Nobody knows for sure what is going to happen with Greece and their debt/Default problem but the credit default swaps are pricing in a 95% chance that Greece will default on their debt. Standard pricing models calculate that if Greece defaults that bond holders will only recover 38% of their original investment which puts the chance of default at 95%. The 38% figure comes from the CMA which compiles the quotes of dealers in the privately negotiated credit-swaps market.
This means that everyone is expecting a default by Greece. One man, Mario Blejer, a former Bank of England adviser who was in charge of Argentina’s central bank after its 2001 default, says that he thinks Greece should default. He believes that the rescue plans from the IMF and ECB will only put the country into deeper debt and stifle growth. Blejer said, “If you assume that these countries do everything that is in the program, they do all these adjustments and privatizations, at the end of 2012 debt-to-GDP will be bigger than this year.” As we have discussed in an earlier piece, we believe that the powers at be a merely attempting to shift the burden from private banks to public taxpayers, as evidence by think tank Open Europe.
If Greece was to default, Blejer believes that Portugal and Ireland will not be far behind. Then most likely Spain and Italy will default too. But the bankers don’t want this and are saying that if this happens contagion will spread and it will be worse than the collapse of 2008. In fact in a recent statement Angela Merkel Chancellor of Germany said she won’t let Greece go into an uncontrolled insolvency, as the tab will most likely be picked up by the wealthier France and Germany.
Once again no one is certain as to what will happen will Greece’s debt problem but I think it is important to note that it is creating a lot of volatility in the markets. If Greece defaults it will most likely be contagious and will have major affects here in the US. We are a precious metals company and of course we want you to acquire gold and silver through us. We do not make up the current conditions that lend to the current state of the world’s economy, but we do provide a product that will help you ride out these problems with confidence. We urge you to acquire gold and silver for your portfolio now while you still can. The European debt crisis is only one part, and one reason to own gold amongst many others including default.