What If

Gold lost more ground today as its haven appeal faded as it seems more likely the EU and Greece will reach some sort of accord on the small country’s debt structure. A slight fall in the dollar (virtually unchanged) didn’t lend much assistance, as the world’s equities markets danced to the Greek tune.

The S&P 500 is at record levels. The Dow was up 0.80%. The NASDAQ was also up. The only world exchange that struggled was the French CAC and that was due to micro factors, not the Greek hope.

West Texas intermediate crude was down again today, a decline that certainly didn’t help gold. The decline is still riding on the news yesterday of an extraordinary jump in stockpiles in the U.S. Brent and natural gas were up, however.

So, what if…? Back in 1993, the borough of Staten Island (Richmond County) in New York, hoped to secede from the rest of the city. There was a lot of wailing and gnashing of teeth over a referendum, which ultimately defused by a number of concessions to the borough, which, if truth be told, has little in common with the city at large.

However, the rest of the city’s citizens had an interesting take on the secession attempt: Go right ahead. Let’s turn to Europe today now.

If Greece remains recalcitrant in its euro-negotiations, the other members of the EU just might say the same thing. According to Investopedia, “Greece has defaulted on its external sovereign debt obligations at least five previous times in the modern era (1826, 1843, 1860, 1894 and 1932).” (Once, albeit, in the midst of a civil war.)

What is more pertinent in the here and now is that Greece’s public debt runs at about 175% of GDP. The rest of the euro zone runs at about 100%. (The U.S. runs at about 87%.) Moreover, Greece has been in recession four times since 2007. Greece’s dire straits began in roughly 1986 when its debt burden began to soar. So, it wasn’t always a sick child in most recent times.

Right now, the total euro bailout is around €240 billion plus a bank recapitalization plan worth almost 50 billion euros. That €290 billion represents more than €26,000 for every citizen in Greece. Those numbers do not reflect private lending, inflation or other considerations.

The rest of Europe is now asking itself if that kind of credit couldn’t be put to better use in other countries. If the answer to the question is yes, Europeans may shrug, write off their losses and Greece will find itself adrift in a world where credit will be nigh impossible to come by through other countries or private lenders. s

Sadly, for Greece, they seem not to understand that harder work, thrift and a less entitlement-driven national economy are part of the equation they need in order to move with Europe into the 21^st century and beyond. 

Wishing you as always, good trading,