Early Retirement Extreme Forums

I thought it would be useful to keep a running commentary as the Greek situation unfolds. It could be a useful fire-drill to operate under the assumption that we might one day be in a similar situation.

I don't really care about how Greece got here or what they should have done from a macro perspective.

I am more interested in the individual. What would you do - or would you have done - to minimize the impact of the collapse on yourself and those around you.

-Imagine that you are Greek and hold your nestegg there. What could you have done to avoid the closed banks and capital controls.

-Today Greek pensions were rationed. Those who are relying on a pensions elsewhere, what would you do in a similar situation?
http://www.bloomberg.com/news/articles/ ... or-tsipras

I just sent 25 euro via bitcoin to a German dude who helped me with an internet problem.

So I would do...that.

The tried and true methods for dealing with these kinds of things is to stop using local banks, keep all your money in cash, preferably in the world's reserve currency or another stable one (and some gold), and for god's sake don't tell anyone about it. If you can store wealth outside the country, do it. You might also consider emigrating to another country entirely.

With pensions you are kind of screwed. You might consider a buy-out if they offer it, but that is usually a one-time deal.

There was an interesting article we looked at a few weeks ago about how people in Argentina are using bitcoin to avoid the capital controls there. I would not be surprised if it becomes more common in states with capital controls on. I would look into that, too.

For a month-by-month history of the classic German crises of the 1920s, read "When Money Dies". But I think local collapses are more likely -- in the US at the state and municipal level in particular. I would move out of any local area that looks like its going into crisis, but would be looking to move back into areas that have gone through bankruptcy and shed their debt. But there is no "bankruptcy procedure" on a sovereign level -- its all ad hoc.

I view the Greek crisis as a local one economically speaking, because its economy is actually quite small. Compare it to the effect of Detroit's bankruptcy on the state of Michigan -- yes, it hurt, but the state did not implode or disappear into the Great Lakes. Whether a crisis spreads elsewhere kind of depends on who is holding the bag on the default. Greece should have defaulted long ago and gone Iceland on their creditors -- their problem has only become worse by waiting.

What Dragline said is basically the blueprint. From there it would just be slight variations based on where you live.

A key variation would be the currency you held. If you are Greek, it wouldn't be terrible to have Euros. Though, Dollars would still be better, especially in the short-term.

If you were American or Chinese you would go with the other or the Euro, though more gold would probably be better if one of the behemoths went down. Nothing like a useless metal as a value store. Proof that we are stupid, but it would still be the play...because we are stupid.

If you kept the money in overseas financial institutions you would need to look into how much exposure they have to the failing country (debt and revenue).

For those of us in the US, I see this more as a local risk, as Dragline noted and Jacob kind of outlined in the other thread with this article:

https://larrylittlefield.wordpress.com/ ... vernments/

Thus, being able to move cheaply should be part of your defense. We discussed this in the thread below:

viewtopic.php?f=14&t=6462&p=95045&hilit ... dge#p95045

Current Greek situation

My parents are in Athens right now. Yesterday my mom posted this on FB:

"The [Greek people] we've talked to are embarrassed by this situation, truly want to stay in the EU, and feel they can't trust their government. They are in our thoughts and prayers."

Had the following conversation with her this morning via FB messenger:

Her: In Athens now. Interesting place, but we really loved Nafplio! Cruise starts on Friday.
Me: I hear the Greek govt is now rationing pension payments. Hope you're not surrounded by riots.
Her: No riots, and we have plenty of Euros. Latest is that prime minister is rethinking his position. People we've talked to are very divided. Interesting time to be here!
Me: I'm sure it is. I also read this am that people are confused about what they're actually voting for. [For reference, this was the article: Greek Voters Have Just One Question: What Does Yes Mean?]
Her: Yes. I think that's true. They needed a strong leader to make a difficult decision; PM is not that person. On another level, we visited a museum of their War of 1821 (Ottoman Empire) and there was this Nat'l feeling that fledgling Greek government did not care for war wounded well....led to too many social programs for sustainment?
Me: Maybe so.

