Greek drama: Does it really matter?

June 5, 2015 10:40 AM

This has been hanging over the financial markets like a bad cold for some time. Greece and the Eurogroup are down to the wire and neither side is budging.  But just how significant is it? On Friday Greece has a $339 mln payment due the IMF. If a deal isn’t made Greece says “no payment.”

Then in a couple of weeks they’ll owe another 1.2 billion euro. But the real end game may not come until July. Why? June payments are due the IMF and they have been stiffed before by others and life goes on. So global financial circles don’t see that as a big deal – just the news media does.

What does mean something is the 3.5 billion euro due the European Central Bank in late July. And we all know how nasty banks can get when stiffed. The current $88 bln dollar lifeline to Greece would be most likely cut off – that’s the only thing keeping them afloat now. That’s for starters. So July does matter a lot more than June payments.

So if a deal by payday on Friday isn’t met and Greece doesn’t pay, it could have near term negative effects on the eurofx and produce a rally in the dollar but possibly not the dramatic, extended reaction anticipated. The real concern is the July payment.

But in the whole scheme of things Greece is minor in comparison to global debt. Since the 2008 crisis global debt has expanded over $57 trillion. The world is awash in debt levels over $200 trillion. This is a combination of government, financial, etc. But what is more shocking is that there has been “zero” debt payback over this period. Just possibly this explains the slow growth in the global economy since it is a consequence of debt overload. And many markets show this with their disinflationary direction. Don’t expect it to change any time soon.

Add to this fact that of all the money in the global financial system, only a fraction is actual physical money/cash. Take the U.S. financial system alone, less than 1% is actual physical money or cash. The rest is in the form of digital loans or credit. In other words, actual cash in the U.S. financial system is a little over $1.36 trillion. Add to that over $345 trillion in digital money and something seems out of balance.   

And that is what concerns the Fed.  If too many investors decided to go into a cash position something would have to give. That is what happened in 2008. Depositors attempted to pull $500 billion out of money market funds. As a result, the truth of the financial system was quickly laid bare: that digital money is not safe. This is a huge concern to the global Central Banks. If a significant percentage of investors/ depositors ever tried to convert their "wealth" into cash (particularly physical cash) the whole system would implode.

So if the system is ever under duress again like in 2008, for starters money market funds could prevent investors from getting their money out. In other words, the investor/depositor would be sacrificed to save the system.   

So Friday seems minor in comparison, at least for now. But could they eventually trigger something bigger? After all, investors pulled 800 mln euro out of Greek banks in just two days last week sparked by a fear of a run on the banks over concern about the July payment. From that standpoint we have to ask if Greece could unknowingly trigger a reaction at some point that would matter a lot to the whole system. Time will tell.

About the Author

Judy Crawford is a senior broker at Zaner Group. Raised in rural Minnesota, Judy went to the University of Minnesota and received a BA Degree in language. She specializes in technical analysis of the markets and write a market commentary entitled “Market Update” that is available to readers via e-mail. Sign up at her website: