The geopolitical jitters (handy understatement I might add) that represent our current global markets are understandably scary.
Let's step back and look at China first, as the China Rising story has been a most pervasive one over the years. Many economists had generally accepted, acknowledged, or challenged that Chinese consumption would help propagate global growth and lead us all out of the great crisis.
While the Chinese have been consuming, they have increasingly started to run into their own problems, from drought in some parts to flooding in others, energy issues, and most recently China Uprising, than just Rising, as protests against government which have traditionally been focused in agricultural areas, has increasingly found its way into urban centres.
China's economy is overheating and that is especially clear as inflation starts to increase and the Chinese "command" economy seems to have less command about it. In recent times there's been a wide number of rate increases to stem that inflationary growth, and suddenly with substantive issues of their own to deal with the Chinese Rising can no longer be the saviour of choice.
In North America, the promise of the US continues to be failed and flawed, even as the GOP and the incumbent Administration stare each other down on the budget ceiling, and what to do as the next supporting act in what has been a jobless recovery. The US seems intent on focusing much if not all of its resources into the financial services area while ignoring the evident need in the more general area of small business and infrastructure projects that can help propel immediate growth, consumption and numerous multiplier effects for the US economy.
In Canada despite our avoidance of the same extent of damage as our partners south of the 49th parallel, we are saddled with some of the same challenges, though in typical fashion it represents only a small percentage of what the US is experiencing. Ultimately we are still joined at the hip with our US neighbour and as such their fate and pours are inextricably linked as our largest partner.
This brings us around to Europe and the picture is an unusually bleak one, with problems continually being kicked further down the road as with Greece; but back to that "ugly" in a moment. Let's however take a pulse check for the rest of Europe and the fiat Euro (reasonably true of all the major currencies).
Recent elections in Spain and Portugal has trounced the incumbents sending a clear message that austerity is not a pill that joe public is williing to swallow, a reaction we have already observed in Ireland, as the public increasingly understands that they are being asked to bear the burden of bad risk management oversight at banks, in turn being bailed out by their governments.
In Italy the population is increasingly tired of Berlusconi and his antics and 4 recent referenda, that his party had encouraged voters not to turn out to vote for, ended up with overwhelming turnout with votes in favour of those referenda, indicating the increasingly turning tide against him and his party.
Getting back to the real big issue however, which is Greece currently and over the preceeding 18 months.
German Finance Minister Schaeuble on one side and ECB's Trichet on the other and the IMF, Rating Agencies, and Investors on the sidelines watching intently. Greece two days back had four of its banks rating reduced to CCC, something I wasn't aware was a rating in all honesty. Understandably its prospects continue to worsen as the market through credit default swaps is assigning a 50% default probability to Greece/Greek debt.
In the Germany- ECB standoff, the former has suggested that it would be acceptable to have what many would term a default event without breaking the back of the Europe, with Trichet adamant that it cannot happen and that's it would possibly refuse Geek debt as collateral, with the IMF indicating unless a plan is agreed upon for resolving Greek finances of over next 12 months, then even part of the original Euro package agreed upon last year might not be forthcoming.
*****Germany with Bundesbank President Says Euro Could Withstand Greek Default
2011-06-12 12:46:25.692 GMT - By Richard Weiss
June 12 (Bloomberg) -- Bundesbank President Jens Weidmann raised the pressure on governments to agree to a Greek bailout
without the European Central Bank taking part in easing the country's debt burden, saying the euro can withstand a default. [Source: Bloomberg]
*****Trichet 'Holding a Gun to Own Head' on Greece: Chart of the Day - 2011-06-12 23:00:01.0 GMT - By Matthew Brown and Keith Jenkins
June 13 (Bloomberg) -- The European Central Bank is playing a "high stakes game of chicken" with Germany by threatening to
disqualify Greek debt as collateral in the event of a bond restructuring, according to Baring Asset Management. [Source: Bloomberg]
******ECB-German Standoff Risks Damage That May Force Compromise
2011-06-13 07:57:22.33 GMT (By James Hertling and Jonathan Stearns June 13 (Bloomberg) -- The confrontation between the European Central Bank and Germany over bailing out Greece risks causing so much damage that officials may be forced to compromise.
"The balance of forces in the euro zone is a little like it was in the Cold War: both sides are brandishing deterrents that would be too horrendous to use," said Philip Whyte, a senior research fellow at the Centre for European Reform in London. "It's all going to turn on whether you can fiddle with
debt maturities without calling it a credit event." [Source: Bloomberg]
Is this scary enough for you? Europe burns and the would be emperors at the ECB, the IMF and Germany fiddle different tunes.
Who said the revolution would not be televised.
Good luck out there...we need some!