If it happened here

On the local/state level: it would be wise to choose an area with a low debt load, which ought to be less likely to default. The 15 least overextended states as of EOFY 2012, in order: Wyoming, South Dakota, Nebraska, North Dakota, Utah, Montana, Washington, Idaho, Iowa, Tennessee, Georgia, Florida, Arizona, North Carolina, and Texas.

On the national level: I'm wondering if it would be a better strategy to be living off the land in a rural area and stay put, or aim for mobility. Ride out the storm or flee it? I mean, if the US defaults, the ripple effects would be enormous. Where would we go that would not also be in chaos?

I think the best thing we/anyone can do to mitigate fragility is remove ourselves from the consumer cycle as much as possible... to focus on not needing money in the first place. Most folks here are already doing this to some degree. And admittedly, that doesn't address the issue that would likely arise from others who didn't prepare trying to take your resources by force in a sort of "Walking Dead" scenario.

Globally, this situation seems like a plague of economic locusts. Spurred on by corporate advertising and an attitude of entitlement, most people in most developed nations are consuming mindlessly. They will not sit quietly and listen to reason about how a high level of consumption is not a good idea when the message from all four corners is, "You deserve these things, and anyone who says otherwise is oppressing you for their own nefarious purposes."

.. to minimize the impact of the collapse on yourself and those around you.

A crisis could also be a rare opportunity to invest and take risks with funds that one can afford to lose. Buffet did it in the US in 2008. Ross did it more recently in Ireland and tripled his investment in three years. He is doing it again in Greece:

http://www.bloomberg.com/news/articles/ ... e-correct-

http://mobile.reuters.com/article/idUSK ... 9?irpc=932

Aside from the tactical reactions like discovering bitcoin (up 12%+ since the referendum was announced); buying luxury cars in a race to the bottom (hey, it's a hard asset); or lining up at ATMs to be the first one to withdraw before they're out of cash, I think the general strategy is to

1) Realize that this has been building for a long time. Regardless of political or personal denial or political or personal negotiations, the debt clock keeps ticking. Failure to act in time happens because it's emotionally preferable to take a small gain in the present even it it creates a bigger loss in the future. People stay in the theatre to keep watching the movie even if they smell smoke because "it's probably nothing". This is where optimists get slaughtered. I realize that this is very hard in practice. Especially for anyone putting down any kind of roots/anchor (bricks, culture, language). It should be very easy for permatravelers though except for global problems (e.g. a Carrington Event).
2) Somebody will need to take the hit when the fallacy that caused the problem is reset by reality. This can be a scapegoat or more likely those who by random chance or populist support is deemed able to afford it. Raise the tax on home owners, tax all assets, go from house to house and see who's hoarding supplies or cash, renege past promises, draft and force people to work/fight, prevent people from leaving the country, outright kill ethnic groups, ... IOW, there's not ONE thing you can do.
3) Therefore do several. The default strategy when clueless is to diversify (putting your faith in the central limit theorem and hoping all troubles are independent going lalalala...). More importantly, ensure that you're ALWAYS LESS RELIANT ONE ANY ONE FACTOR than the majority of all other people in that group. If you have a pension, need it less than most other pensioners. If you have money, need to spend less than most other savers. If you have a job, need that one job less than most other employees. This ensures that if your particular grouping is the one designated for the haircut, you will suffer less than most (this should make you relatively happier too ;-P ) because you're in the lowest marginal cost part of the group and more importantly, because of that there will be plenty of people (at higher marginal cost) who will be willing to fight the other groups before you become the "marginal sacrificial lamb".

If you want specifics, ERE will work (in the system sense, not in the extremely early retired with a fat pension and a lot of money).

mean, if the US defaults, the ripple effects would be enormous. Where would we go that would not also be in chaos?

