Greek Debt Crisis: Overstating the Obvious

Alas, the markets will worry about housing on another day… Today, they’re still feverish with the swine flu. The smallest of the PIGS – Greece – is still a cause for concern…and hallucinations. The Dow and S&P shot up 1.5% yesterday, their best day in more than a month, on rumor that the EU was assembling a debt bailout for the Greeks.

“Greece is not a critical weight-bearing pillar of the euro house of cards,” counters our Alan Knuckman, advising resource traders on how to process concern over the PIGS. “It must be noted that Greek GDP is rather small – when compared with individual US states, it sizes up between No. 13 Massachusetts and No. 12 Michigan.

“As a native Michigander, that makes me think…” Knuckman ponders on. “I am inclined to separate local difficulties from concerns of potential global downfall. Michigan, home of Detroit and the longest freshwater shoreline in the county, is in the process of fighting through the impact of the Big 3 auto manufacturers’ demise, and holding on mainly because we’re Built Ford Tough.  But a setback in Detroit shouldn’t be responsible for a downfall of the US currency – and likewise I don’t believe this much weight should be placed on Greece.

“Put another way, I cannot see the over 200 inches of annual snowfall in my hometown solving the water crisis in California any more than Greece taking down the EU.”

“I’m actually confident Greece will do whatever is necessary to meet conditions to remain a member of the euro to qualify for financing by the ECB,” George Soros told the press yesterday. We hasten to add, despite all his political controversies, Soros made his mega-fortune trading currencies – most notably, shorting the pound at its moment of weakness.

“I think the markets are generally concerned on sovereign debt and Greece is at the forefront of that issue.”


“If countries remain biased toward continuing with loose fiscal and monetary policies to support growth,” Nouriel Roubini adds, “rather than focusing on fiscal consolidation, investors will become increasingly concerned about fiscal sustainability and gradually move out of debt markets they have long considered ‘safe havens.’

“Most central banks will withdraw liquidity starting in 2010, but government financing needs will remain high thereafter. Monetization and increased debt issuances by governments in the developed world will raise inflation expectations. These governments will have to offer higher real yields or investors will move to more attractive emerging markets.”

The Daily Reckoning