It has started. The panic is full blown in Greece and the contagion will spread to Italy, Spain and Portugal. This is turning ugly and will infect the United States. Initially, for the United States, things will appear swell. Why? We will be the safehaven for those pulling their money out of Greece. Out dollar will surge in value. Which sounds like a good thing until you realize that our exports will become more expensive for other countries and, as a result, those sales will drop.

Here’s the latest news out of Greece:

The European Central Bank has stopped providing liquidity to some Greek banks as they have not been successfully recapitalized, the ECB said on Wednesday, confirming news earlier reported exclusively by Reuters.

The news sent the euro lower against the dollar, fanning concerns among investors and in Greece that the country may have to leave the euro zone.

The development highlights the weak state of the banking sector in Greece, where Greeks are pulling euros out of the banks in fear that their country may exit the European single currency despite the declared determination of EU powers Germany and France to keep Athens in the monetary union.

The Greek run on the banks is capturing attention here in Europe:

Political leaders in Athens were due to discuss an emergency government Wednesday to deal with a possible run on banks as it emerged Greeks withdrew almost $900 million in a single day, fearing their country could crash out of the euro currency by the end of the week. . . .

Greeks are withdrawing euros from banks, apparently afraid of the prospect of rapid devaluation if the country leaves the European single currency and returns to the drachma.

There are no good option nor are there magical solutions or silver bullets. This is a crash and burn outcome. It may be slow motion but it will infect all of Europe and ultimately the world. It means that Obama will have another excuse for a faltering economy. But this is terrible news, not just for the people of Greece but the world.

Lest you think this is just a European problem check out California:

California’s budget woes combined with poor economic results have long made it a poster child for poor fiscal management. The state’s credit rating has been downgraded to an A- by S&P, the lowest rating for any U.S. state, and its budget and pension shortfalls are infamous. Even more so than in other states, the main political challenge for California’s politicians will be to put the state on firm fiscal footing. Given the state’s poor current condition the rotten condition of its non-Hollywood, non-Silicon Valley economy, this process is bound to take years.

Governor Jerry Brown returned to the state house in 2011 with a plan to at least begin to tackle the state’s deficit. Like many other Democratic governors in similar straits, Brown has had to break some hoary blue taboos and made serious (though evidently not serious enough) cuts in spending and public sector employment.

The only difference is that California’s economy far surpasses that of Greece. Greece is showing us the path that California will be following within the year.

Awful developments.

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Larry C. Johnson is a former analyst at the U.S. Central Intelligence Agency, who moved subsequently in 1989 to the U.S. Department of State, where he served four years as the deputy director for transportation security, antiterrorism assistance training, and special operations in the State Department's Office of Counterterrorism. He left government service in October 1993 and set up a consulting business. He currently is the co-owner and CEO of BERG Associates, LLC (Business Exposure Reduction Group) and is an expert in the fields of terrorism, aviation security, and crisis and risk management, and money laundering investigations. Johnson is the founder and main author of No Quarter, a weblog that addresses issues of terrorism and intelligence and politics. NoQuarterUSA was nominated as Best Political Blog of 2008.
  • Hokma

    The Audacity of a Dope

    Reuters reported that Obama led a G-8 meeting at Camp David about the Euro-Zone crisis.

    Obama is siding with Italy and the new socialist French President who are rejected austerity as a measure to reduce debt and is isolating Andrea Merkel of Germany.

    So Obama is attempting to lead Europe down the same government control path of socialism that has resulted in our own economic malaise.

  • lola828

    “It has started”.

    Larry Johnson you have predicted a lot of economic things would be “started”, but you are always wrong.

    Yeah… there is lots of panic out there. Stock market looks to be up today after a minor 5% correction. Hardly a panic.

    A panic is the fall of 2008…. that is a panic.

    It is funny, but most conservatives criticize Obama for a weak dollar, but you do the opposite.

    Greece is less than 2% of the GDP of Europe. So far there is limited contagtion to other European countries. Just more of the same for the last year. Big deal.

