May 7, 2010
- A d v e r t i s e m e n t
In the early days of coal mining, canaries acted as a warning that odorless poisonous gas was present. If there was a dangerous gas build-up, the canary would be the first to keel over. You can use the “canary in a coal mine” metaphor to describe the situation in today’s financial world. Greece is the canary. The poisonous gas is debt. Greece has just keeled over, and the rest of the world is running scared. That’s why the Dow was down 1,000 points at one time yesterday! Oh yes, there was talk of “unregulated high frequency computerized trading” and “bad trades,” but make no mistake, the market is worried about massive amounts of sour debt at all levels around the globe.
In a nutshell, Greece borrowed way too much money, and does not want to drive old cars and eat rice and beans for years to pay it back. That’s why you are seeing riots in Athens. The problem with Greece is it cannot print money like the United States. Its debts cannot be simply inflated away. Bills have to be paid with big cuts to pensions and social programs, and it is not going over well. That brings us to the other option, and that is to simply not pay the money back and default.
There is one other option, print money and bail out Greece. Here’s how investment guru Monty Guild sums up the bailout scenario: “This is happening because if Europe does not support Greece, the government debt contagion that we have been discussing in recent memos will continue and spread. It will spread to Spain and Portugal and later to many countries in Europe including Italy and possibly France. Because they fear the spreading contagion, Europe wants to stop the crisis as soon as possible. In other words, Europe is getting a bailout, not just Greece.” (Click here to read Guild’s full report.)
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