The financial headlines last night were striking: “Greece has become the first developed country in history to default to the International Monetary Fund.” (The Telegraph) To put in perspective, the other nations which have defaulted to the IMF in recent history are Somalia and Zimbabwe. The latter’s subsequent spiral into the nightmare of hyper-inflation is well documented.
We, in the UK, can learn a great deal, by looking at what is now happening in the everyday life of the Greek people and asking ourselves, “Am I financially positioned to weather such a storm, in the UK, if or when contagion spreads?”
This financial situation is not just headlines for me. My brother and family currently live in Athens. He works for the British Foreign and Commonwealth Office. Over the last three years, he has witnessed firsthand how national debt affects the lives of the Greek people. There are some major differences between the Greek government and the British, which I will touch on later. But the reality in Greece now is such that my family have stocked up on food and his wife and children will stay out of the city centre, in case of social unrest. This is, in the most part, unavoidable for my brother, as he works in central Athens. Lastly, it just so happened my elderly parents chose this week to visit my brother and family, so they are in Athens also. My mum commented last night via email, that every local Greek she has spoken with is “extremely worried.”
So, what is the reality on the ground and what can we learn?
The Greek people woke on Monday to find banks closed for over a week, until 7th July. They can only now withdraw €60 a day, the equivalent of £42. By early Monday, 40% of the cash-point machines in Athens were already empty! Of the machines that did have money, some only dispensed €50, not the daily limit of €60, because there was a rapid shortage of €20 notes. In addition, hundreds of thousands of Greek pensioners were told that their pension payments have been halved. “On Sunday the finance ministry said pensioners could take their full payments before capping that on Monday at €240 and then, a day later, halving it to €120. Angry pensioners protested outside the state pension fund for self-employed workers, which was unable to transfer funds to retirees’ bank accounts overnight. Tasos Petropoulos, OAEE’s director, said the fund’s 350,000 pensioners would receive half the monthly amount due by the end of the day and the remainder next week, provided the loss making fund can raise another €130m in the interim.” (Greek Pension Funds Ration Payouts, The Financial Times, 30 June 2015)
But there is a small piece of valuable financial insight, that is not being widely published in the main stream media. I had to go looking for it in the financial sectors. On Monday, the Bank of Greece also, in fact, announced another Capital Control: stopping the sale of Gold coins!
How does this affect us in the UK?
This, immediately and dramatically, affected the sale of Gold Coins from UK based companies: “Demand from Greek customers for Sovereign gold coins was double the five-month average in June, the U.K. Royal Mint said in an e-mailed statement.” (Bloomberg Business) Greek customers also scrambled to buy gold from the large European bullion sellers, as well as the UK sellers, and were joined by other Europeans: A Large European based online retailer, said sales on Saturday and Sunday were the highest since Cyprus limited cash withdrawals in 2013, driven by a jump in German, French and Greek buyers. Investors are searching for a safe haven after Greece imposed capital controls, closed banks and stopped selling gold coins to the public: “Most of our common gold coins are sold out,” Mr Marburger, director of a large European bullion dealer, said by phone. “When people learned that the Greek banks will be closed, they started to think that it may not be such a bad idea to have some money in gold.” At Bleyer, we know Mr Marburger quite well. Many UK Bullion dealers trade with European suppliers. Therefore what affects their supply affects the British supply. Several larger UK Bullion Dealers had notices on their websites first thing Monday, saying deliveries would be delayed, “due to the unprecedented situation in Greece.”
And how long will these capital controls last? Reuters believes “many months.”
A crisis happens fast in life; that’s what makes it a crisis. But is this a crisis in it’s true sense, or was it predictable? Are financial melt-downs as predictable as Maths? I have been watching and reading about the unfolding situation widely. The CEO of a Greek Tax Solutions company said yesterday: “There is no telling what tomorrow will bring.” I then watched a BBC video interviewing Greeks on the street. One young man said, “I think I’ll wait a few more days before I decide whether to take my money out the bank.”
Many years ago, I watched a program exploring the characteristics of survivors of tragic accidents and dangerous situations. They all shared one trait: they reacted early and they reacted fast. They did not wait for the crowd to decide for them and they did not do what they were often told to, by the voice ‘in charge’. To show this in action a scenario was set upset up, whereby a group of people waited for an interview in an internal hotel conference room. All were actors, except the real person being studied. Artificial smoke was then slowly pumped into the room through an air vent. All the actors were instructed to react nonchalantly to only slightly concerned and to not to evacuate. The smoke got thicker and thicker.
What would you do? Would we let the “narrative” around us inform our decisions and actions? Would we wait too long to act, like the Greek young man in the video? Now he only has a 40% chance of accessing his money from the bank. The people who made up their own mind and left the smoke filled room quickly, when interviewed, shared a common reaction. Most said, “If I have it wrong, and there is no fire, I will just go back. But I would rather take precautions, and look slightly foolish, than not take any precautions and end up in an extremely dangerous, even fatal, situation. I would rather take action while I still have time to take action.” I watched it years ago, and have long since forgotten where. But I have never forgotten this insight, because the principle of independent thought applies across life, clearly including financial risk.