    The U.S. is currently the fastest growing Western industrial country. That really says something about Obama economic policies working.

    I would hardly think the “A-” credit rated California is at all comparable to the problems in certain parts of Europe.

    Your problem is that it is hard to make real objective comments about the economy and foreign policy when you see everything through your hate Obama rose colored glasses. Get a sense of perspective.

    Retail sales are better, consumer sentiment is at its highest level in 4 years, housing starts at 700,000 are getting back to more normalized levels, week unemployment claims were once again relative low, etc. The economic recovery in the U.S. is broadening and improving.

    • Hokma

      “The U.S. is currently the fastest growing Western industrial country. That really says something about Obama economic policies working. ”

      If it were true that is a sad sad statement.

      • lola828

        It is true. The U.S. is currently growing faster than Canada, Germany, France, the U.K., Japan, etc.  That is very good and shows that the economic policies of Obama are successful and working. The U.S. is leading the world out of the recession.

        • Hokma

          The only thing the U.S. is leading is from behind on all fronts. As far a the recession, the U.S. is not out of what Obama created and he is clueless on how to deal with the economy. The guy is over his head and no amount of diversions will hide his complete incompetence. Even his own surrogates have turned on him.

        • Hokma

          “The nonpartisan Congressional Budget Office (CBO) said Tuesday that unless lawmakers act to prevent scheduled tax increases and spending cuts at the end of the year, a recession will likely result in early 2013. Early next year income taxes are set to go up when the Bush-era tax rates expire. Automatic spending cuts totaling roughly $109 billion triggered by last August’s debt-ceiling deal are set to hit. Meanwhile, payments to physicians under Medicare will be slashed. CBO projects that these and other elements of the so-called “fiscal cliff” will cause the economy to contract as demand dries up.”

          What was that about Obama leading the world out of a recession?
          In fact, he deepened the one he inherited and is personally causing another.

  • Retired_from_SPOnaj

    The current “spirited discussion” between non-Obot NQ regulars reminds me somewhat of the line that Foretopmastman Budd spoke in the movie, “Billy Budd,” to wit,”I knew a man aboard the Rights of Man who liked a friendly fight.”

  • foxyladi14

    Scary that.  the path that California will be following within the year.

  • EllenD818

    I think there is a difference between a US state and a country that may be changing its currency.
    I can see a run on banks where they are concerned about losing deposits that are in Euros with a conversion to Drachmas.
    I can’t see any reason for runs on California banks, most of which are branches of the “Too Big to Fail” bunch.
    There is an election coming up in a couple of weeks. There are a number of referendums on keeping hotel taxes in place and raising taxes on cigarettes. It’s possible the bad news announcements are to get people in the mood for higher taxes.

    • jrterrier

      the bad news announcements are because the news is bad.  of course, CA has so many idiotic measures on the books that the price of doing business in CA is quite expensive so they’ve lost a lot of business to more friendly venues. 

      • KenoshaMarge

        Meanwhile California is happily going ahead with the High Speed Rail from nowhere.

        • foxyladi14

           From nowhere to nowhere.

      • EllenD818

        I do business in 3 States. The other two are no walk in the park either. Actually, California is the easiest.

        The problem is that now there is much more HR work because there is a lot more personnel turnover and all payroll stuff is State. Plus some states have other wrinkles like being located in special assessment areas. If you are a local business you get used to this, but if your business extends into other States it is really onerous.
        If you make any error, the states are now hitting you with enormous penalties and some States you cannot submit the forms online (you can in California).

        I actually had  one State that said “You have overpaid for the quarter and made the payments on time but because we didn’t receive the right form in time we are assessing you $410. in penalties”.

        So with the States not making money on interest, they are hitting you with big penalties (and good luck trying to fight it and get your money back).

        • EllenD818

          Apologies for today’s rant.

