Only $600B to go
Posted by Ray on May 2, 2010 under Main | 
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Greece received its bailout today, pending an approval from some EU members which should prove interesting. Do European politicians care about reelection as much as U.S. politicians? If that is the case I suspect the longer term bailout is in question. Even in Greece itself the bailout is not widely accepted, who would figure that the unions would be opposed to higher retirement ages and lower payments. The current system is kind of insane, 14 annual payments, there are only 12 months, even in Greece, and the minimum retirement age was 53, new proposed retirement age is 67, welcome to the real world.
The primary issue, as I see it, is that we are curing debt with more debt. The EU member countries will have to pay for this bailout through higher debt to GDP ratios and higher taxes. This is why in Germany the bailout is unpopular, as it should be. At the end of the day all they are doing is saving France and other Greek debt holders, they should not be rewarded for speculation, but that is what is happening. As David Rosenberg said, we should all be opposed to bailouts, the madness must end. By allowing failed states or companies to survive when the free market decided otherwise has never worked long-term.
On top of the ridiculous bailout of Greece we now have to worry about the other PIIGS. Are they going to get bailed out? If so the EU and IMF will need another few hundred billion Euro’s. I suspect that Spain and Portugal spreads will widen tonight and tomorrow as the Greek issue is temporarily resolved, but their issues are now at the forefront of concerned world citizens. Bailing out these countries will be a huge mistake as it condones bad behavior. Let them fail or implement an ejection mechanism to the EUM Constitution.
I am sure the markets will be positive tomorrow as the crisis was “averted” and the good times are here again. Although I believe Friday’s selloff was unrelated to the Greek tragedy, but in reality the markets are facing a very overbought situation. Whether you want to believe this or not is your choice, but the markets are not supposed to go up every day or week. In fact, the past 2 months have been very, very abnormal to say the least, but the bulls will disagree, of course, citing some preposterous data point or use a forward looking P/E, which is just dumb I might add. But those of us living in reality know that conditions are not that good and the underlying economic data really does not support a parabolic move in the markets.
However, those in reality will look at the Greek tragedy and say, how can you fix one countries debt load by increasing another countries debt load? It just does not work and eventually we will see defaults. When that will be? I do not know, but soon I am sure. I am also confident that the Greece issue will spread first to Spain and Portugal, then to Italy and finally to France, since no one can bailout all those countries. Where it goes from there, I do not know, but I do know that it will eventually travel around the world as debt crisis usually do. This is why gold is going to go parabolic in the very near future… Got Gold?
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