Pragmatic Lessons from the Greek Situation

[Ego]

Cash in a safe deposit box? Check that off the list of options.
http://www.reuters.com/article/2015/07/ ... 0920150705

[jacob]

@s@d - That's a good overview of the problem (and the US has a similar problem wrt China and Bretton Woods). If you had to take a very rough poll of attitudes, it's more of a Northern European (protestant work ethic) culture vs the Southern European culture. It's an extremely easy populist sell to compare the easy Greek pension system to the more austere systems in place elsewhere. That the German economy/industry benefited tremendously from lax lending to trade deficit countries (like China benefited) is ignored. Of course now that it's backfiring ...

The point that you can't have a monetary union without a fiscal union is well-taken. I recall that when people voted back in the 1990s, the strategy was that the monetary union would be a start that would lead to a fiscal union. I (being mostly uninformed) was solidly pro-EU back then. Now I'm not so sure. OTOH, it's been almost 75 years since major European powers fought each other. That's a record.

@Ego - Same deal in some US banks. E.g. JPM no longer allows you to store cash in their boxes.

http://marketdailynews.com/2015/04/21/t ... sit-boxes/

[jennypenny]

So, now that we know more and how it will play out, at least initially, what could have been done to prepare? What kind of preps (financial or otherwise) look like they will be most useful to Greeks? Looking back, was there a sign that should have told people this was imminent?

I'm curious ... for those with kids, would you stay or go? Would you do something differently because you have kids? How about aging parents?

[sky]

A fiscal Union is not necessary. The cause of the problem is easy financing. The lenders should have been more cautious. The Greek government should have been more cautious.

This is a bad management problem, not a cultural problem.

Give a country a solid, stable currency and it should be able to build an economy.

[Ego]

So, now that we know more and how it will play out, at least initially, what could have been done to prepare? What kind of preps (financial or otherwise) look like they will be most useful to Greeks? Looking back, was there a sign that should have told people this was imminent?

With situations like Greece that hinge on public confidence, the pundits who speak to/for/with those who want to maintain stability and the status-quo are good barometers. There is a tipping point where the benefits of lending their legitimacy by speculating on future consequences of a dreaded event (Grexit in this case) outweigh the value of maintaining placidity. In other words, when those who make a living keeping everyone calm suddenly start saying scary things, that's when it's getting close.

Cultivating options seems to be a good tactic. Trouble is, some of these these options can have carrying costs and can be in conflict with the desire for an uncomplicated, minimalist life. And some will work as planned until, poof, they suddenly don't.

I was thinking of editing the first post with a list of tactics that have been mentioned here along with their success/failure.

[jennypenny]

Yeah, I'm not sure anything really 'worked'. Some preparations would make it easier to ride out the current situation, but how long could they last? Three months? Six months? I asked about the kids/parents because I think in a region-wide or country-wide situation, people with any resources would end up helping those close to them, which would use up resources faster. I imagine that's more common in a culture like Greece's. How many would leave if it meant leaving their family behind? Not many, I'm guessing, unless they thought their kids' lives were threatened.

If a person/family was willing to leave, the best approach might be owning jewelry that can be worn when leaving the country and sold after arriving at their destination. It would only have to be valuable enough to support them for the duration of the event or until they could establish themselves somewhere else (a year?).

[Ego]

Yeah, I'm not sure anything really 'worked'. Some preparations would make it easier to ride out the current situation, but how long could they last?

I'm not sure what you mean. Moving money to the U.S. before the crisis worked for Mexicans.

[jennypenny]

But did they leave their money in the US, or were they able to move it back? How much of a PITA is that over a long period of time?

I guess I'm guilty of mostly looking at it from a US perspective. Where could a US citizen move their money permanently? Would the US even allow it or could they still include offshore funds in any haircut?

I suspect this whole exercise is moot. We're watching what's happening in Greece to try and figure out how we could get around a bail-in/devaluation. I'm sure the Fed and other governments are doing the same thing to make sure they tighten the reins properly. I bet any loopholes will be shut down before the next one crumbles.

[RealPerson]

@JP
For Mexicans, keeping their money in dollars in the US was well worth it. The graph posted by Ego shows this nicely.

A "haircut" can be accomplished with inflation. Americans can avoid this by keeping their money in a low inflation currency. The Swiss Franc comes to mind. Any US dollar denominated investment is subject to inflationary devaluation due to US monetary policy.

A practical problem for Americans is FATCA. Due to this law, many foreign banks refuse to do business with Americans. This can be a problem even where a foreign bank account is very legitimate, such as for people who live overseas. The draconian FATCA rules were meant to deter tax evasion, but have grossly overshot their target. FATCA is a great example of a rule most people don't care about because it only affects those "rich" people. It is reminiscent of the AMT that was originally passed to catch a handful of millionnaire tax dodgers, but now catches millions of taxpayers. Having a foreign passport is a real benefit to open a foreign bank account. But don't forget that you have to report ownership of a foreign bank account to the Treasury Dept. every year. Ignoring to do this is a felony offense. I suspect that filing such a foreign bank account report will make you a taxpayer of special interest to the IRS.

The US government can impose any rules they wish on Americans. These rules are especially enforceable if you have income, property or your own physical self inside the US. The threat of some time in prison can be very persuasive. If you have no physical presence or property in the US, disobeying the law makes you a target for the Justice Department. Their vigor to find you and bring you to justice depends on how badly they want to make an example of you. They can revoke your passport, hence the importance of having another non-US passport. So if you wish to obey the law while living overseas, you are subject to any haircut they dream up in Washington.

[Riggerjack]

OK, maybe it's just me, but why all this worry about a Greek style haircut? We get it every year in the form of inflation. The 30% in one year, or 4%/year for a decade, it's all the same, and it all gets priced into all asset classes. If it was sudden, there would be more volatility, as the panics set in, but long term, it's all the same.

Short term, avoid the dramatic shortages, long term, your sound investments should still be sound after the chaos. There may be a huge dip in asset prices, but after the currency stabilizes, asset prices should stabilize, too.

Or am I missing something? I thought about trying to capitalize on the Greek volatility, but so many have the same thoughts the prices went up as the crisis deepened. And I just don't find Greek productivity high enough to warrant long term investment.

[GandK]

I'm curious ... for those with kids, would you stay or go? Would you do something differently because you have kids? How about aging parents?

I'm 90% sure I'd stay. Unless I felt like starvation or eviction was likely, I think I'd stay put and become more involved in the political process in the hope of contributing to the solution and preventing any such thing from happening again. And the kids are part of the reason I'd stay. Them seeing that life doesn't always go well but that you can overcome challenges when they occur would, I think, lead to more hardy and self-reliant kids (like the children of the Depression).

I think I'd only leave if I felt like the "solutions" being implemented did not address the issues or were likely to lead to the same problems all over again, my thought process being that I can't outvote stupidity no matter how I function individually or in my family.