  • parchellan

        I strongly disagree that California will follow Greece in the next year.  Yes, Ca.’s financial problems are horrible — and all self-induced, but I think the State will hang on for 2-3 years.  In fact,  if Ca.’s voters came to their senses, the State could become solvent in the next 3-5 years.  But here’s the rub:  Ca.’s voters are NOT sensible, indeed, they make up one of the more mindless electorates in the world.  To turn such a rich,  beautiful State into a fiscal basket-case takes much doing:   what the poeope and the pols have done here is an abomination.

          In re Greece, the Euro, and the E.U.  I agree with you that the choices on the table re Greece are bad and worse.  That said, I covered my Euro shorts today.  Why?  On the current news, the Euro should be about 1.20 — inteads of  1.274; this tells me that the E.U. could — only in the  very short term, nail the shorts to the wall.  Long term, of course, the currency is going to go much lower.  Milton Friedman warned, this about 15 years ago, that the Euro, as it was set up,  HAD to fail.

          I am afraid that no country in the world will come out unscathed after the Euro demolition derby.

                                                                                parchellan ipse fecit


    • NoQuarterUSA

      You make some excellent points.  Please feel free to elaborate.  I think your point about California voters also applies to the Greeks.  They refuse to accept the reality and insist on voting the fantasy.  Regardless, reality will intrude.

    • KenoshaMarge

      I agree with much of what you said. I also think that California will take longer to fall, although I have no doubt that it will, than a year. Patches here and robbing Peter to pay Paul will keep it afloat, sort of, IMO for another couple of years.

      I suspect the migrations to more fiscally responsible states will become a stampede. If that happens sooner rather than later the collapse of California may come sooner than expected.

      But I’m no economist so maybe I’m just talking out of my ass.

      • MG6

        If all of the working people leave California, who is going to pay the taxes for the entitlement programs and gov and state employees retirement plans.
        Well, there are the rich…wait they are renouncing their citizenship and/or leaving the state and/or country.  Companies?  Nope, they are fleeing to.
        I suppose the illegals and the welfare folks can pitch in.

        • KenoshaMarge

          Sure they can. Just as soon as their government checks come in. Kind of a mobius strip kind of economy. Wonder how that works.

        • DianaLC

          Saw a French interview with Will Smith in which he was informed that there he would be taxed at 75%.  His response was “God Bless America,” after he got over the shock of hearing what he heard.

    • Popsmoke

       “Milton Friedman warned, this about 15 years ago, that the Euro, as it was set up,  HAD to fail.”

      Indeed… But what Friedman back then failed to warn about was the price of that failure…..

      • Hokma

        Sagacious observation.
        Would not mind seeing the Euro go. Have tons of old demoninations

        • Popsmoke

           You and me both brother….

  • Popsmoke

    I believe that the entire is issues is a game of brinksmanship at it finest (lousiest) hour and a move by the Greeks to re-negotiate bailout terms while staying with the Euro putting the Germans in a very difficult spot. The Germans know that kicking the Greeks out of the EU would be setting the EU for a killing by other member countries. Like Spain, Italy and especially Portugal….

    The Greek people also know that if they return to the drachma they are looking at a big time devalued currency and a nice increased inflation.

    So I believe this is a very dangerous game of chicken to see who will blink first….

    As far as California is concerned. I always said that we should sell Manhattan back to the Indians and throw California in as incentive.

    • shelldoll2

      I think you are an idiot.  Listen to Mr. Johnson as I have deduced women that are world traveled  have no cred in your book.

      • Popsmoke

        No dear, its not that women who have traveled the world have no creditability with me. I have a sister who has traveled this rock nine times over and who makes you look like Maryjane Cornfield. She stayed in the shadows and just did her thing (Here is a clue to what she did… ).

        Its just people like you who think they are the world I have a problem with…

        Now dingleberry, in your worldly preview tell me why my posting is so stupid? Or maybe you would invest in a country that could be possibly kicked out of the Union? Better yet those Greeks who are loaded or the entrepreneurial types? What do you think they would if an exit occured?

        In the meantime dingleberry the caretaker government will implement the terms until the next elections. Then all bets are off!

        You want to make a bet on this my worldly know-it-all?

