Sovereign debt problems in Greece brought the entire Euro zone to the brink on Thursday. This is the first real test of the Euro and many feel it may not endure. A single currency for so widely varied economies may prove to be too problematic. In the case of Greece it is not that the amount of the debt that is so great. Even if we take the upper end ($159 Billion) of the proposed amount needed to cover debt obligations due May 19th, Germany could easily write the check. The problem is that the German population, overwhelmingly, doesn't want to.
It's not hard to see why. Greece is a very socialist country. You can retire at 55 years of age with great benefits. Of course the Greeks don't want to give up those benefits. The Germans, on the other hand, must work until they are 67 and their benefits are not as good. No wonder the Germans don't care to pay for the Greeks mishandled fiscal policies and overspending. When pushed to tighten their belts the Greeks have rioted. Seems they don't care who pays for it, they just want what they were promised.
Another problem for Germany and for the Euro zone is that Portugal, Ireland and Spain have similar problems. Are Germany and the IMF prepared to bail them out also? Greece and Portugal are not large economies. Spain does have a large economy and a sovereign debt failure there could mean the end of the Euro. It could happen. Their debt was downgraded earlier this week. Greek debt offering was successful this week at a record high premium over the German bonds; however, the new bond holders immediately went underwater.
Currency analysts warned today that the European banking system may be seizing up. Banks are not lending to each other because they are fearful of the solvency of other banks. This could lead to bank failures, which could lead to "cascading failures". This could turn a sovereign risk issue in one country into a regional problem and then a global problem.
"Debts and deficits matter. Don't underestimate how fast this can happen!"
Investors were scrambling to find a safe haven today and found it in the US Dollar, US Treasuries and Gold. If nothing else this episode has proven that sovereign debt may not be as safe as it appears. I don't like the US Dollar or their Treasuries Bonds. I think we are just losing the race to the bottom. The PIIGS nations can't print more money to temporarily solve their reckless fiscal policies, but we can and we are.
Gold is now the world's second reserve currency. I believe it will see 1500 near term. I would sell the Euro against it on any rally. I think it is a great spread and that you can make money on both sides of the spread.
Another problem for Germany and for the Euro zone is that Portugal, Ireland and Spain have similar problems. Are Germany and the IMF prepared to bail them out also? Greece and Portugal are not large economies. Spain does have a large economy and a sovereign debt failure there could mean the end of the Euro. It could happen. Their debt was downgraded earlier this week. Greek debt offering was successful this week at a record high premium over the German bonds; however, the new bond holders immediately went underwater.
Currency analysts warned today that the European banking system may be seizing up. Banks are not lending to each other because they are fearful of the solvency of other banks. This could lead to bank failures, which could lead to "cascading failures". This could turn a sovereign risk issue in one country into a regional problem and then a global problem. "Debts and deficits matter. Don't underestimate how fast this can happen!"
Investors were scrambling to find a safe haven today and found it in the US Dollar, US Treasuries and Gold. If nothing else this episode has proven that sovereign debt may not be as safe as it appears. I don't like the US Dollar or their Treasuries Bonds. I think we are just losing the race to the bottom. The PIIGS nations can't print more money to temporarily solve their reckless fiscal policies, but we can and we are.
Gold is now the world's second reserve currency. I believe it will see 1500 near term. I would sell the Euro against it on any rally. I think it is a great spread and that you can make money on both sides of the spread.
Who's next?
Belgium? France? Holland? Italy?
1MALAYSIA BOLEH
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