To a place that is already decoupled from the mainstream economy. Where you can live from your own land and barter with neighbours.
I know a place! ..... on a nice Greece island with a small farming / fishing community ...

As Jacob says, diversify. You will loose some of your wealth but not all and through ERE principles you can survive relatively easy.

A few questions on the mechanics of how the average Greek EREer - let's call him Panos after my Greek friend of the same name - might have avoided loss.

-If Panos went to his branch of the Papaloponis Bank last week and withdrew all the funds by cashiers check in euros payable to himself, then the following day the bank closed, the gov't forcibly converted all euro deposits to devalued drachmas and reopened to a depositor haircut of say 65%. Did Panos protect his euros? Could he hop on a ferry to Bari or a flight to London and open a new account then deposit his funds at full value?

-Or would Panos have been safer had he put all his funds into bitcoins? Does anyone here keep a significant sum in bitcoins? Would you feel safe?

-What if Panos had an investment account. Would he be forced to take a haircut? If so, how? He holds €100,000 in shares of Google and €25,000 in a money market account. Is that protected?

ffj, you can argue that Panos should have known, but we all might find ourselves in Panos's position someday soon with CalPERS, the largest pension fund in the nation, only 77% funded. We know.

@Ego - It's impossible to say because a haircut would work much like this https://www.youtube.com/watch?v=qd8hy032uLc ... remember that all these pieces of papers with little numbers on them are only conventions. Conventions and guarantees can be changed by those who made them. Also see, counterparty risk! Who gets hit and how much all depends on what kind of "deal" is ultimately reached. Also consider what kind of deals are realistic/practically possible e.g. refusing a few checks vs repossessing all the BMWs that people bought up until last week.

Basically, like Dragline said, the methods are well known. It's just that most of the time there's a big hassle cost in protecting oneself against the rare state default. Therefore almost nobody does it. And when they realize they want it; they do it at the same time; so it's not available anymore---e.g. easy access to the door in a theatre on fire.

As I have been reading alot on bitcoin lately, it would be tough to convert to bitcoin. Most bitcoin is bought on exchanges with funds from bank transfers. The banks are closed. If one had a contact in the bank that would make a transfer out then that would be another story, but then you would not need bitcoin. Without a transfer from a bank to an exchange, you would have to buy it from a person face to face. If I lived in the Balkans and I had bitcoin, I could go there and sell it for euros, at a nice profit I would guess. As to the safety of bitcoin, I'd say much safer than a mattress in Greece if you truly understand how to keep your private key safe and private.

Also, I have been thinking that one big lesson is don't be the original lender/bondholder to a greece or a puerto rico. The bondholder may have made as a bad decision as the borrower did in borrowing more money. In my opinion, there may be shared culpability. If one can now buy the bonds at a radically reduced price that might be another story.

jacob wrote:@Ego - It's impossible to say because a haircut would work much like this https://www.youtube.com/watch?v=qd8hy032uLc.

Yeah, that's why I wanted to start this thread. I wouldn't like the idea of $X00,000 of cash stuffed in the mattress. While I like bitcoin as a method of transfer, I'm not sure how I feel about it as a store of value. So it will be interesting to see how the smart money avoids Darth's alteration of the deal.

In this situation cash is king, and security comes from a secret, hidden safe, in the house, in the car, and hidden pockets in your clothes.

There does not appear to be a threat of currency devaluation, but if there were, holding things like construction equipment in a warehouse, steel or aluminum stock, cattle or hogs, frozen steaks, things that are valuable but not too perishable.

Fruit trees and bush fruits at the homestead, and at the same time a reliable vehicle you can live in.