        Or maybe that sounds stupid to you as well? But WTF do we dumb rocks know?

        • shelldoll2

          Don’t call me dear lest I loose my husband upon you.  Did I mention he was a boxer.?

          • shelldoll2

            Oh and I’ve done boxing in my day.

          • Popsmoke

             yes dear….

        • DianaLC

          A rude, curmudgeonly boor can be intelligent and worldly, but he is still a rude, curmudgeonly boor and will not get his points across because people who were raised to be polite and sensitive to others’ feelings will not listen or pay attention to such a person.  That may make me weak and unimportant to your way of thinking, but–as much as I try to give your comments some credit–I just get annoyed at the way your attempt to get your points acroos.  I can never find a suggestion in them for what you think should be the way to go with any situation instead.

          You are just, in my mind, a person who thinks he must be right at all costs.

          • Popsmoke

            Never said I was right.. I just give my opinion… Disagree with it fine. But attack that opinion on its merit and facts not stupidity….

            But I have been called worse. By the way look in the mirror lately?

      • jrterrier

        why this recent rash of posts where people call each other idiots or worse?  it really debases the conversation and adds nothing. 

        • Flop_Flipper

          I’m with you there. At times it seems as if identities have been hijacked or something. We can disagree among one another with respect. Obots excepted, of course.

      • Retired_from_SPOnaj

        An amusing, idle thought of mine after reading your post:  When I married, my wife hadn’t traveled at all, except to Mexico and Canada.  Once we were married, she traveled with me.  Now she’s so much more interesting as she relates to and dismisses the ignorant bullshit that she encounters in various media that is designed to prey on those who have had, perhaps through no fault of their own, more limited exposure.

        I particularly enjoy it when she skillfully skewers an ignorant liberal bigot with her thick Alabama “accsayunt.”

    • jrterrier

      but it isn’t being played by the greek govt.  it is being played by the Greek voters who refused to vote in a govt, isn’t it?  it’s not that the Greek people are playing a game; they just don’t want to face the facts of their lousy financial situation.  so i’m not sure that your thesis holds up.

      • Propertius

         I rather think it’s that they don’t want to sacrifice themselves so the bondholders and investment banks can avoid a haircut. As Popsmoke noted, if the Greeks had their own currency they’d have the flexibility to inflate their way out of the situation – it would be incredibly unpleasant, but it might actually be better for the average Greek than an “austerity” regime imposed by outsiders. Those sorts of “reforms” tend to have a pretty dismal track record for the citizens of the countries involved (although they tend to be just great for outside investors).

        As Larry noted, having a “strong currency” is death on exports and a real job-killer. I think we’re going to have all the “strength” we can stand over the next few years as people flee the Euro.

      • Popsmoke

        Yes you are very correct but they also voted to stay in the EU but they do not want to kill their own sovereignty and of course take on much of the austerity measures.  In my opinion if the new coalition does not get any where you can bet there will be new elections.

        In the meantime the  coalition without fanfare will implement the terms of the bailout agreement.

        My view they have no choice….

    • HELENK2

       Iowa Hawk

      David Burge

      #MorePopularThanTheObamaBudget Fran Drescher’s phone sex service

    • FormerLiberal9

       Proof that even Democrats in the House and Senate know that Obama doesn’t know what he’s doing when it comes to the Economy.

      • KenoshaMarge

        Funny how this works. Paul Ryan presents a budget, not nearly strict enough IMO, and he is deomonized. Obama presents one and it gets voted down by his own party as well as those evil Republicans and he’s wonderful.

         How does that kind of thinking work for people? Always in error and never in doubt. Even the the dullest of wits must in time come to see that things aren’t doing well in Hopey-Dopey Land. Won’t they?

  • BronwynsHarbor

    Larry, which channel/network are you watching in Germany?  I’ll report back after checking all the stations on this end.

    • NoQuarterUSA

      bbc and cnn international.

    • KenoshaMarge

      Is that even possible anymore? Can any viable government actually be formed?