http://wjmc.blogspot.com/2010/05/how-wou ld-californians-react-to.html

Thank you for the opportunity to comment…

You should worry in the same way that concern after World War II produced the Marshall Plan: the EU is a trading partner and a democracy (allegedly). There are at least five other members with roughly the same problems as Greece.

You should worry about Greece as a long-term parallel for the US: as in fine, get yourselves a decent healthcare system, but pay off more of that deficit than you do at the moment.

You should worry because Greek (and European) bond issues are getting a bad name. PIMCO, for example, has switched emphasis towards emerging economies, declaring EU debtors too high a risk. They’re right. One day in the future, this could easily apply to the US too.

You should worry because with the insane decision yesterday by the European Central Bank to let Greece exchange its junk bonds for Euros, the EU is effectively giving vodka to an alcoholic. If the Euro economies go bust, that makes a very weak market for expensive US goods. Further pressure on the Euro because of the undertakings now accepted by the ECB mean an expensive dollar. Great for US tourists, lousy for exports. And without more exports, the US deficit keeps climbing.

You should worry because the Germans (big on fiscal discipline) and French (let’s face it, they invented laissez-faire) have diametrically opposed views on how to deal with the big EU debtors. In the medium term, the whole EU fabric stands threatened by this inability to accept that Europe isn’t a bottomless pit of money. Were the EU to break up,you’d be back to 27 trading contacts rather than one – with the protectionist folks in the ascendancy.

You should worry because a weakened Europe won’t stand up to an increasingly expansionist Putin. Rasputin already has his eyes on the Ukraine, and he won’t pull out of Ossetia. Russia is the cutest player in the energy wars, and adept at cyber tactics to damage pcs involved in everything from security to trading.

So yup, you should worry already. But don’t think of it as Greece: think of it as a big, fat borderline repressive superstate about to collapse under the weight and hubris of its own bureaucrats. Its breakup may well be bad for America, but lots of Europeans will be glad to see the back of it.

Sincerely

nbyward
http://nbyslog.blogspot.com/

Then all of a sudden, they’ll care… a lot.

There are several European banks too large for their country to save, and there does not seem to be an effective cross-European institution to bail them out.

Finally, in a credit based economy such as ours, debt destruction is deflationary. Deflation is scary.

http://www.thedailyshow.com/watch/mon-ap ril-19-2010/these-f–king-guys—goldman-sa chs

2. Isn’t Greece simply the first and worst of the sovereign debt dominos within the Eurozone? And if very many more of the dominos fall, aren’t we back in Financial Crisis II, with far less in the way of available resources to stem it/reflate the real economy?

3. Somebody at my work asked me if the U.S. or the U.S. banking system was exposed. The answer, from the FT’s work was, effectively, no–to the Greek government bonds. To the credit default swaps built on those bonds, real or synthetic, who knows? Citi could be insolvent, again, as we speak… (When I said that, he looked like he had swallowed a lemon.)

4. What others have said about the interconnectedness of the megabanks, made obvious by the Lehman fallout.

5. A cautionary tale of where the U.S. could be headed if we spend more decades singing “Don’t Worry, Be Happy”, with Vice Presidents who believe that “Deficits don’t matter”.

Yes! First to CDN and then to Felix.

And they vote people into office for status and good looks as well.

Forgive them, as these things happen when profit and greed trumps adequate education.

Our monetary systems are too interconnected to not feel some ripple effect.

I have difficulty buying into this “analogy argument” proposed in several comments. For one thing, I think the odds of Greece still being on EUR five years from now are still very small, whereas conversely California will almost certainly remain part of the union and continue to use USD.

However, I would not be as sanguine as MFM about the buying pressure on USD assets that would be consequent on threats to EUR. This seems to me the problem rather than the solution, making it that much harder for America to bring its current and capital accounts into closer balance. America will not be happy if the euro’s contribution to absorbing global economic imbalances is reduced.

Finally, I think there is some sense in the political argument: the world’s affairs are to a great extent arranged by Americans for Americans. It follows that changes to the status quo are likely to be disimprovements from the American perspective. America pays heavily for its privileges, spending over 4% of GDP on the military (almost exactly the same as Greece, as it happens.) It makes no sense to fund this exorbitant diplomacy-by-other-means but shy away when cheaper opportunities for influence present themselves. Foreign policy is a jigsaw puzzle and every piece must fit.