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Happy Valentine’s Day to everyone.
The political front has been kind of quiet, hushed perhaps by all the snow in Washington. Perhaps Congress is taking the time to actually read the bills they may be voting on in the next few weeks. One can only hope.
The economy has had a couple of uneasy moments watching the Greek government try to manage its economy within the restrictions of the Euro common currency agreement. Before the Euro, the individual countries could just print more money to solve the conflict between demanded social programs and revenue collected in taxes. Under the Euro agreement they must maintain a certain fiscal discipline. That makes it hard to win re-election, especially when what must be done is painful to the voters. Greece is likely to find borrowing more difficult and more expensive.
Who cares? Greece is a mini-version of the problem that is playing out all across Europe at different levels. Spain and Portugal have similar issues to Greece. It seems one of our bankers, Goldman Sachs I believe, assisted Greece in borrowing money in a way that was not visible to the powers that be in the EU central bank. My intel says it did similar things for Spain and Portugal. The EU central bank doesn’t want any member to fail, but pulling together a rescue package requires the 27 countries that make up the Euro economic area to agree. Can you imagine? I’ll bet that is like herding mice.
What it means to all of us here in the USA is that these countries are going to be fiscally constrained. That could mean less of a market for our exports, and less tourism which will hurt our GDP growth and therefore slow growth in employment.
Of course we here in the USA have issues as well. Sooner or later the Chinese are going to begin to exercise their financial influence by either reduced willingness to buy US bonds or by demanding higher interest rates. Either one is a problem for you and me. The latter means higher interest costs across the board for all of us. The former means that the Treasury will have to find other buyers for the debt. The easiest target is you and me. But where will we get the money? 401(k)’s, IRA’s and Roth IRA’s contain an enormous amount of money. If even a portion of that was required to be in US Bonds (the safest investment available) that would help absorb the bonds and help keep the interest rate artificially low. I don’t know how you feel about that but I hate being mandated to do anything. I have Treasuries in my personal portfolio because I am diversified. But I like choosing to do that and balk at being told.
That aside, the Chinese present a growing problem, not because they are bad guys but because we are a nation of borrowers. My father had a saying, “It’s the Golden Rule son, he who has the Gold makes the rules”.
所有暂时，有一个了不起的星期。
