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Eurozone Debt Crisis: What to Expect if Greece Dumps the Euro

The only certain thing if Greece leaves the Eurozone is the uncertainty that will certainly follow.

Unable to form a coalition government during May elections, Greece has been forced to hold a second vote on June 17.

In the balance is the future of the Eurozone itself as a “Grexit” looms large.

So much is riding on the outcome that U.S. President Barack Obama and other leaders of the G-8 have conveyed their optimism that Greece will remain in the Eurozone when they convened for a summit on Saturday aimed at keeping Europe’s economic woes from stretching around the globe.

“All of us are absolutely committed to making sure that growth and stability and social consolidation are part of an overall package,” President Obama said.

But many other principals and economic experts are not as committed and believe a Greek exit would be the best move in the long run.

The question is what impact its departure will have beyond its own ailing borders if Greece renounces its debt and leaves the Eurozone.

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On FX

On October 25 I wrote about what, at the time, looked like an overvalued EURUSD (it was 1.3950). Zero Hedge had an article attributing the strength to ongoing capital repatriation by EU (primarily French) banks. My words:

As long as there is Euro repa…

How Banks Are Using Your Money to Create the Next Crash

In 2008, reckless credit default swaps nearly obliterated the global economy. Now comes the next crisis – rehypothecated assets.

It’s a complicated, fancy term in the global banking complex. Yet it’s one you need to know.

And if you understand it, you will get the scope of the risks we currently face – and it’s way bigger than just Greece.

So follow with me on this one. I guarantee that you’ll be outraged and amazed – and better educated. You’ll also be in a better position to protect your assets at the end of this article, where I’ll give you three important action steps to take. So follow along…

Their Profits on Your Money

Few people know this, but there’s a process through which banks and trading houses are leveraging your money to increase their profits – just like they did in the run-up to the last financial crisis. Only this time, things may be worse, as hard as that is to imagine.

Consider: In 2007 the International Monetary Fund (IMF) estimated that this form of “leverage” accounted for more than half of the total activity in the “shadow” banking system , which equates to a potential problem that would put this insidious little practice on the order of $5 trillion to $10 trillion range. And this is in addition to the bailouts and money printing that’s happened so far.

Wall Street would have you believe this figure has gone down in recent years as regulators and customers alike expressed outrage that their assets were being used in ways beyond regulation and completely off the balance sheet. But I have a hard time believing that.

Wall Street is addicted to leverage and, when given the opportunity to self-police, has rarely, if ever, taken actions that would threaten profits.

Further, what I am about to share with you is one of main the reasons why Europe is in such deep trouble and why our banking system will get hammered if the European Union (EU) goes down.

And w hat makes this so disgusting – take a deep breath – is that it’s our money that’s at stake. Regulators like the Securities and Exchange Commission (SEC) and their overseas equivalents are not only letting big banks get away with what I am about to describe, but have made it an integral part of the present banking system.

Worse, central bankers condone it.

As you might expect, the concept behind this malfeasance is complicated. But it’s key to understanding the financial crisis and to avoiding a possible global recession in 2012 and beyond.

What we’re talking about is something called “rehypothecation.”

Most people have never heard the term, but trust me, you will shortly. Let me explain what this is, and why you need to know about it. Then, I’ll offer three ideas to trade around it.

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