What is likely to happen if a country runs out of cash ?

[Frederick]

It appears  3 out of five Greek banks have asked for help after people have withdrawn their funds .  After reading what is below today ... if it happens ... what then ?  It appears 68% of the German population do not want to help Greece anymore and would be happy to see the back of them .

(Bloomberg) -- As Greece’s creditors line up to oppose the country’s demand for a debt restructuring, Prime Minister Alexis Tsipras’s refusal to accept more bailout loans may result in a cash crunch as early as next month, two people familiar with the country’s financial position said.

Unless the 15 billion-euro ($17 billion) limit on short-term borrowing set by Greece’s troika of official creditors is raised, the government may run out of cash on Feb. 25, said one of the people, who asked not to be named because the figures are confidential. Three weeks ago, international officials reckoned Greece could hang on until mid-year.

With Greeks yanking their cash from banks and withholding tax payments, Tsipras would only be able to survive for a few more weeks by tapping social-security funds and withholding payments to vendors, the person said. By the end of March he may face existential choices: accepting a lifeline with conditions he has consistently rejected or abandoning the euro.

[Jonzjob]

"With Greeks yanking their cash from banks and withholding tax payments,"

It would appear that they have been doing the latter for years now? They only seem to have got into the €€€ by 'cooking the books' rather big time.

Could you imagine what the situation would be if you walked into a bank and borrowed a wheel barrow full of cash. Spending like a drunk on speed and then tlling the bank you couldn't pay it all back, but would 1/2 do over the next christ knows how many years? They say  that most prison food is OK now though.

To mis quote 'beware of Greeks bearing debts' [:-))]

[woolybanana]

They might be forced to turn to the Russians for help, which opens up a huge new ball game.

Forcing the Greeks into a corner is not too good an idea; one can squeeze their nuts without cutting them off.

[PaulT]

Presumably each country of the eurozone has its own Mint (just as we have our own special Mint) so what would actually stop them printing some more?

Presumably, they could be kicked out of the euro but what happens to the Greek euros in other countries?

[PaulT]

WB do not think any other country than Greece has forced them in to a corner.

It was Greece that borrowed like mad and spent like mad and ended up with huge debts. If they are let off why should other countries be prudent?

[Benjamin]

The first thing that will affect the masses (Government employees) will be that they don't get paid 'cos the Government don't have any money. Then they all go on strike. Then the country grinds to a halt.Then the tourists stop coming because there isn't any air traffic control. So the economy gets worse.

Then someone asks the question "who voted this lot in?". Oops we did!

Is the ECB bothered? Greece forms only a small part of the Eurozone economy. Maybe it's best to let them go back to the drachma after all. Angela probably knows the answer.

What bothers me is that the UK has an election coming up in May and the electorate may, just, begin to believe some of the more outlandish promises being made by minority parties. One of the big banks/financial institutions (can't remember which one at the mo) is already forecasting that the next UK Government will be formed by a coalition of Labour and the SNP.

All looking forward to that are we?

[NormanH]

One of the big banks/financial institutions (can't

remember which one at the mo) is already forecasting that the next UK

Government will be formed by a coalition of Labour and the SNP.

Anything would be better than the present filth.

[DerekJ]

[quote user="NormanH"]One of the big banks/financial institutions (can't

remember which one at the mo) is already forecasting that the next UK

Government will be formed by a coalition of Labour and the SNP.

Anything would be better than the present filth.

[/quote]

Anything would be better than Labour.

[Benjamin]

[quote user="NormanH"]

Anything would be better than the present filth.

[/quote]

Be careful Norman, you could end up with Marine.  [:D][:P][6][+o(]

[woolybanana]

The "present filth" has at least begun to clear out the Augean Stables left by their predecessors, even if many of the beneficiaries of State munificence in whatever form are weeping into their beer, but this time, after work.

Remember too that Rotherham is a Labour controlled council and they won't even apologize for the misery that they have caused.

[Jonzjob]

Wooly, that would now read "Remember too that Rotherham WAS a Labour controlled council".

http://www.theguardian.com/uk-news/2015/feb/04/rotherham-council-denial-child-sexual-exploitation-failures-report

Makes very interesting reading.

[Chancer]

[quote user="Jonzjob"]

Could you imagine what the situation would be if you walked into a bank and borrowed a wheel barrow full of cash. Spending like a drunk on speed and then tlling the bank you couldn't pay it all back, but would 1/2 do over the next christ knows how many years? They say  that most prison food is OK now though.

[/quote]

I know people that have done just that repeatedly over several décades and never eaten any porridge in that time, no sanctions whatsoever, no criminal record, no bans from being a company director and all done with the albeit grudging approval of the banks and lending institutions.

