European Debt Crisis; Impending Catastrophe…

July 12, 2011


I received an email today from  Rob Viles. Rob is a concerned citizen and runs a successful business in Hamilton Ontario. Rob knows what it is like to be responsible for employees and the success of his business. Like many of us he is concerned about runaway debt and the impact it has on our country.

To think that we in Canada are immune to what we see going on around us in the world is naive. It is a tale sold to us by those who have benefited from our addiction to debt. The financial institutions that benefit from selling us debt and the Protected Class of government workers who have benefited from the debt the country has piled onto future generations.

As we finish up the last edit of the book, Pension Ponzi,  some revelations have come out that are quite shocking. The debt of Canadian governments,  somewhere around $1.2 Trillion has gone into the pension funds of public sector employees. There is now about $800 billion in public sector employee pensions.

Everyday more and more shocking revelations come out about the abuses in the public sector. Maureen Bader contacted me today about the pensions that are being paid at BC Ferries. The CEO of BC Ferries is entitled to a pension of $315,000 per year after working there for about 8 years. The Premier of BC came out in mock anger saying that the pension was outrageous. She knows full well that there are many more like this in the upper echelons of the public sector in BC.

Rob gave me permission to reproduce his letter. He points out that Canada is in the middle of the PIIGS. Actually we are between Portugal and Spain. This is shown in the Economist, World Debt Clock. It is not pretty …..

European Debt Crisis; Impending Catastrophe…

Yesterday European finance ministers were asking bondholders to ‘voluntarily’ permit some defaulting on Greek yields (link at bottom)…

For all the rioting over Greece austerity the aim of the government is to improve the debt situation so that Greece ‘only’ owes 145% of its annual output by 2016… that’s their goal! There is no plan to balance the budget or pay down debt, only to reduce the rate at which they are sinking… Say goodbye Greece!

If Greece wanted to borrow today it would have to pay up to 30% interest per year! Greece is irretrievably lost, they owe $491 billion with 11 million people; it’s only a matter of time until massive default and it appears it will be sooner rather than later.

Then we are going to see some world shaking repercussions. We are going to witness a global financial meltdown the likes of which history has seldom seen. They will go down like Dominos: Ireland, Portugal, Italy, Spain, all these nations that are essentially bankrupt, defaulting on their creditors and seeking IMF bailouts as Romania & Iceland & Argentina have done before them.

Greece’s default alone will cost the European national banks $52 billion, and the European Central Bank will lose 47 billion Euros. Once the other nations start defaulting an ‘orderly’ write down will become impossible. If allowed to go this far it will be a chain reaction of financial disasters worse than the Lehman Brothers collapse was to the US banks.

Portuguese bonds were downgraded to ‘junk’ status last week. Italy may well be next. Italy faces 175 billion Euros in debt maturities this year and has 1.6 trillion Euros of bonds outstanding, the world’s third-largest debt pile after those in the U.S. and Japan.”

“If Greece is allowed to restructure its debt, so should the other four similarly economically challenged and debt laden nations, namely, Ireland, Italy, Portugal and Spain.

To put things in perspective for the stakeholders, restructuring is an extremely costly exercise. The total debt burden of these five countries (GIIPS) is US$ 3 trillion, of which 74% is held by European banks, led by France (19%) and Germany (16%). Fortunately the US holds only 5%. Yet, the globalization of finance means that no major country goes unscathed…”

“This Greek debt drama has profound lessons for the U.S. whose debt to GDP ratio is expected to reach 90% by 2012”!

Once the dominos begin to fall the European market will largely collapse, ending a commerce lifeline that has been one of the few bright areas in a dismal economy for the USA.

Sh!t is going to hit the fan very soon… The age of ‘borrowing from the next generation’ is going to end (finally!) and there will be some very harsh realities for current governments to face.

And here’s the clincher: At $32,000 of debt per person in Ontario, we are right behind the Greeks (at $35,000 per person). Maybe it wasn’t such a good idea after all to DOUBLE our debt in eight years, eh McGuinty Liberals??

Rob Viles



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