the housing market started to fall apart in the U.S.

  So if you’ve ever wondered about defaults of the past 20, or 30 years and have a tiny recollection of Brady bonds and stuff like that, and how those cuoutries got through, and wonder why Greece is so up the creek, wonder no more; Greece and its people are bound and gagged – literally stuck with their debt.

  My explanation is somewhat simplistic, but this answers why the situation has been festering for months on end, why it seems the PTB is intent on kicking the can down the road.

  Just imagine if the U.S. demanded that South American countries in the late 1980’s cede sovereign control over their budgetary processes? The system in Europe is essentially so piled high and deep not only debt, but in derivatives that it has produced an atmosphere that has enabled Germany to ask (nicely for now) Greece to give up its fiscal control. Amazing. Greece has, of course, said NO, but don’t be surprised when the subject comes up again.

  Just another reason to view gold as insurance not only against future world financial problems, but as real time insurance against problems in the here in now.

  So I am keeping this one short today. Instead of going further into the similar conundrums that shall come (Portugal seems next in line with 10 year yields in the 15% range), I’ll leave off with this simple chart that has nothing to do with the arcane world of derivatives and the history of defaults over the last 200 years.

  No, the ZeroHedge.com chart below shows the human toll of broken economies in Europe. If someone can email me a thought on how this can be spun positively, I am all ears. My thought is that along with financial disorder, let’s hope summer doesn’t get too hot in Europe this year since social disorder is in the cards.

  

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