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Tags: greece | eurozone | exit | grexit

Countdown to the ‘Grexit’ - Stage Left

By    |   Thursday, 26 July 2012 12:27 PM EDT

“Grexit” is the name given to the term of Greece leaving the eurozone. It is something that I began to believe in a long time ago. However, it seems that the mainstream press did not catch on to it until just recently.

Most thought that somehow this kicking the can down the road in Greece would continue. Even in a recent interview, legendary speculator George Soros seemed to think it was not just a matter of when or if Greece exits, it is the euro’s ability to absorb this exit or default.

I know that conservatives and free-market believers like to believe in austerity. That spending cuts are the way to go to balance a budget. However, the problem in Greece is the economy is so socialistic that there is no private sector to absorb the cuts.

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The U.K. economy, for example, is stagnant, not collapsing, despite spending cuts because there is a private sector in the United Kingdom. Greece does not have such a luxury.

As people worry about higher taxes and economic collapse, they stop paying their taxes. In Greece, despite higher taxes, their revenue numbers are not going higher. Many companies are moving to Bulgaria to escape higher taxation and many citizens are hoarding money in fear of a Greek collapse. This causes the budget gap to fail to close and leads to collapse.

If you look at the collapses of Argentina in 2001 and Russia in 1998 it was the same thing. Revenues dried up, austerity killed the economy and the governments could not meet targets to get bailout funds. They defaulted and the markets dumped.

In the end, the default is the most free market-orientated solution.

Greece should have never been leant that money. Those that leant it to them where stupid to do so. This is a country that has spent half of the last 200 years in some form of default. Therefore, they should default and start over with a lower social-spending system. And those that lent it too them (the dumb banks) should pay for their mistake.

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When a country defaults it usually leads to a collapse in their currency and hyperinflation. However, usually after one to two years of this, the economy recovers and then grows again. The default expedites the pain. Both Russia and Argentina have grown strongly since their defaults.

In addition, the Greek stock market is down over 90 percent from its all-time high, and it trades in the single-digit price-to-earnings ratios. It is similar to the United States in 1932 — in a depression and dirt cheap. It just needs a catalyst to move to the upside.

I think this catalyst will be in the form of a default and exit from the euro, stage left!

About the Author: David Skarica David Skarica is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes the Gold Stock Adviser. Discover more by Clicking Here Now.

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Thursday, 26 July 2012 12:27 PM
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