Therefore, contrary to the CEO’s comment above, it is possible to tell what is (almost certainly) going to happen in Greece. And if it doesn’t, I would rather act financially while I have the time to act, and stock up on Physical Gold and Silver now.
What I find telling is that the price of Gold and Silver have not jumped. It is well assumed that the price of Gold and Silver markets is “manipulated.” Yet, British and European investors are flocking to buy Gold coins. I would recommend to our readers to keep an eye on the sales figures in ounces, not the price, as to the real story of demand for Physical Gold and Silver bars and coins. I would personally take advantage of the level prices, looking at the larger picture.
So, the headlines are striking in their implications. But not striking in their predictability. And this is where I move from the tragedy of how this is affecting tens of thousands of everyday Greek people, to the logic of learning from this. During a currency collapse the following events happen:
- Capital controls (limiting the amount people can withdraw)
- Bank closures
- Rapidly cut pensions and benefits
- Unpaid salaries
- Higher food and goods prices, due to increased cost of imports, due to a devaluing local currency
- Tax levies on savings (effectively seizure of money from private bank accounts. See Cyprus. This is the next major concern for Greek citizens, Time)
- The window to buy Gold and Silver shuts abruptly.
History proves all these points. We are in uncharted territory in the sense that it is Greece, a “developed nation” and a member of the Euro Zone, which is defaulting. But we are not in uncharted regarding currency collapses. So, in reality, it makes no difference to the equation as to whether the country enduring a currency collapse is developed or not. The only difference is – and this is where we as British people need to keep our eye on future Euro Zone developments – a developed nation in a shared currency zone is much, much more likely to introduce “financial contagion.”
I highly recommend the following 12 minute animated video “The Euro Debt Crisis Visualized” by Bloomberg. It states: “At the heart of the European debt crisis is the euro, the currency that tied together 18 countries in an intimate manner. So when one country teeters on the brink of financial collapse, the entire continent is at risk.” While watching, you’ll notice the UK is not technically in the Euro Zone. But that will not insulate us from some contagion and it certainly does not insulate British customers from a shortage of Gold and Silver, as the rush demand across Europe for precious metals rises. And here is the interesting point. This video was first published in February 2014. I recommended it our readers back then, and again in February of this year. This Greek default was highly predictable, I would say inevitable.
If an event is inevitable, we prepare for it.
So, what are the differences I mentioned between the British and Greek governments? Greece’s current government is made up of both the extreme right and the extreme left. The sense of citizen insecurity is understandably high. The only reason these two extremes are now in power ‘together’ is the one thing they have in common – they both hate austerity.” (from a previous blog on Greece and Gold, February 2015) As stated in the Guardian: “The only thing left-wing Syriza and the right-wing Independent Greeks (Anel) have in common is economic populism.”
In this sense, the British and Greek governments differ. And for that we can be relieved. Although painful, we as British people, have embraced austerity measures over the last few years and many working in the public sector have lived the last few years with income caps.
But, Britain and Greece share the fact that the entire Western banking system is built on fractional reserve, which means, at any one time, only a fraction of our money in the bank is actually there. The bank use our money to invest elsewhere. When we all want to withdraw their money at once, the system literally collapses, or controls are put in place to try to stop the system collapsing. There is literally not enough money for us all. Nor is there another Gold and Silver for us all. To be exact, if divided equally we would only get 25g of Gold per person on the entire planet. (ECR Research). One Britannia Gold Coin is 31.1 grams, so that’s less than one sovereign each. And with Silver, the figure is now even more striking: “there is less than 1/6th of an ounce of silver available at any time per person.” (Lear Capital)
Britain and Greece also share the basic tenets of a Fiat currency system, in that both the Euro and the Pound are not attached to a Gold standard to steady the effects of devaluation and hyper-inflation. While we watch China and Russia accumulate unprecedented amounts of Physical Gold and Silver, many believe the next world reserve monetary system will return to a Gold and / Silver backed currency.
Lastly, like Greece, Britain is in debt. Admittedly, Greece’s debt currently stands at 197.33% of its GDP and Britain’s only stands at 82.14%. But we are exposed financially to many nations whose debt is extremely high. Take a look at International Debt Clocks by nation, before browsing for Gold and Silver from Bleyer!
So, this week, why not take a serious look at our Gold and Silver products? If you have any questions, please don’t hesitate to call one of our friendly professional team on 01769 618168. Act while there is time to act.
We at Bleyer believe strongly in Gold and Silver education. We believe Gold and Silver ownership is a time-honoured method of protecting one’s wealth, while positioning oneself, and one’s family, to weather financial storms from a more secure position.