Executive Summary

• Why Greece is unlikely to release a new drachma
• Why globally-coordinated money printing is the most likely resolution to the Greek and Spanish crises
• Why the magnitude of derivative risk makes a Eurozone collapse much more frightening
• Why capital flight will get worse, and why gold will benefit from this
• Why Germany's odds for leaving the Eurozone are lower than most assume
• Why the time left before extreme action must be taken is than a few months — possibly only weeks

If you have not yet read Part I: Abandoning Ship, available free to all readers, please click here to read it first.

Here are some key points to bear in mind as the crisis progresses:

Greece: New drachma?

The Greeks would be crazy to embrace a new drachma as recommended by neoclassical economists. A new drachma would be backed by nothing, unless it comes with full convertibility into Greece’s 111.6 tonnes of gold, assuming that flush actually exists. The complete lack of faith in any Greek government’s economic credentials would mean that a new drachma in the absence of gold convertibility would rapidly descend towards its intrinsic value, which is zero. Interestingly, recent polls suggest that the Greek people understand this and prefer to remain with the euro.

The legality of changing deposits from euros to drachmas is highly questionable. Assuming the Greek government can force this through on domestic deposits, it will leave an open question over loans, likely to be challenged through the courts. And in the past, non-Greek banks lending money to Greek businesses have routinely stipulated contracts to be governed by the laws of another jurisdiction.

Message: Do not buy into the siren attractions of an independent drachma.

Further monetary easing?

We have to bear in mind that the only language understood in the ECB, particularly since Mario Draghi took over, is neoclassical economics.