It's All Greek Debt to Us

Dollar in, risky Mediterranean debt out. At least, that’s what the markets were indicating earlier today. Indexes from The Thames to The Nile and back again were in the red last we checked. The euro was down too.

That the Greeks are in trouble is hardly breaking news, of course… Heck, even those geniuses at the ratings agencies had time to figure it out! Fitch, one of the agencies NOT responsible for forecasting the biggest economic tsunami since (at least) the Great Depression, just downgraded Greece’s sovereign rating from a single-A-minus to BBB+. So NOW investors run for the hills?

The only thing really surprising about all this brouhaha is that investors should find it at all surprising in the first place. Did they think Dubai was going to be a one off occurrence? That the same immutable laws of nature would not also apply to other overleveraged, undercapitalized economies? Not likely!

If the agencies are crying wolf, dear reader, your lamb dinner is likely already minced meat. Fitch worries that Greece’s government debt burden may reach 130% of GDP before stabilizing and that it has a poor record of debt management.

Now why pick on the Greeks, we wonder? If imprudence and debt additions are the indictments, why not hall the United Kingdom in for questioning? And what about those hot-to-trot Baltic economies? And what about those American consumers? Household liabilities for the average American family now happen to weigh in at a familiar 130% of total disposable income.

It doesn’t take a ratings agency to figure out that consuming more than one produces must eventually end in tears…either for the spender or the lender…or both! It’s little wonder then that American banks are tightening their belts so much. Consumer lending fell 1.7% during October, representing the ninth consecutive monthly decline and a 4% drop since its July 2008 peak. Curiously, consumer economies don’t tend to fare too well when consumers start (or are forced to) economize.

The Daily Reckoning