I hope that if I was from a place like Greece that I would have left that country for a better country., it is a basket case economically and shouldn't be using Euros for currency. The urgent problem with Greece is that they can't print the money or issue their own debt to cover the principle owed. The problem will be solved when they default, exit the Euro, switch to Drachma and negotiate debt settlements on the defaulted Euro loans in Drachma (which they will print to pay off). The currency will inflate, may hyper inflate, and they won't be able to get any more loans without sky high junk bond interest rates. However greek labour will become cheap and employment would likely pickup and return to normal levels eventually. I think that an orderly mix of austerity, progressive taxation, debt restructuring and money printing would allow them to recover quickest. Without the money printing they only have deflationary tools which lead to recession/depression outcomes.

I believe the epic quote from margin call has some value to the question: https://www.youtube.com/watch?v=O5EsNV-gyr8

"Be first, be smarter, or cheat"

If you can store wealth outside the country, do it. You might also consider emigrating to another country entirely.

I think this is the truth as well. At the end of the day, you have to remain flexible. If there is a train coming, get off the tracks. If there is a wiff of smoke in a crowded theater, hit the door, NOW! Better yet, don't go into crowded theaters.

I don't think one can always outsmart a situation as there are unknown/uncontrollable variables that you can't forsee or control, such as this upcoming referendum. I have no idea what the outcome is going to be and even with a yes or a no, what further implications that has for everyone involved. Just better to avoid the problem as much as possible.

As far as cheating, I think we are going to see a lot of that. Black markets sprouting up, bitcoin (technically not a national currency), hoarding, fire sale prices for consumer selling goods when the music stops, wildly inflated prices for buying goods etc.. I can imagine that Greek real estate might be quite a bargain if things go south in say 6-9 months. "Ahh I see you have a nice ocean front villa with a million dollar view. I'll give you 50k cash for it."

The thing I don't understand is we all knew something like this was coming for 5+ years. Greece didn't just get "in trouble" last week. The folks with money/assets should have been able to move themselves and their money (assuming it is liquid) a long time ago, but I'm sure plenty have not. I am seeing less and less utility in a pension as those can get cut/reduced, especially if the pension program isn't solvent. I think any Puerto Rico government pensioners would be very worried right now. That is just a future promise, which may not be worth what you thought it would be in the future. I think flexibility is the key:

don't allow yourself to get attached to anything you wouldn't walk away from in 30 seconds flat if you feel the heat around the corner.

https://www.youtube.com/watch?v=4SSMSRon5zM

be like water

https://www.youtube.com/watch?v=pAxOHPmITHI

I know in Detroit, some of my friends who were city/county workers are worried as well as the city had their bankruptcy issues and Wayne County is struggling with pension woes. Nothing like saving/waiting your whole life for a golden benefit only to find out the deal has been altered when you go to claim it.

I think Social security is headed the same way, which is why I want to opt out of that system with focusing my earnings on qualified dividends where I can avoid having to pay into a system for decades that we know isn't fiscally sound and yet nobody has any plans to change it, so I want to be less reliant on it as Jacob said. I will likely get some money back from my taxes paid in, but I am not relying on it in any way for retirement planning.

Ego wrote:

jacob wrote:@Ego - It's impossible to say because a haircut would work much like this https://www.youtube.com/watch?v=qd8hy032uLc.

Yeah, that's why I wanted to start this thread. I wouldn't like the idea of $X00,000 of cash stuffed in the mattress. While I like bitcoin as a method of transfer, I'm not sure how I feel about it as a store of value. So it will be interesting to see how the smart money avoids Darth's alteration of the deal.

It would be interesting to see what deals would get altered. Would they go for a couple high value targets or a whole bunch of low value targets? The high value targets would take less work and bring in more money/assets. This process would be both more difficult politically, because the high value targets have more power, and easier politically, as the masses could easily see why this is being done. The low value targets would be easier to do politically, but the return on the work invested to get all of them done would be less.

Bitcoin might be too small and to esoteric for them to bother with. No one watching NBC (etc.) news would see a haircut on Bitcoin as helpful (pay down debt), as most don't understand it. Though, this also makes them care less if it actually did happen.

