Well, the world watched and waited as a tumultuous Greece was voting on an austerity program that would ensure more money for a debt laden country. I found this a fascinating intersection of politics, stock markets, economics, and sociology.
The big worry was that a Greek default would put undue strain on private banks in other Euro participating countries that hold Greek debt (placing those countries in possible need of bailouts) and the crashing dominoes would be difficult to stop. Those in favor would argue that if we do not bail them out then the economic consequences will be much, much worse as the system implodes. Those against argue that it is too little too late and you cannot help someone in debt by providing them more debt. While these may be oversimplified summaries, to me it is frighteningly reminiscent of our credit crisis.
Even more frightening is that as the Greek politicians vote to determine the course of their country, (or some would argue to actually save their country) residents are boycotting, protesting and striking against the very actions of the politicians. The frustration of the people is the crescendo of poor policies that should have been dealt with years ago to prevent the current predicament. Some might argue this is a glimpse into the future of our very own United States.
There are two very large differences that will prevent this scenario from playing out here, at least in the short term. Unlike Greece, we have the ability to print money, which effectively allows a country to pay off debt with devalued dollars. I would point out that this policy when implemented will just postpone the inevitable and do not recommend it. Greece, as part of the Euro, has no national currency and thus does not have the ability to print their way back to prosperity, (as if that were a viable option.) Also, the United States currently has the distinction of possessing the world’s reserve currency.
It has been amazing to see the vacillations in our dollar, the Euro, and equity markets around the world as the Greek vote was approaching and ended. I suppose the short term joy of realizing the initial threat of asset market implosion has been eliminated, makes investors particularly giddy. Asset markets across the globe have rallied on the news. I find it thoroughly fascinating how short minded people seem to be. Have we solved the problems that caused the crisis? Will we be back bailing out Greece again soon? How financially stable are, Ireland, Italy, Portugal or Spain? Does kicking a can down the road eliminate the possibility of having to deal with it again? Or, does one hope somehow by the time you reach that financial apocalyptic can again you will miraculously be provided some bionic leg with which you will obliterate that darn can and any type of risk to you, or your country, or systemic risk to the entire financial system the can represents? I suppose that is the hidden blessing of buying time.
As I write this the U.S. Dollar Index has had a few bad days and currently sits at approximately 74.62. It appears the dollar/asset markets correlation continues ad infinitum. As the dollar rallies, the markets fall and when our dollar falls most asset prices rise. This negative correlation can’t last forever because devaluing your currency; (no matter what country) is not a long range road to prosperity. It is difficult to imagine our dollar can fall against anything when so many problems are being manifested so strongly in other countries. By the way, please forgive me if this article comes across as too optimistic. Maybe I should visit the coffee shop and have some baklava. That is if it isn’t half the size and twice the cost.