By John T. Davis
Iowa Preppers Network
I have been following the problems in Europe for over a year now. In fact, I get up at 3 in the morning a couple of times a week to watch the International World Business Report form Hong Kong and London to see what is going on from a non-US perspective. What I see happening, frightens me.
I could say it all started with Greece, but that is only part of the story. I lived in Greece, Spain and Italy for a number of years before the Euro. Then if someone wanted to buy a car or house they saved up for it then paid cash. Governments kept sovereign debt very low. Even with occasional recessions, most European countries survived OK. But with the advent of the Euro and the European Union (EU) everything changed.
I’ll start with Greece. The government hid a large part of their debt in order to get into the EU. Once that happened, the credit flood gates opened both for the government and the individual. A country that had a populace that rarely used credit cards ended up in a credit buying spree from the government on down. Debt rose, unemployment rose, and prices increased.
Pireaus, the sea port of Athens, was once a thriving maritime port but the maritime and shipbuilding corporations moved their industry to Turkey where wages were significantly lower. As a result, the city now has almost an 80% unemployment rate.
The government’s sovereign debt kept growing and it was thought that Greece would default on its obligations. The EU and European Bank stepped in and demanded massive austerity measures in order to refinance Greece’s debt. The government complied but the people rioted in the streets as they became accustomed to the services Greece provided them.
The debt was refinanced mostly through guarantees from French banks which were guaranteed from US financial institutions. Once the loans were granted, the Greek government tried to forestall parts of the agreement by a national election. The election, as seen this past week, ousted the government and now wants to completely renounce the agreements and renegotiate with cancelling the austerity moves.
Ireland and Portugal face the same problems as Greece. With the world recession of 2008 their economies almost collapsed. They had to borrow and borrow just to keep the governments running. While Ireland is trying to recover, Portugal has been put in a junk bond status by S&P. Economic recovery for either nation seem impossible.
Spain has the highest unemployment rate in Europe. People under 30 face a 50% unemployment rate. Since the 2008 real estate bust, literally hundreds of newly built houses, apartments, and condos stand empty or only partly finished. Spain’s national debt continues to rise and it also faced default of its loans. Spain has an economy larger than Greece, Ireland, and Portugal combined.
Italy, one of Europe’s largest economies, is also facing economic disaster. One of their major banks recently collapsed driving the euro down on the world market. Its national debt is steadily increasing, unemployment is up and manufacturing is down. It’s credit rating was also at 3 levels by S&P
Nine countries in the European Union are in major recession. The UK just announced that they are in double digit recession, the first time of 3 decades. German’s manufacturing and exports have flat lined.
Yes, Europe is in economic crisis. How does that effect the US and the rest of the world? It’s very simple—the domino effect. Let’s say Greece defaults on its loans. It means Greece goes bankrupt and its creditors end up with nothing. French banks which guaranteed the loans cannot make its loan guarantees. Then Spain, Ireland, and Portugal default. The Euro collapses within weeks as the European financial organizations cannot handle the defaults and banks start collapsing. Finally, Italy goes into default and the European Union collapses in a landslide of debt and political chaos.
While all this is going on, the United States, Russia, and China, which own a large amount of the European debt, is faced with losses in the trillions. International and US banking institutions, which also hold large amounts of European debt, also face economic ruin. As no reorganization of European debt is available, and, Europe breaks up into individual countries again, the rest of the world’s economic strength collapses as well. The dollar, the ruble, the yuan are all near worthless status. Banks start to collapse worldwide, international trade ceases because of the financial crisis. Prices, worldwide, rise 30% in weeks. Exports and imports stop. Finally, the Dollar, which is the world monetary reserve, is no longer accepted. You now have a global depression of biblical proportions.
Without imports and exports of goods and services, national economic systems breakdown. Food, fuel, etc become too expensive for many people. Companies large and small go bankrupt. Eventually governments have to declare martial law in many area as people start looting to get what they need and riot to demand the basic necessities.
Is this a fantasy? No, it’s not. Could it happen this week. Next month? No. But within the year, it is very possible that Greece will default and the chain of events I have presented could, indeed, happen. The only question is how does one prepare for such a contingency? That is another story.