Washington, DC -- (ReleaseWire) -- 07/16/2015 --BENNETT: Lowell Ponte is the author of The Great Withdrawal: How the Progressives' 100-Year Debasement of America and the Dollar Ends. His diverse background includes being a reporter in Washington D.C., a legislative aide in the California Assembly and a futurist for a Pentagon consultant, where he developed scenarios for exotic kinds of warfare and high tech terrorism. His articles have appeared in The New York Times and Los Angeles Times, among others. His most recent article, "The Greek Showdown" began by stating, "A time bomb is ticking in heavily indebted Greece," which is where I want to start today. Lowell, welcome to Financial Myth Busting.
PONTE: Dawn, always great to be with you.
BENNETT: You preface your excellent white paper, "The Greek Showdown," with this excellent John Adams quote: "There are two ways to conquer and enslave a nation. One is by the sword, the other is by debt." Debt, in this case, comes from within, as Greece, like America, sells debt so it can afford its generous welfare state. If debt conquers a nation, who is conquering Greece?
PONTE: Oh, well in the short term you have to appreciate the drama that is the euro and the Eurozone nations that belong to the euro. The euro is not really an independent currency. The euro needs to be understood as the Deutschmark in disguise. Germany failed twice to conquer Europe during the 20th Century. In 1999, launching the euro, largely at German insistence, this was an attempt by Germany to conquer Europe a third time, this time economically, with a currency that essentially Germany would control, and would allow Germany to have trade advantages throughout the European community. But the problem is, there were nations, such as Greece, that were, we now know, willing to lie about their financial situation, how much they already owed, their financial credibility, to get into the Eurozone. But once into it, they acquired something magical that Germany hadn't thought hard enough about. And that is, up until then, Greece had been thought of as a little, poor, mañana nation of about 10 million people, with corrupt economics, bribes and so on, and people who didn't want to pay their taxes. But once they were in the Eurozone, suddenly bankers all over Europe and the world looked at them and said, 'Well, we wouldn't trust Greece, but if anything happens now to the Greek economy and their debts, Germany will have to step in to save them, and therefore we're not really lending money to Greece; we're lending money to Germany.' And so suddenly these politicians in Greece, who have been socialist since World War II, they found themselves with a degree of credit never imaginable. It was like giving whiskey, car keys, and a limitless credit card to a bunch of teenage boys, and they went berserk with that. They began borrowing phenomenal amounts of money. The welfare state in Greece employs about a third of all the people still employed there, you need to understand. Now, that doesn't mean that the economy is good in Greece, because they have about 27% unemployment for adults, 52% unemployment for those under 24. So they're a basket case economy, they have no real industry, they have no ability to pay debt back, as the International Monetary Fund has pointed out. And when the economy went south in 2008, they suddenly couldn't even begin to keep up with the debts that they had run up with this limitless credit card. So ever since, they have been in trouble. Now we're told today, 'Oh, look at these poor, starving, miserable, elderly Greeks. What are we doing to them? We're so inhumane.' They've been bailed out multiple times. In May, 2010, the Eurozone and IMF gave Greece a rescue package of 148 billion dollars. In 2011, a second bailout was given of 173 billion dollars. Their debt was eliminated, that is private debt, by 53%. I mean, they've already received phenomenal benefits that other countries wouldn't have gotten.
BENNETT: For the last three years, we've been told that the Greek situation was fixed. Of course that was all lies, and those lies resulted in a gross misallocation of capital, both financial and political. Isn't it time to acknowledge that this is a road to nowhere?
PONTE: Well, this is what the European powers are grappling with. Because here's the difficulty; if it were just Greece, which accounts for only 2% of the economy of the Eurozone, Germany would let them sink. It wouldn't be an issue. The problem is there are other countries similar to Greece. These are called the PIIGS nations, which stands for Portugal, Italy, Ireland, Greece, and Spain. And by the way, what I found in researching this piece we put out, oddly enough three and a half of these nations have a history of being under Muslim rule. While the West was undergoing the Renaissance and the Enlightenment, what was Greece? Greece was under Islamic rule from Turkey, from the Ottoman Empire, which had overthrown Byzantine in 1453, less than 50 years before Columbus, and Greece was part of that. And Greece was not liberated until 1829, as a country, when Lord Byron died fighting to free it and so on. And therefore, Greece is not necessarily even to be thought of as a Western nation. But Spain was under Muslim rule for 800 years; Portugal was under Muslim rule for 500 years; parts of Southern Italy were under Muslim rule. These are countries that don't necessarily think like Northern Europe. They don't have the work ethic, they don't have a whole lot of other values that we think of as quintessentially European. And so, as Milton Friedman warned in 1997, it's kind of crazy to yoke these countries together, that economically and in work ethic are so different from each other. In effect, the PIIGS nations are the welfare state for the rest of Europe.
BENNETT: Do you believe that those PIIGS nations—Portugal, Italy, Ireland, Greece, and Spain—are going to cause the EU to fall apart?
PONTE: Well, they have political parties very similar to Syriza, the radical left party in Greece that has been behind this latest vote. In Spain, for example, the party is Podemos, 'we are able', that also says, 'We should repudiate the debt, we should consider leaving the euro.' Of course, if they repudiate the debt Germany finds itself in a trap. If it doesn't pay them and they collapse, then Greece, in particular, might go back into the orbit of Russia and China. I mean, they have been negotiating with these alternative economic powers on the planet. In any event, they might start a line of dominoes falling that will lead Spain, Portugal, and others to follow in their wake. And that will not be terribly good for the Eurozone or the health of the euro.