The scam is the (abuse of) the procedure called Independant Voluntary Agreement, basically you hide all your assets, you spunk away the banks money and then offer to pay them 10p or 20p in the pound or declare yourself bankrupt, seemingly they prefer something to nothing yet within a couple of years there is another mug punter bank being scammed by the self same individual.

One of these guys was the reason that I moved to France, I was bumped for a 5 figure sum, I was a limited company and all the advice was to go into liquidation which goes against all the values of my upbringing, I worked solidly 7 days a week for 2 years for no salary just to pay off my creditors and be able to close my business with a clear conscience for by then I no longer wanted to continue, it would surely happen again sooner or later either through malfortune or another deliberate act.

The guy I had known for 25 years and we moved in the same circles, our paths would have crossed and I would have killed him so for me it was move abroad or prison, after 10 years of reclusion totale in France I cant say hand on heart that I made the right decision, I would have served my time by now and would have rubbed shoulders with far more interesting and moral people in prison than where I live.

[AnOther]

[quote user="PaulT"]Presumably each country of the eurozone has its own Mint (just as we have our own special Mint) so what would actually stop them printing some more?

Presumably, they could be kicked out of the euro but what happens to the Greek euros in other countries?[/quote]

Despite what may or may not be printed on them there is no such thing as a Greek Euro any more than there is a French, German, Spanish,, or Italian one and even assuming there were a Euro printing facility in Greece, which I'm pretty sure there isn't, they could not just print them to suit their own needs.

Of course UK has the mint, why not when they have their own currency the Pound ?

[powerdesal]

I think Angela and the ECB will ''blink first''.

Maintenance of the Euro and the EU will trump any and all other considerations.

[Gluestick]

[quote user="PaulT"]Presumably each country of the eurozone has its own Mint (just as we have our own special Mint) so what would actually stop them printing some more?

Presumably, they could be kicked out of the euro but what happens to the Greek euros in other countries?[/quote]

Ah, this is a core problem aspect of the Euro monetary system!

Member states Central Banks are allowed to issue their own coinage: however the total money supply in circulation, is strictly controlled only by the European Central Bank (ECB).

Now a fundamental aspect of operating any Fiat Monetary System (i.e. a monetary system where there is no real value backing the money) is to adjust Money Supply by reference to GDP (Gross Domestic Product); or if you like the total value of work output created.

Compare this to a company: it is worth, say £10 Million: and has ten million one pound share issues and paid for.

However, if the company runs into liquidity problems and the directors conclude a way out of their troubles is to issue another 5 million shares, then since the company is still valued, nominally at £10 Million, the new shares have diluted the value of ALL the issued shares: which are now only worth 10 Million divided by 15 Million = £0.66 pence each share.

The essential Twin Levers of any Fiat monetary system, when it is related (which it is, inescapably) to a nation state's fiscal policies and balances - in other words public spending and taxation) are Base Rate/s (there are more than just one) and Interest Rate/s (Again, there are more than one). A government can help to ease disequilibrium ( Out of Balance) by careful adjustment of the economy, monetary inflation, foreign exchange currency values, etc.

This is the root dysfunction of the Euro mechanism: the expanded member states present with wildly different economies, social structures, industrial bases, laws etc.

However the Euro concept was to treat them as one, all the same and all at the same level. Idiocy!

All that was left to member state's governments was Sovereign Risk Borrowing (Public Debt) and taxation changes.

With Greece, now the results can be seen.

To answer the question; "What is likely to happen if a country runs out of cash?".

Then technically, in international financial parlance it will enter what is called Default. And be totally unable to borrow any more Sovereign Risk debt.

Not the end of the World, as it happened in the past to Russia; China; Argentina; and a host of others, the best exemplar being the German Weimar Republic in the 1920s.

Worth Reading Here:

[Frederick]

http://www.reuters.com/article/2015/02/06/us-eurozone-greece-idUSKBN0LA1QW20150206

[Gluestick]

[quote user="Chancer"]

[quote user="Jonzjob"]

Could you imagine what the situation would be if you walked into a bank and borrowed a wheel barrow full of cash. Spending like a drunk on speed and then tlling the bank you couldn't pay it all back, but would 1/2 do over the next christ knows how many years? They say  that most prison food is OK now though.

[/quote]

I know people that have done just that repeatedly over several décades and never eaten any porridge in that time, no sanctions whatsoever, no criminal record, no bans from being a company director and all done with the albeit grudging approval of the banks and lending institutions.

The scam is the (abuse of) the procedure called Independant Voluntary Agreement, basically you hide all your assets, you spunk away the banks money and then offer to pay them 10p or 20p in the pound or declare yourself bankrupt, seemingly they prefer something to nothing yet within a couple of years there is another mug punter bank being scammed by the self same individual.

