Why is this situation with Greece such an issue? Greece is such a small player in the grand scheme of the Euro zone. Ignoramuses like me seem to think its a lot of hoohaa over nothing. Let's dive below the surface!
The euro zone is a compilation of countries in Western, Eastern, Northern Europe. All of them share the same currency and have a "central bank", the ECB. Unlike the U.S., when one of them gets in trouble, they can't just print money like we do, nor can randomly issue government debt. They have to approach the ECB or the finance ministers for help. What is spooking the market lately is the issue of debt and possible issues with the other problem children in the zone, which is cruelly called PIIGS. PIIGS is Portugal, Ireland, Italy, Greece and Spain. Another fear is that the U.S. could be subject to the same sort of panic and need of bailout.
While our debt (over $12 trillion and counting) and budget deficit ($1 trillion and counting) are at alarming levels, our economic fundamentals are different. The panic could be an excuse for a general correction in the market but I still think some of this uneasiness is warranted. What would be some red flags for us to keep an eye out for? Well, watch 10 year treasury rates and level of foreign investment. 10 year notes have plummeted in the last 2 weeks to 3.34% as people are snatching up the bonds as what we would call flight to safety. Foreign investment is the amount of government debt that is held by foreign investors including governments. Right now we are beholden to Japan and China to finance our government on a daily basis. Watch that percentage and keep an eye on what would be an alternate safe haven for each of these countries to park their money. With the euro a toxic option, the U.S. is still looking a whole lot better.
As a follow up to my previous posts, the labor market seems to be improving but I don't think 440,000 in initial claims (on an average) is anything to crow about. The jobs created number is a bit skewed due to the U.S. Census workers that will be eventually let go after June. In November, I predicted that Q310 would be my target for stable and sustainable job growth. I stand by it (for now!).
Keep your chin up and we'll come out of this.
