Gold News

Greece's Debt: Guess Who Pays in the End?

Greek debt will not be renegotiated just because Syriza won. So it will default, in the end, because Greece cannot pay...
SO GREECE is apparently "set on collision course" with its Euro partners after Sunday's "comprehensive victory" by Syriza...the " radical, far-left party", says Adrian Ash at BullionVault, cutting and pasting from Monday's press coverage.
Just for the record, Greece has been "colliding" with Germany, France and the rest since 2010. Syriza won only 149 out of 300 seats in parliament, and it only gained 36% of total votes. It must lead a coalition to take power. 
As for "far left", Syriza looks more "socialist" than "Maoist" to me. You can spot that because the word "naive" would also fit very well. 
Still, calling Syriza "radical" today...just for wanting to free a little of Greece's future from the debt bubble of a decade ago...shows how much power creditors hold.
Those creditors will lose in the end. You can be sure of that. 
But for Greece for most everywhere else...a Biblical debt jubilee looks a long way off. I fear there's a lot more pain, arguing and strife to get through yet. 
Syriza is also guilty of hype this morning, of course. "Your mandate," party leader Alexis Tsipras told supporters, "is undoubtedly cancelling the bailouts of austerity and destruction." 
Really, a mandate? With barely one Greek vote in every three? 
Outside Greece, the Eurozone's political leaders don't think Tsipras won a mandate for change either. Its political leaders told him as much last night when they called to congratulate.
Greece's other big lender, the IMF in Washington, also agrees...unwittingly (and correctly) forecasting a mass cancellation of debt sometime in the future by saying it "rules out special treatment for Greece."
Meantime, financial markets also think nothing has changed. Gold and silver are lower today as the Euro rallies from new 11-year lows. Germany's stock market is hitting new all-time highs. London's FTSE100 just enjoyed its best week since 2011.
Yes, Greek bond yields are higher as bond prices fall. But only by 0.4 percentage points, and way below the record levels of 2012.
"Relax," says a fund manager with asset-management giant Blackrock. "There's nothing to fear from Greece." 
We agree. Do not fear Greece...and do not fear its coming debt default. Fear instead the Eurozone and IMF delays, risking more anger and violence as they delay the inevitable. Because when debtors can't pay...or their children and grandchildren refuse to... then the creditor must.
Short term there's a little profit-taking in gold and silver derivatives this morning. After all, net speculative betting on gold had jumped last week to sudden two-year highs. BullionVault users, overall, are small net sellers of vaulted metal so far today as well. But further ahead, physical bullion owned outright will always...the only tradable asset class which cannot go bust.
Contrast that with bonds, bank deposits, derivatives contracts or any other investment requiring someone else to stay solvent for its value.
Yes, gold and silver pay no interest. But that is an inevitable consequence of lacking debt-default risk...a risk which a small but growing number of people are choosing to insure against by holding at least some of their savings in physical bullion.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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