Forex Market Updates & Commentary

---

Papendreou survives vote of confidence but chaos continues Posted: 05 Nov 2011 01:27 PM PDT The Greek PM Papendreou survived a vote of confidence early on Saturday morning but the chaos within Greece continues as his plan to form a coalition government, is not attracting the support of the opposition.  Antonis Samaras, the head of Greece’s main opposition party, rejected the idea of a coalition and instead is pushing for an early election.  At stake is Greece remaining in the EU but what choice do they really have?  I think that as long as the EU and the world continue to throw money at them, why not stay?  What are the alternatives for them?  The alternative is a full default on the debt they owe and starting over.  If done, they will not have access to any debt market for years and years.  Can they risk that?  Can they risk the implications of the default on the global economy?  How will a slower global economy help them recover?  Instead they can accept the money, make promises about selling public assets (yeah right.  Who will buy them?) and phasing in austerity cutbacks and new structures in their civil servant employment structure (right, again).  In reality, they are likely hoping that a global recovery kicks in soon and the nightmare disappears.  They are buying time.   What about the EU?  Why do they continue with support when all it does is create a HUGE MIGRAINE headache for all? (I cannot imagine how Merkel and Sarkozy choked on their breakfast when they read about the referendum this week in the newspapers)   It is simple, a full Greek default doubles the 50% write down agreed last week (it was hard enough getting an agreement on 50%).  Such a write down weakens banks captial even further and would likely lead to the contagion into Italy/Spain that all are desperately trying to avoid.   I don’t know, but to magically increase capital is not that easy in a deleveraging global economy. Hence the G20 talk of more IMF involvement and of letting China in the global club (even with their pegged currency policy. UGH), are becoming the solution now.  Kick the can further down the road and give more bargaining power to China who really needs to open up their markets more.  The other thing the EU powers that be will do is continue to buy the bonds of Italy and Spain to artificially keep yields down and make the world think all is ok.   What I have trouble understanding is whatever happened to free markets?   What is curious is pegging an exchange rate is considered bad and unfair but pegging interest rates artificially is “not so bad”. There is no doubt, the EU has backed themselves in a corner with Greece.  I am sure many secretly regret with disdain, ever letting them in “the club”.   After all, one of the provisions of the EU was support of the other members. So nations and institutions supported the debt markets of each.  In the good times, the yield advantage was the forbidden fruit that was just too tempting to pass up.  I am sure it was thought of as a part of  a diversified portfolio of debt instruments by the portfolio managers. “How could a nation the size of Greece hurt anyway? ” was no doubt the thought.  However, the risk associated with those purchases were not fully understood and the tentacles that extended far and wide was also not understood.   Let’s face it, it is the same as the mortgage mess in the US. I clearly remember how analysts were saying the housing market is 5% of GDP and a correction will not hurt  the economy in the long run. A loss of 8.4 million jobs later was that effect.  Adding 100K  a month since the bottom, isn’t exactly making a dent in the US economy 20 months later and the real estate market remains the biggest white elephant that plagues the US economy. Understanding risk is the most important thing anyone can do in life.  The “smartest people in the world” forgot about that most important requriement and the world faces what we face.  The lure of the forbidden fruit picked from the forbidden tree, has filled the apple cart in Greece and that cart is wobbling.  The tumbling of that apple cart won’t just make a mess of the road it is traveling but will likely cause an apple sauce flood that will be sticky and unpleasant for years and years to come in Greece, the EU and the world.

You are subscribed to email updates from Forex News and Commentary by FXDD To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 20 West Kinzie, Chicago IL USA 60610