Recently, I have written quite a bit about the ECB's decision to more than double the amount of T-bills the Bank of Greece is allowed to accept as collateral. After falling short regarding the implementation of mandated austerity measures, Greece failed to secure a 31 billion euro tranche of aid from the troika originally set to be delivered in June. Facing default, the country resorted to the issuance of t-bills which are sold to its own banks who in turn pledged the debt as collateral for cash. As I noted before, this means Greece is printing euros and this marks the end-game--it cannot, and will not be allowed to persist.
Indeed, the sheer lunacy of the situation was conveyed to the general public Tuesday when Mark Grant called it a "ponzi scheme" on national television in a CNBC interview. It is indeed a shell game and on a grand scale. Greece sold 812.5 million euros in 6-month bills on August 7 and another 4.06 billion in 3-month bills Tuesday. Keep in mind that this money did not previously exist. The ECB is allowing the Bank of Greece to fund the Greek government and in the process 5 billion euros has been created in the past two weeks alone. Bear in mind that if (or more accurately, 'when') Greece defaults, the losses on these bills will be borne by the rest of the eurozone.
There is absolutely no reason for this. The longer Greece is allowed to fund itself with newly created euros, the larger the bill will be when it eventually defaults. This of course is on top of the already astronomical losses private creditors have suffered on Greek debt due to the PSI. The fact that the ECB is facilitating this is madness, plain and simple.
Wednesday, Paul Day chief strategist at Market Securities told CNBC that Greece will likely leave the eurozone within a month. This prediction comes on the heels of a report which indicates that despite 'progress' made on the last visit to Athens by the troika, Greece will ask next week for a two year extension on the time table for implementing its austerity plans. As part of the deal, Athens is expected to ask for another 20 billion euros on top of the other bailout packages. According to the Financial Times article published Wednesday, Greece expects the money will come from
"...an existing IMF loan, issues of treasury bills and, Greece hopes, a postponement in the start of repayments of its first EU-IMF loan from 2016 until 2020."
This truly stretches the limits of the imagination. This request will come as Greece has yet to prove it can implement the necessary austerity measures (totaling 11.5 billion euros) to secure the next tranche of aid from the troika. Now it wants to implement a plan whereby it will issue billions more in t-bills and in the process create euros that previously didn't exist.
It no longer requires a so-called 'gloom and doom' line of reasoning to come to the conclusion that Europe is headed for a 'Lehman moment' in the very near future. It is time to position for a steep decline while the market is still elevated. I recommend a short position in U.S. equities (SPY), European equities (FEZ), the euro (FXE), and a long position in gold (GLD) and volatility.