Zero Hedge
0
All posts from Zero Hedge
Zero Hedge in Zero Hedge,

The Grexit Into Gold-backed Drachma Conspiracy Theory - or - Plan Z

This gold horde that Greece is amassing will spike in value if they Grexit, particularly relative to the euro http://t.co/wIcHPP47qF

— ReggieMiddleton (@ReggieMiddleton)

Greece backs drachma w/ gold, eliminating inflation fears, defaults on all eurodebt creating real drachma debt demand http://t.co/wIcHPP47qF

— ReggieMiddleton (@ReggieMiddleton)

 From Wikipedia:

Plan Z during 2012

"Plan Z" is the name given to a 2012 plan to enable Greece to withdraw from the eurozone in the event of Greek bank collapse.[16] It was drawn up in absolute secrecy by small teams totalling approximately two dozen officials at the European Commission (Brussels), the European Central Bank (Frankfurt) and the IMF (Washington).[16] Those officials were headed by Jörg Asmussen (ECB), Thomas Wieser (Euro working group), Poul Thomsen (IMF) and Marco Buti (European Commission).[16] To prevent premature disclosure no single document was created, no emails were exchanged, and no Greek officials were informed.[16] The plan was based on the 2003 introduction of new dinars into Iraq by the Americans[16] and would have required rebuilding the Greek economy and banking system ab initio, including isolating Greek banks by disconnecting them from theTARGET2 system, closing ATMs, and imposing capital and currency controls.[16]

Wolfson economics prize

In July 2012, the Wolfson economics prize, a prize for the "best proposal for a country to leave the European Monetary Union," was awarded to aCapital Economics team led by Roger Bootle, for their submission titled "Leaving the Euro: A Practical Guide."[19] The winning proposal argued that a member wishing to exit should introduce a new currency and default on a large part of its debts. The net effect, the proposal claimed, would be positive for growth and prosperity. It also called for keeping the euro for small transactions and for a short period of time after the exit from the eurozone, along with a strict regime of inflation-targeting and tough fiscal rules monitored by "independent experts."

The Roger Bootle/Capital Economics plan also suggested that "key officials" should meet "in secret" one month before the exit is publicly announced, and that eurozone partners and international organisations should be informed "three days before." The judges of the Wolfson economics prize found that the winning plan was the "most credible solution" to the question of a member state leaving the eurozone.

... In February 2015 the Russian government stated that it would offer Greece aid but would only provide it in rubles.[31]

Kathimerini reported that after the 16th February Eurogroup talks Commerzbank AG increased the risk of Greece exiting the euro to 50%.[32] The expression used by TIME for these talks is "Greece and the Euro Zone dance on the precipice".[33]

Effect upon the European economy

Claudia Panseri, head of equity strategy at Société Générale, speculated in late May 2012 that eurozone stocks could plummet up to 50 percent in value if Greece makes a disorderly exit from the eurozone.[34] 

Wait a minute! That's not possible. Goldmans Sachs says to buy EU eqities because of ECB QE and NIRP! We all know Goldman Sachs is always right, that's why more than half of hedge funds are following suit...

After all, do you remember Goldman's recommendation to sell the Swiss Franc? It worked out excellente', reference When Everybody Thinks They're Right, They're Almost Guaranteed to be Wrong! I Think This Is The Biggest Bubble In World History.

Bond yields in other European nations could widen 100 basis points to 200 basis points, negatively affecting their ability to service their own sovereign debts.[34]

Hopefully with no correlation whatsoever to US-based debt, cause Goldman also recommended - Long U.S. High-Yield credit risk: The recent underperformance of the U.S.High-Yield market should prove transitory, the bank reckons. I addition, what will the ECB do after all of this QE and NIRP if bond yields spike anyway? Well.. More NIRP and QE of course!

But, as early as March 2010, other European financial economists had supported the notion a swift Greek withdrawal from the Eurozone and the simultaneous reintroduction of its former national currency the drachma at a debased rate, arguing that the European economy as a whole would eventually benefit from such a policy change : "Such an abrupt readjustment might be painful at first, but it will ultimately strengthen the Greek economy and make the Eurozone more cohesive, and thus better at confronting the difficult economic circumstances and dealing with them." [15]

Effect upon the world economy

Europe in 2010 accounted for 25 percent of world trade, according to Deutsche Bank.[34] Economic depression within the European economy would ripple worldwide and slow global growth.[34]

Immediate economic fallout inside Greece

The theory behind the readoption of an independent Greek national currency is that such a currency, freely floating on the international markets, would be able to depreciate in value and thus Greek exports and shipping services would become more competitively priced on the world market. Imports would be correspondingly more expensive, encouraging domestic production in Greece. However, persuading the Greeks and their businesses to replace their euros with a currency intended to collapse in value would be more than somewhat challenging, and current Greek debts would remain denominated in euros.

On 29 May 2012 the National Bank of Greece warned that "[a]n exit from the euro would lead to a significant decline in the living standards of Greek citizens." According to the announcement, per capita income would fall by 55%, the new national currency depreciate by 65% vis-à-vis the euro, and the recession which Greece has been in for five years would deepen to 22%. Furthermore, unemployment would rise from its current 22% to 34% of the work force, and the inflation, which is currently at 2% would soar to 30%.[20]

According to the Greek think-tank Foundation for Economic and Industrial Research (IOBE), a new drachma would lose half or more of its value relative to the euro.[17] This would drive up inflation, and reduce the purchasing power of the average Greek. At the same time, the country's economic output would drop, putting more people out of work where one in five is already unemployed. The prices of imported goods would skyrocket, putting them out of reach for many.[17]

Analyst Vangelis Agapitos has estimated that inflation under the new drachma would quickly reach 40 to 50 per cent to catch up with the fall in the new currency's value.[17] To stop the falling value of the drachma, interest rates would have to be increased to as high as 30 to 40 per cent, according to Agapitos.[17] People would then be unable to pay off their loans and mortgages and the country's banks would have to be nationalised to stop them from going under, he predicted.[17]

But what if Greece put a floor under its currency with a peg to gold and a soft redemption policy (with a borderline prohibitive premum to be paid if the drachmas were actually redeemed for the gold)? Such a floor may actually make the Drachma preferable to what would be a rapidly destabilizing euro with a guarantee of further debasement, QE and volatility to come. Under such a scenario, capital may actually fly into the drachma, particulalry of they default on current euro based debts and wipe the slate clean. Concerns about paying back euro denominated debt with the drachma are ill founded if the euro based debt faces mass defaults. Look at the chart below. Someone was at least thinking about this idea.

Below the chart is a trade setup to monetize such an event within three months.