One of these guys was the reason that I moved to France, I was bumped for a 5 figure sum, I was a limited company and all the advice was to go into liquidation which goes against all the values of my upbringing, I worked solidly 7 days a week for 2 years for no salary just to pay off my creditors and be able to close my business with a clear conscience for by then I no longer wanted to continue, it would surely happen again sooner or later either through malfortune or another deliberate act.

The guy I had known for 25 years and we moved in the same circles, our paths would have crossed and I would have killed him so for me it was move abroad or prison, after 10 years of reclusion totale in France I cant say hand on heart that I made the right decision, I would have served my time by now and would have rubbed shoulders with far more interesting and moral people in prison than where I live.

[/quote]

I much sympathise with you Chancer.

However, a few minor points of correction. If the debtor was a company director and the debt obligation undertaken by a limited liability company, then an IVA (Correctly, Independent Voluntary Arrangement), would not and could not apply; IVAs apply only to individuals.

Companies over-burdened by debt have the following options:

For the directors to apply for voluntary insolvency and winding up: however, the company must not hide any debt obligations if and when petitioning for a voluntary winding up order, must not "hide" any extant debt. All must be declared: in order a creditor can oppose the petition for good provable cause:

The company can enter liquidation because a creditor of group of creditors apply to the High Court for a Compulsory Winding Up Order.

Other options can include the directors appointing receivers for the company to enter Administration: in the hope it can be turned around.

Additionally, the directors can try and seek a Corporate Voluntary Arrangement, (CVA), with their creditors.

Both IVAs and CVAs require a majority of creditors to vote "Yes" at an initial creditors meeting, presided over by an IP (See below).

To knowingly hide creditors from the IP is a very serious criminal offence.

In the UK, insolvency work can only be conducted by a licensed and qualified Insolvency Practitioner (IP).

The new kid on the block is called a Pre-Pack; this is where the directors believe the company can be successful and appoint an IP to dissolve the original company and form a new company, which enjoys the assets of the old business, but is free from earlier debts: except!

There are two classes of creditors, in the main: secure creditors and unsecure creditors: the first includes statutory creditors such as HMRC; and those smart enough (banks, e.g.) to have demanded some security, (usually what is called a Debenture), before lending. For example, what is called a Fixed and Floating Charge, over the company's assets, removable and immovable.

A pre-pack needs the distressed directors to enjoy sufficient personal capital to "buy" back the new co.

Today, my practice demands Personal Guarantees from directors of any small limited liability company, prior to commencing any instruction or assignment.

We also robustly advise clients to demand the same, prior to working on an "Open Account" basis for supply of goods and/or services.

Sadly, the old days in business of integrity, honesty and mutual trust vanished quite a few years ago.........

[Gluestick]

A few more salient and sobering statistics reference Greece.

Pop: 11.3 M

39% work force potential

i.e:  4,407,000

GDP  $ 201,025,631,249

Debt  € 303 Billion

"In early 2010, it was revealed that through the assistance of Goldman Sachs, JPMorgan Chase and numerous other banks, financial products were developed which enabled the governments of Greece, Italy and many other European countries to hide their borrowing.[95][96] Dozens of similar agreements were concluded across Europe whereby banks supplied cash in advance in exchange for future payments by the governments involved; in turn, the liabilities of the involved countries were "kept off the books"

Source:

Thus once again, the villains make an appearance: Goldman Sachs.

I would be most grateful, if one of the clever bankers at ECB etc, can explain quite how Greece can ever extricate itself from this fiscal black hole.

Since to ramp up the economy would need vast amounts of capital.

Greece's GDP to Public Debt Ratio is now 174.1%; and rapidly rising as GDP falls at an accelerating rate and the debt service costs ( interest payable), rises rapidly due to unserviced debt.

[Lehaut]

Gluestick wrote

"Not the end of the World, as it happened in the past to Russia; China; Argentina; and a host of others, the best exemplar being the German Weimar Republic in the 1920s."

For about 60 million people in the last example, it was the end of their world!

[Gluestick]

[quote user="Lehaut"]Gluestick wrote

"Not the end of the World, as it happened in the past to Russia; China; Argentina; and a host of others, the best exemplar being the German Weimar Republic in the 1920s."

For about 60 million people in the last example, it was the end of their world![/quote]

Slightly different, Lehaut, due to the myopic stupidity flowing from the Paris Peace Conference and the eventual Versailles Treaty: and the determination of France's Clemenceau, to demand an unaffordable  amount of War Reparation: which territorial possessions apart, sort of guaranteed WWII within twenty years!

