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Just Thinking

November 5, 2011

In the midst of all the Greek debt crisis, I believe that two things aren’t really getting full play yet.  I’m mostly thinking out loud, since I’m looking for opinions.

First, it’s pretty clear that we’re just kicking the debt can down the road… but not all that far.  Greece is mostly just the start.  Portugal, Italy, and quite a few other Euro participants aren’t all that far behind.  There’s a belief in the market that a temporary fix is fine (as far as the market goes) while acknowledging that it’s not really solving any problems for the long-term.  But the fact that the market is going up is lulling a lot of people who don’t pay that much attention. 

 The part that those people are missing is that we’ve got heavy exposure.  The administration described our exposure as “modest” earlier in the week.  How is $1.8T “modest” in any other fantasy world than one that thinks $15T of debt is manageable?  Oh, never mind.

The other hidden piece is the role that China will be playing.  China recently agreed to participate in the bail-out.  I actually see a scenario where China will likely do more than the US over time to cover the debt.  I occasionally accuse China of cooking their books… which is only partially fair.  But think about it.  China can agree to absorb quite a bit of debt, especially if it can then reclaim those “payments” in the form of Europe buying Chinese products.  At some point, this just pushes Europe to sit back and relax in their semi-retirement… which pushes more of the European business to China.  Hey, if you can’t make it, imagine it, or plan it becuase you’re all two busy collecting taxes for it… well, that seems pretty advantageous to China if you ask me.

Either way, we’re far from over in this whole gig.  I’m giving the news cycle about another week before it loses interest, and then we’ll hear from it agian next summer when all of Europe does the “Freddie Mac” and comes back for more money.

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