Greece says debt ‘absolutely sustainable’
Greece says debt ‘absolutely sustainable,’ insists market access possible in 2012
This reminds me of my friend Steven Stante in 7th grade. I lent him a dollar at 10% interest daily so that he could buy cookies from a vending machine. I figure since I made that loan, he owes me billions. That debt is also absolutely sustainable — meaning that it will never be paid off, much like Greece’s debt. The problem with the Euro is that accountable nations are forced to continuously bail out the unaccountable nations (greece and eastern europe mostly). Eventually, the accountable nations will figure out that their promises to pay are more valuable than the promises of the unaccountable nations.
The same thing is happening globally with so many countries having pegged their currency to the dollar. Now they wonder why they are experiencing high inflation rates? Well, we are very good at printing the dollar and exporting our inflation, for now.
To think that that it is a possibility that the euro will fall apart is rational. So, too, is it rational to consider that the US dollar won’t be the world’s reserve currency. In my opinion, it already isn’t.
I can’t quite figure out why it seems that everyone wants to buy US treasuries, and then I look at it, and wait, it’s only really one person, and it’s Helicopter Ben, who is monetizing the deficit, exporting inflation, and implementing the invisible tax that hurts the people at the bottom of the world’s economic pyramid the most, inflation.
Mostly everyone else who can is selling us treasuries. What we are seeing is fairly interesting. There is a lot of opportunity. Eventually, you’d think that housing prices in the USA would bottom as they print more money. This unfortunately isn’t the case. Interest rates will rise, which should make you willing to pay less for a home. Also, the value of the dollar slips, which decreases the future rental value of a home. Throw in what will likely be higher property taxes (something has to happen as several states are insolvent, as a whole, the US economic system has been levering up for 20 years or so, and the cost of doing business (oil) is rising). Overall, given my perspective that inflation is actually a real threat, stocks are overvalued regardless of their relatively cheapness in terms of earnings multiple.
In an environment of 10% inflation, I’d be willing to pay less for a discounted stream of cash flows than I would in 5% inflation. Stocks are said to be a good hedge against inflation. Well, the truth is there just not as bad as bonds. Even TIPS are probably not safe if you’re looking to hedge against inflation.
Anyway, as inflation threats start heating up (which you’d almost think that they’d have to), I’d expect to see funds out there allocate a little more than they do into gold. Right now, their holdings are meaningless. If policy changes, things could escalate. But, you never know. I never do. Right now the trend is up. In something like this, it truly is a situation that could just keep going and going. And then, you could have radical changes happen. It’s unfortunate that I consider a radical change for governments to spend less than they make, but that’s reality. If they change their policy, maybe gold wont be worth as much, and maybe silver should fall. As things are however, it is easier for politicians to get elected if they promote the idea of feeding entitlement programs (at the expense of the dollar), and so, the trend is still your friend.
Anyway, back to Greece. I think the Euro is mostly a liability for the countries that are responsible. When you have a system that takes from the responsible and gives to the irresponsible, it’s not a sustainable system. That said, people don’t always make decisions that are best for everyone. They tend to make decisions that are best for them. Life isn’t fair for Germany.