So Greece is on bank holiday until after the July 5th vote on whether to accept the draconian austerity measures proposed by the Trioka.
How can the ECB and the EU state the euro is a reserve currency and allow this to happen in Greece?
Zimbabwe and Thailand closed the banks when their 3rd-world currency experienced hyperinflation, but for the Trioka to force the Greek government to close the banks over lack of liquidity shows that the idea of common currency for the euro zone is a farce.
You’re not a reserve currency if you cannot keep banks open during a crisis.
So we have bond and equity markets in turmoil globally as the June payment will be missed. But there will be no default notice issued by the credit rating agencies, because of that would trigger a cascading cratering of markets along the lines of Lehman Bros. as IMF chief Christine Lagarde is aware given her derivative expertise.
That’s not to say there aren’t some hedge funds on the wrong side of the trade right now, burning up the phone lines in search of a capital injection so they can open for trading in the next two hours.
We just don’t know who it is and where and if the liquidity will come.
Central banks are pouring money into the capital markets right now, buying up good collateral. We won’t know who was naked when the tide went out for some time however.
Gold’s muted response — up $5 in US pre-market — points to people selling what they can that is liquid.
Remember the key to market problems these days is liquidity. Many of the traditional buyers in the market are gone. It’s the Federal Reserve that is the market liquidity provider, since the large bulge-bracket bank’s prop trading desks have vanished.
As we get closer to the US opening, we may see markets take another leg down on this, although everyone said there was little exposure to Greek default, some firms have to be on the other side of the trade.