More than likely a government would hit a few small things first to test the waters and then go after the larger more valuable measures, with the majority of the small ones following later. A defense might be to focus on the more esoteric options with the hope this pattern is followed. This would allow you the ability to use the small esoteric options to miss the initial haircut, while being able to jump back into a larger currency/asset that already received a haircut.

The Guardian got a leaked IMF report that said the austerity plan would not be successful if fully implemented. Here are some of the things the are demanding of Greece. Looks like pensioners are taking the brunt.

http://www.theguardian.com/business/201 ... are_btn_tw

-Create strong disincentives to early retirement, including changes to early retirement penalties

-Adopt legislation so that withdrawals from the social insurance fund will incur an annual penalty, for those affected by the extension of the retirement age period, equivalent to 10% on top of the current penalty of 6%

-Ensure that all supplementary pension funds are only financed by own contributions

-Gradually phase out the solidarity grant (EKAS) for all pensioners by end-December 2019. This shall start immediately for the top 20% of beneficiaries with the details of the phase-out to be agreed with the institutions

-Freeze monthly guaranteed contributory pension limits in nominal terms until 2021

-Provide to people retiring after 30 June 2015 the basic, guaranteed contributory, and means-tested pensions only at statutory normal retirement age, currently 67 years

-Increase the relatively low health contributions for pensioners from 4% to 6% on average and extend it to supplementary pensions

Dragline wrote: There was an interesting article we looked at a few weeks ago about how people in Argentina are using bitcoin to avoid the capital controls there. I would not be surprised if it becomes more common in states with capital controls on. I would look into that, too.

Interesting reddit post today: https://www.reddit.com/r/Bitcoin/commen ... on/cspqz0e

So it seems mining bitcoin (ignoring the fact the guy is 100% into BTC as a store of value) is a nice way to create wealth which is (possibly) hidden from tax agencies or capital control if you can leverage cheap electricity. Not sure what greeks pay.. but it seems that other than Venezuela, Argentina, Ukraine, Saudi Arabia, Russia, Pakistan, India, Kuwait, and Iran (all have heavy fossil fuel consumption subsidies) are prime candidates to profit from BTC mining and reduce certain risks to capital.

edit: really quite magnificent how this is possible now compared to pre-BTC. And the proof of work is working as could have been predicted. Just not sure the how the $/BTC is going to adjust (it must go up!) to ensure the network stays secure and we don't burn off all the fossil fuels to mine BTC. Though another effect BTC rising in popularity would be for distributed renewable energy to be created to either mine BTC or sell to your local power grid. Granted.. slightly less bullish on the future of BTC as I was a year ago. Think it will face a lot more serious competition.

Has anyone said "travel to Greece when their currency collapses" yet?

I was wondering if keeping funds in a Paypal would be a good way for Panos to avoid the capital controls. It seems that at least so far, the answer is yes, despite what quartz says in this article...

http://qz.com/444188/paypal-no-longer-w ... t-matters/

The Paypal press release:

Due to the recent decisions of the Greek authorities on capital controls, funding of PayPal wallet from Greek bank accounts, as well as cross-border transactions, funded by any cards or bank accounts are currently not available. We aim to continue serving our valued customers in Greece in full, as we have for over a decade.

Reading between the lines, does that mean that if Panos had transferred his entire bank balance to paypal last week he would still have full access to those Euros? Funding from a Paypal balance is not "any card or bank account".

Note to self, it might be wise to have multiple paypal accounts in different currencies.

Also mentioned in that article is that Coinbase, a bitcoin exchange, is waiving fees for transactions in euros. Not much help for poor Panos whose funds are locked by capital controls in his bank account.

Anyone here have a coinbase account or do you use another software, hardware or online bitcoin wallet?

Edit to add that Paypal is still working for those with a balance in their Paypal account according to this
http://www.reddit.com/r/Bitcoin/comment ... _why_that/
The same guy mentions in a comment below that Paypal balances are not subject to capital controls. Hum

Mrs. Ego is complaining that I am obsessed.