[PaulT]

Gluestick, whilst the financial institutions might have been keen to develop schemes to keep borrowing off of the books surely the borrower has some responsibility to ensure that it is affordable.

I suppose, as Robin Day alluded politicians are 'here today, gone tomorrow' so their actions are someone else's problem.

In the UK the Labour Party came up with PFI which whist keeping borrowings off of the books did mean being hostage to the financial institutions......wish to make a change that will cost you, no longer need the facility well, you have got it for 30 years etc etc. and now Mr Blair is free to earn millions for himself whilst leaving the UK in the excrement.

[Frederick]

Paul T wrote : In the UK the Labour Party came up with PFI which whist keeping borrowings off of the books did mean being hostage to the financial institutions......wish to make a change that will cost you, no longer need the facility well, you have got it for 30 years etc etc. and now Mr Blair is free to earn millions for himself whilst leaving the UK in the excrement.

Which in the case of new PFI built Hospital I know very well Was built on a flood plane in with the industrial estate site when land left to the town for a new hospital in a will was ignored

[Gluestick]

[quote user="PaulT"]Gluestick, whilst the financial institutions might have been keen to develop schemes to keep borrowing off of the books surely the borrower has some responsibility to ensure that it is affordable.

I suppose, as Robin Day alluded politicians are 'here today, gone tomorrow' so their actions are someone else's problem.

In the UK the Labour Party came up with PFI which whist keeping borrowings off of the books did mean being hostage to the financial institutions......wish to make a change that will cost you, no longer need the facility well, you have got it for 30 years etc etc. and now Mr Blair is free to earn millions for himself whilst leaving the UK in the excrement.[/quote]

What are called "Off Balance Sheet Obligations" are also loved by banks: as they can keep such obligations off of the Liabilities side of their Balance Sheets!

It has become of increasing importance as today, banks operate a system of what is called " Fractional Reserve Lending": what this means, relates to a bank's need to not extend their lending above a prudent level when compared to what are called their "Reserve Assets".

Most sensible economists and bankers such as Paul Volcker, the last good Chairman of the Federal Reserve, fear soon, the "ultimate domino effect", will occur, globally. This is when all banks are having to "Call" (Demand repayment) of loans, since banks lending to them are placed in an identical position.

Very much the same as a bank suffering a "Run"; Northern Rock for example. When depositors all queue up and demand immediate withdrawal of their cash and the bank lack sufficient cash to meet all demands and has to close it doors and fail.

Usually the Central Bank (Federal reserve in the USA; Bank of England in UK; Banque De France; etc) assist the troubled bank by shipping in loads of ready cash. However if many banks are placed in the same position, simultaneously, then the Central Bank can only try and support them by printing skads of new money; or creating it, electronically: as happened to the Weimar Republic. The money rapidly becomes worthless.

It is called runaway Hyper-Inflation.

What causes astute economists and sensible bankers such as Volcker such concern, is the flood of bits of paper, like Derivative Products, washing round the global capital markets: which increases each year.

Informed and credible sources all seem to agree, Greece can only fail and default. The default will destroy the enlarged Euro mechanism, as all the dozens of paper mountains of guarantees, bonds, accords, paper credits etc unwind and lenders in the Sovereign Risk Market (Public Debt Bonds) will be calling their loans; no one much will want to buy them except at - probably - deep discount ( say 10% of face value) and the whole cross-collateralized  house of cards will come tumbling down.

My own forecast for a long time, now, has been what I call a Euro-Lite: a currency mechanism between those Western EU members whose socio-economies are more equal: the problem causers in the South will be forced to leave.

[Gluestick]

[quote user="Frederick"]Paul T wrote : In the UK the Labour Party came up with PFI which whist keeping borrowings off of the books did mean being hostage to the financial institutions......wish to make a change that will cost you, no longer need the facility well, you have got it for 30 years etc etc. and now Mr Blair is free to earn millions for himself whilst leaving the UK in the excrement.

Which in the case of new PFI built Hospital I know very well Was built on a flood plane in with the industrial estate site when land left to the town for a new hospital in a will was ignored[/quote]

PFI was a major stupidity from Brown: also, do not forget, he sold off such as the HMRC offices, around the UK on what is called a Sale-Lease Back.

Saddling the taxpayer with rents for ever.

Unlike French péages, where government can take them over for nothing at the end of the operating period; and they must be handed over in 100% condition, or the contractor pays exit penalties.

In practise, the French government invariably, at present, roll over the operating contracts.

UK hospitals built under PFI suffer drastic fabric deterioration over the life span of the PFI agreement: and the last projections and analysis I reviewed, demonstrated they cost the NHS circa 3-4 X as much as an NHS newbuild.

[Gluestick]

Interesting........

See Here: