Monday, June 20, 2011

Greek Debt Crisis - Europe's "Lehman Brothers" Moment

A Greek default will set off a chain of events similar to the post-Lehman Brothers collapse in 2008. Almost every country will feel the effects.

A very possible/scary scenario goes like this:

Several major European banks are big holders of Greek debt. If Greece defaults, these banks will suffer huge amounts of write-downs. Recently, major French banks were considered for a ratings downgrade. Germany and France are the 2 biggest holders of Greek debt.

Banks will be reluctant/scared to lend to one another. 
There will be a global credit crunch, a repeat of the post Lehman Brothers collapse in 2008.

Ireland and Portugal will just default too. Their governments will be thinking, "Since Greece is allowed to default, why should we suffer all the painful austerity measures?" The defaults of Ireland and Portugal will spread the debt contagion to Spain and Italy. Spain holds a relatively large amount of Portugal debt.

A global credit crisis will send the already weak US economy into another recession. US consumers will start to tighten their belts, spend less and save more, companies will start to cut jobs and spend less.

As Europe and USA go into recession simultaneously, China, who depends heavily on exporting to the Western nations will suffer a hard landing. This will trigger social unrest and even the burst of the property bubble in China.

ASEAN, being largely dependent on the US, China and Europe for economic growth will feel the brunt of this global financial meltdown.

In the mean time, I will be building up my opportunity fund and emergency fund. It is time to bunker down and wait for Greece to eventually default. USA also has a massive budget deficit of her own to deal with. Strap on your seat belts and hang on tight. Turbulent times ahead. 

Can your portfolio survive a Greek default? I dun think mine is strong enough though :(

Peace Out,
Dividends Warrior


sgdividends said...

Hey Dividends Warrior,

Nice post. Very logical about the knock on effects!

I do silently hope that it repeats the lehman crisis though. sick*


futures-explained said...

Just an observation, crisis (read: bad things) seems to happen without us noticing. Most recent example is the tsunamis/nuclear crisis in Japan.

Anything that is too noticeable does not happens. Example is the oil price. When it hits $150, everywhere is saying it will hit $200.

Dividend Tech Warrior said...

Hi sgdividends,

Thanks for the compliment!

I hope to collect some more blue chips at lower prices too. ^^

Dividend Tech Warrior said...

Hi futures-explained,

Thanks for sharing your view.
Yup, I agree. A crisis always seems to creep up on us silently.
However, sometimes, there will be tell-tale signs or subtle warnings along the way.

My guess is that Greece probably will not default right now. But definitely in the next 1-3 years.

Penny Stock Blog said...

My My My this crisis goes on and on why don't the countries in the euro that are broke admit it and just default. I cannot believe the mess that the european union is in this thing is completly out of control many countries in the euro zone are in terrible shape. The situation gets worse and worse by the day.