Greece is about ready to default. She could do so tomorrow or maybe next year. The Europeans have been busy trying to pull rabbits out of a hat, they are running out of both rabbits and time.

There are a lot of reasons why Greece will default and a lot of misleading noise coming from the EU. The ‘Why?’ doesn’t matter: What matters is that Greece has no money. For it to gain money it must borrow at ever greater interest cost. Greece can only replace cheaper debt with more expensive debt. If it stops borrowing it cannot repay its earlier loans, meanwhile it cannot afford to borrow.

The banks that lent money to Greece — and other European countries’ governments and businesses — are also broke. Europe cannot afford to lend. One reason is because the banks have been pretending that all the loans they have made are good loans. But, with Greece and the others having greater difficulty borrowing, it is clear that a lot of bank loans are worthless.

It isn’t necessary to go into great detail with the banks or the countries outside of taking note that both Greece and its lenders are broke and that Greece will default.

When Greece finally defaults there will be a tremendous money panic in Europe. Most of the big banks in the EU are likely to fail along with the finances of many of the European countries. Why will the banks fail?

The banks and world finance are strongly interconnected, their assets are cross-collateralized. French banks have lent to Greece, Spanish banks have lent to French banks, UK banks have lent to Spanish banks and the US banks have written credit default swaps on the lending. When a tree falls in this forest and nobody is around the hear … all the other trees will fall as well.

The banks have lent wrongly as well as too much: as the amount of jeopardized lending increases, the amount of equally jeopardized capital vanishes. The banks are over-leveraged: stockholders opt out and the banks’ equity evaporates. Banks require an ongoing flow of funds to operate. As Greeks tremble at the lip of the abyss, the banks’ question other banks’ balance sheets. They distrust claims that their banking counterparties are solvent. They stop lending and the flow of necessary funds dries up.

When Greece defaults, money which will become very hard to get. Bank insiders and large accounts will pull their funds out of EU banks within minutes. Where will this money go? Right now, nobody knows … but where it will come from is clear: the other EU deadbeats who won’t be able to borrow either and will also quickly default.

The big banks will shut down in a replay of Lehman Brothers’ bankruptcy in Sept 2008. They demand bailouts … or else. ‘Or else’ will be non-working ATM cards, no online banking, dark ATM machines, etc. This is life or death for the banks. Expect a giant mess. If the banks fail and the economies don’t the banks gain an instant ‘credibility’ problem: they become expandable.

Under a worst-case scenario people won’t be able to buy gas. Plastic cards won’t work in the gas pump, people won’t be able to get cash out of ATM machines. The banks themselves might be closed because they won’t have money to operate, if they are open there will be cash withdrawal limits and very long teller lines — hours long.

There are clues that the panic is already underway:

– The European government and finance leadership is running around like their hair is on fire.

– The bank runs have already started, with Franco-Belgian giant Dexia the first casualty. It won’t be the last.

– The bankers’ are frantic about haircuts. The IMF insists on haircuts, otherwise it will not lend to Greece. Without haircuts and IMF, the Eurocrats will burn through the entire € 440 billion EFSF on Greece! There won’t be any funds left to support other broke EU nations.

Europe is boiling: the question du jour is, ‘Will Greece default today?’. Some day soon, maybe tomorrow, the answer will be ‘yes’. The Euro-bosses are coming to the conclusion that there is no way out.

Time to prepare for the upcoming banking crisis. Greece will officially default (Greece has already defaulted unofficially, not that anyone noticed) and banks will not get paid. At that point, if the bankers don’t shut down the economy, they will be proven to be liars.

If the banks are bailed the outcome will be a public frenzy. Bailouts have long since reached to point of diminished returns. People (reasonably) ask, “What about LAST YEAR’s bailouts?” Value is not simply a matter of numbers but of accountability. Loans are promises, what matters is the perception of the validity of the promises. Banks held unaccountable by the establishment will instead be held accountable instead by the marketplace.

Banks have threatened fire and brimstone since September, 2008 and Lehman Brothers. “Give us bailouts or else!” they have demanded. Should banks fail without the system blowing up, the establishment will conclude bankers can be safely sacrificed. There would be no downside to letting hated bankers fail. The bankers must go ‘on strike’ or lose everything.

For the banks to win, the Fed must cooperate with them. The Fed adds liquidity to banks by lending at low costs in any amount against any collateral. This is a form of bailout but not permanent (unless there is quantitative easing or QE). The banks’ strategy would be to freeze accounts due to, “some inane reason”. Panic would do the rest as people would all rush out at the same time and top up their gas tanks, buy food and take cash out of ATMs.

The Fed can provide funds for commercial banks so that the customers can access their money, with the Fed standing in for the giant banks. If the Fed does this it will be a giant bank death sentence. The bankers are going to hope their ownership of the Fed is worth more than the Fed’s sense of self-preservation. The Fed standing silent while the Bank of America holding company shifted its Merrill-Lynch derivatives portfolio over to its commercial banking — and FDIC insured — entity gives a clue as to where the Bernanke Bunch stands.

What you should do:

– Take out enough cash that you and your cat can live on for a month or so and put it away.

– If you can’t bear to get rid of the anchor (car), buy a couple of plastic jerry cans and fill them with gas, put this away. Fill up your car, drive as sparingly as possible. Having a diesel car is best (of worst) since diesel fuel keeps for years, gasoline starts to go bad in a couple of weeks. When this particular circus comes to town you won’t be able to ‘top up’ because everyone in the US will decide to do the same thing and there will be no gas anywhere.

– If the banks seize up, the price of fuel will plummet, nobody will have any money, gas stations won’t have any gas. Those with money won’t spend it on gas. The bankers’ idea will be to panic the public, the food trucks will become scarce. (Americans might actually lose weight.)

– Get enough food to keep yourself fed for at least a month. Rice, peppers,dried beans, canned goods, frozen, etc. is all good: I’m sure you have this food part down.

– Put yr sleeping bags at work, you might have to sleep on your jobs for awhile, like people did during the Depression.

– Make yourself mentally ready. Talk to your families and friends about the situation.

– Good luck!

UPDATE: From ‘Banks ‘R’ Dropping Like Flies’ department, Jon Corzine’s MF Global bank/hedge fund got whacked and is teetering at the edge of the Banking Abyss. It lost 47% of its share value yesterday. It is suffering a classic run out of the bank as investors head for the hills.

This is parallel to the EU’s announcement that banks there will be required to recapitalize themselves/each other.