Will September be the month when the wheels finally come off the European economy? I'm not an expert or a ‘professional’ – which means my take is likely to be highly accurate. As it has been in the past.
So here’s my scenario:
(1) Greece defaults, having resolutely refused to mend its spendthrift tax-dodging ways
(2) The only people with money, the productive Northern European Protestants, refuse, due to voter revolt, to bail them out again
(3) The banks exposed to Greek sovereign debt will now in turn become insolvent – obviously not all at the same time.
(4) As soon as one does they all stop lending to one another, precipitating a freezing up of liquidity in the real economy
(5) Enter the Northern Prods again. They’re now faced with a decision similar to, but not the same as, that faced earlier. This time the question is: Will they allow the ECB to send the printing presses into overdrive, and/or will they agree to pick up the tab for Eurobonds?
(6a) If they do, and assuming their citizens don’t reach for the pitchforks and torches, the death spiral will be countered, but at huge and grossly unfair cost to these countries. An unwelcome byproduct will be a huge surge in Eurozone inflation and eventually massively tighter political and fiscal centralisation.
(6b) If they don’t agree to pony up, then the whole banking system freezes up, literally leading to the ATMs not producing. At which stage we’re all fucked, at least for a while.
A few possible peripheral outcomes:
1: The ensuing disaster might lead to the end of fractional reserve banking, and, assuming there's a just God, with central bankers all over the world swinging from lamp-posts
2: The Chinese, with their oceans of foreign reserves, might decide to get involved to save their biggest market. Or they might take the opportunity to kick us while we’re down and get up to some of those nefarious things so beloved of Johnny Foreigner
Is my take correct?