Greece, China spook markets

Jun 29, 2015

- By Bill Bonner

Bill Bonner
Dublin, Ireland

Dear Diary,

This is an Amber Alert day in the markets.

Both stocks and gold were calm as we ended last week. Then, they got interesting over the weekend.

"Greeks Line Up at Banks; ATMs Run Dry" was the headline over at the Drudge Report. Versions of it ran throughout the financial media.

You'll recall our prediction. In a crisis banks will move fast to block your access to your own money. First, they will limit withdrawals. Then, they will close either close their doors or run out of cash. That's the story that was playing itself out in Greece over the weekend.

First, the showdown that has been going on there for months seems to be reaching a climax as Greece announced that it would put creditor demands to a popular vote.

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'Hey, how do you feel about paying our national debt," they're going to ask the hoi polloi. And what do you think the hoi polloi are going to respond?

The best guess is that they're going to say: let's not.

Which will leave the banks cut off from new funds... and short of old ones.

Smart depositors figured this out long ago. They took their money out of Greek banks. But the rest of the people are now wising up. In effect, they're voting with their money - getting it out while they still can.

Naturally, the banks tried to protect the money that isn't theirs. Pireas Bank and Alpha Bank both limited the amount you could take out. All you could get from a Pireas ATM, for example, was 600 euros.

This, of course, made people more eager than ever to get their hands on their money. Lines formed at ATMs on Saturday. One banker estimated that 110 million euros left the banks by 11:30 in the morning.

Not all banks are open on Saturday. But even those that were normally open stayed shut.

And now the New York Times tells us that the government (always in cahoots with the banks) has moved to close down the whole banking system:

    ATHENS - Greece will keep its banks closed on Monday and place restrictions on the withdrawal and transfer of money, Prime Minister Alexis Tsipras said in a televised address on Sunday night, as Athens tries to avert a financial collapse.

    Mr. Tsipras's remarks did not include details of the bank closings and other controls on the movement of money, which the government was expected to explain later in the evening. Greece, though, appears to be taking steps similar to ones by Cyprus in 2013 to avoid a bank collapse.

    When Greek officials huddled before Mr. Tsipras addressed the nation, it had not yet been decided how long the banks would remain closed or what cap would be placed on daily withdrawals from A.T.M.s, according to a person briefed on the discussion. But the person, who was not authorized to speak publicly, said that the daily limit could end up as low as 50 euros.

Meanwhile, the sense of panic and impending doom over the weekend was heightened as the Chinese government took action to halt a stock market plunge. In the last two weeks, the Shanghai Composite Index has lost 20% of its value. That's the equivalent of the Dow losing 3,600 points. It's the kind of thing that makes investors nervous. Or desperate.

If that happens in the US - which it surely will - you can bet your bippy that the feds will intervene. The Chinese are doing the same thing. They've just cut the central bank lending rate to the lowest level ever. Will that do the trick?

John Rubino at DollarCollapse opines:

    China, meanwhile, has spent the past couple of decades directing an infrastructure build-out that in retrospect was maybe twice as big as it should have been. Now it's fiddling with all kinds of imperfectly-understood fiscal and monetary levers, trying to maintain a 7% growth rate that is looking more and more fictitious. Here again, the best way to deal with a bubble is to not let it happen in the first place. The second best way is to let it pop and allow the market to clean up the mess. The absolute wrong way to manage a bubble is to intervene from the top to keep it going. Look where that has gotten Japan and the US.

Stay tuned for more exciting developments.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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2 Responses to "Greece, China spook markets"

MAHESH SETHI

Jun 29, 2015

what should one do in such a case & how can one survive?

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Mahesh Sethi

Jun 29, 2015

Horrible Scenerio

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