Monday, February 27, 2012

Greece's Bailout: Delaying The Inevitable

The recent bailout of Greece orchestrated by the European Union (specifically Germany) helped Greece avoid defaulting on its debt.  The roughly $170 billion (USD) bailout helped reduce Greece's debt ratio to 121%.  Pretty sad state for Greece when the US, who is terrible with its debt, has a debt ratio of roughly 90%.  Even with the "Bailout", Greece's credit status was dropped from CCC to C.  For those of you who do not know the credit rating system, a C rating is basically a junk bond.  The sad thing is Greece is going to default anyway, so the EU just flushed $170 billion down the toilet.  Greece has made some changes to its financial policies, but more needs to be done. 

Europe is broke and the US is not doing much better.  The economic world we live in is made up of deficit spending and bailing out everyone.  The fact that deficit spending is a term that we are comfortable with is alarming.  All the politicians talk about reducing the government's deficit spending, but no one ever talks about eliminating it.  Spending has to be reduced everywere, but the geniuses in power cannot seem to agree on what to cut.  The reason why, is because they do not want to offend the special interest groups and hinder their chances of getting reelected.  We all know that the main job of a politician is to get reelected. 

On a more positive note, the market is overvalued, so we should see a pull back when investors start ringing the cash register and taking profits.  If that doesn't occur, then we'll just have to wait until Greece defaults and then we'll see the big pull back that market needs to get back to a more reasonable level.  Good luck!