BENNETT: What about for us? Your White Paper argues that what's happening in Greece threatens the American investor too. Can you walk us through the series of events you anticipate unfolding that may ultimately result in major economic pain here, at home?
PONTE: Well, understand if Germany were to bail Greece out again, they've already expended 600 billion dollars, about two thirds of a trillion dollars, bailing out these countries, especially Greece. If that continues-- for example, if Germany were to cut a deal with Greece, saying, 'We're going to forgive your debts and back off, and we'll just pretend that the paper we've issued to you is still good,' then all the other countries among the PIIGS will say, 'Hey, we want a deal like Greece.' And voila, Germany will be stuck for more trillions of dollars, just to keep the European illusion afloat. Understand, Europe is about 25% of all US trade. This will create an economic slide that will definitely impact us. It's also where China's been investing a lot of its money lately. So it will not be terribly good for us if Germany or Europe goes under. We also have other Grexits, or Greek exits, pending. England is going to be holding its own referendum, promised by the conservative party there, that they may exit the European Union altogether. And Marine Le Pen, the nationalist, populist in France says the same. She's the single most popular politician in France at the moment. She says she would pull out of the Eurozone too, and go back to the franc, if she took power. So there is this great uncertainty, and uncertainty is not a great area for investment. Now, in the short run, this will help us, because uncertain people will flee to the US and flee into the dollar. But in the long run, this will be quite destructive of the world economy; it will simply drag things down. And it will also set up God only knows what kind of tidal motions here. My coauthor of Don't Bank on It!, Craig Smith, and I have a book that will be coming out later this summer, and its title is: We Have Seen the Future, and It Looks Like Baltimore.
BENNETT: How does that future resemble Baltimore? Is it a beautiful waterfront, or is it race riots, a stagnant economy, murder, mayhem? What is that future?
PONTE: Well, it shows you the logical unfolding of the progressive welfare state, which is, when you penalize people for working, when you reward people for not working, when you keep changing the law - you were talking about civil disobedience earlier. Look at how the laws have been rewritten, both officially and unofficially. We now have a White House that says, 'Oh, we don't like that part of the constitution; we're just going to ignore it.' When that happens, you create an environment that we describe in earlier books, and in this current one, as donkey drag. That is, when you have an anti-capitalist political party as one of the two dominant parties that could take power at any given election, how ready are people going to be to invest, to expand their business, to hire more people? I mean, it represents a tremendous impediment to the idea of building up the economy. You'd rather take your money, go offshore, buy another Mercedes, rather than hire a new worker. And so you put a drag on the economy merely by having a political party like that. And as we keep redistributing wealth from what Stephen Moore calls the makers to the takers, you create a huge disincentive and drag on the economy here.
BENNETT: How would you avoid that coming calamity here? Do you have any recommendations you can give to our listeners about protecting their wealth?
PONTE: Well, what we talk about in Don't Bank on It!, and by the way, we'd be happy to give every one of your listeners, absolutely free and post-paid, a copy of this 256 page book, just by calling 1-800-630-1494.
BENNETT: Oh, that's nice.
PONTE: What we talk about, what we foresee coming, obviously, is going to be, you need to save the money you've got right now. And the way to do that, number one, get out of banks. You may think of a bank as a terribly secure thing. In fact, at the G20 meeting in Brisbane in November of 2014, President Obama agreed to the bail in principle for the US. These are the powers that control 85% of the world's money, when we say the G20. And that principle is that you don't even own your bank account anymore. If your bank gets in trouble financially, or the government decides to keep taxing by imposing massive fines on banks, and wants money, they can now take it out of your bank account, directly or indirectly. Your bank account, in effect, was declared to be an asset belonging to the bank, not to you. On top of that, the FDIC, the Federal Deposit Insurance Corporation, can't really protect you in a crisis. It has only enough resources, at best, to cover 1 out of every 14 dollars. If even one of the top five banks in the country, that hold more than half of all our deposits, were to go down, the FDIC would be powerless to prevent the disaster. And so you don't want your money in the banks; there are better places to put it, as we show a Harvard economics professor who took his million dollar life savings out of the banks.
BENNETT: And what did he do with it?
PONTE: He spread it around. He spread it to a whole lot of other things. But one thing to do is put it into assets that can't be run off a printing press in Washington DC. That could be in antiques, that could be in guns and bullets that have been a tremendous investment in recent years. It could be survival food, it could be property, it could be gold and silver; it could be a lot of things. But you need something tangible that they can't just manufacture like paper notes or paper denominated securities and so on. We now know that the securities on Wall Street, from recent studies, are overvalued by about 86%. So if Wall Street begins to slide, if they have to begin backing off the zero interest rate policy that has kept the Wall Street Casino open, that is going to be very difficult. And yet, if they stay with the zero interest rates, the economy will collapse, just from a fantasy land of paper money that has no productivity behind it. What's propping up Wall Street today is companies borrowing money for zero interest and buying back their own stock.
BENNETT: Thank you, Lowell.
All data sourced through Bloomberg
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About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
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