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Athens-Upon-Tyne
Source: Adrian Ash, BullionVault 02/13/2010
So, who gets to play Lehman's in this comedic repeat. . .?
ISN'T GREECE marvellous?
Paying income tax, or any kind of tax it would seem, has been entirely optional. Which should have
powered its economy like 1960s' Hong Kong.
But public spending, however, accounts for 40% of GDP. So who financed that spending if so few people
paid?
Last year, only 15,000 of Greece's 11-million population declared an income above 100,000. The
government only got round to making shop receipts mandatory this week. Tax evasion is thought to cost
the Greek purse 15 billion per year ($20.5bn). The untaxed "shadow economy" accounts for some 25% of
annual output.
"The Greek issue is a Eurozone issue," wrote Athen's finance minister in a letter to the Financial Times
this week. Which is true, and not just with regard to taxationand not just with regard to the 16-state
currency zone.
Yes, untaxed business accounts for one Euro in five generated in Spain, Portugal and Italy, or so reckons
one Austrian economist. But what the PIIGS lose to their shadows (say it like John Cleese would to get the
real City joke) is nothing next to the gap between income and spending now looming for pretty much the
entire Western world.
Greece, in short, is but Northern Rock in this farce. The first bank to collapseand thus the first to get
rescuedit now looks a mere footnote to the historic crisis which followed. Neither the cause nor a
"domino", the Rock was more than a warning. It announced the crisis was on.
The scramble for tin hats began. . .

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On Wed. 12 Sept. 2007, Northern Rockthe biggest employer in Newcastle-Upon-Tyne. . .sponsor of the
city's football team. . .and the fastest-growing of the UK's fast-growing mortgage banksran a banner
advertisement across the front-page of the national press.
It offered 6.30% interest on new deposits, then more than 250 basis points above the average return offered
by High Street savings accounts. Clearly, the bank needed cash in a hurry! And come Thursday it had to
arrange an emergency loan from the Bank of England. By 9am Friday, queues were forming at its branches
across the country, and Northern Rock's stock promptly dumped 20%.
On the following Monday, the government effectively rescued the bank's savers, guaranteeing their
deposits in full. And from then until Feb. 2008, when it finally came, nationalization was only a matter of
time.
The Rock's demise wasn't the first sign of trouble. August '07 saw inter-bank interest rates jumped to a
near-nine-year high. Both Bear Stearns and BNP Paribas had already closed certain mortgage-investment
funds to withdrawals. A handful of smart-arses pointed to the 40-to-1 leverage at leviathan banks such as
Lehman's.
Fast forward to early 2010, and the U.S. and UK are running record peacetime public-purse deficits. Dubai
last month suspended (and then restructured) repayments on a chunk of its debts. The cost of insuring
government bonds against default has risen sharply for more than a month.
So. . .who gets to play Lehman's in this comedic repeat?
For all London's dithering and dawdling, saving the Rock was never in doubt. No politics or ideology
stood in the way. But making German savers pay the wages of Greek civil servants is another thing
altogether. Either the Greeks take a wage cut, or somebody stumps up, or the central bank simply prints
money, or Greece will default on its debts as bond-buyers vanish.
Writ large across the developed world's spending, we'll thus need the Martians to help. . .or perhaps we'll
ask God for a loan. . .if the ever-greater cradle-to-grave promises made after WWII aren't wound back
before they come due. Alternatively, we could just keep printing more money.
After all, it worked to stem the crisis in banking.
"A sovereign debt crisis in the West is coming sooner or later though it is probably not right now," says
Christopher Wood in his closely-followed Greed & Fear analysis for CLSA.
"This is why the recent correction in gold is an opportunity to buy more bullion and more gold mining
shares"a defense, says Wood, against the "almost inevitable Western currency debasement which will be
the consequence of the increasingly untenable welfare states and related social security systems."
It wouldn't be the first time a sense of impending doom sparked a fresh move worldwide into physical
gold. And until the next crisis in debt is resolved, it might not be the last either.
Adrian Ash
BullionVault
Gold price chart, no delay | Buy gold online at live prices
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading
financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at
Gold Newswinner of the Queen's Award for Enterprise Innovation, 2009where you can buy gold
today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) Gold News 2010
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