Playing With Fire
Jun 17, 2011
Posted by Jody Eisenman | Filed under Uncategorized
“You cannot afford to have a world economy where these important decisions are postponed, because you’re really playing with fire,” said Jose Vinals, director of the IMF’s monetary and capital markets department.
“We have now entered very clearly into a new phase of the (global) crisis, which is, I would say, the political phase of the crisis,” he said in an interview in Sao Paulo, where the updates to the IMF’s World Economic Outlook and Global Financial Stability Report were published.
Well, I’m glad someone figured this one out! As I have stated repeatedly on this blog, you cannot have a situation where the vast majority of industrialized nations continue to run ever increasing deficits with no real plan on how to reduce them, In fact, these deficits continue to spiral higher and higher until a crisis situation exists. The current problem country is Greece. Greece has the 27th largest economy in the world by GDP ranking. However, die to several factors (economic corruption, low tax rates and the recession among others) led the country into a severe economic crisis. They are trying to get the IMF to agree to a massive bailout, but predictably, the lenders are asking for severe austerity measures. S & P has Greek sovereign debt ranked as CCC, which is just a hairsbreadth above default. Just as predictably, the attempt at budget cuts has led to riots by workers who largely couldn’t care less about the debt issues. It seems inevitable to me that baring a huge economic turnaround. Greece will default on its’ debt at some point. In the meantime, the IMF seems to be shuffling the deck chairs on the Titanic. However, a Greek default could have potentially disastrous effects on world economy, especially among the banks with heavy exposure. More of this later.
The S & P futures jumped over 10 points in the pre-market this morning, but the inevitable sell off came, leaving the index up less than 4 points at the close. However, the market did finally break a six week losing streak with the S & P up fractionally, and the DJIA closing above 12000. In other news, Blackberry maker Research in Motion got toasted when they guided lower in their conference call. RIMM closed today at 27.75, down over 21% for the day. The stock was over 60 in late March, but is clear that Apple is absolutely eating their lunch. The market still seems like it could have more downside next week.
