Friday, May 7, 2010

Fear is unlikely to kill the US economy

Can fear kill growth? I doubt it. As this chart shows, the market's fears (as proxied by the Vix index) have surged in recent days, to levels not seen since early April '09, yet equity prices haven't fallen by much more than we would expect to see in a typical selloff/consolidation (about 10%). I think this shows that fear levels are much higher right now than obvious threats to the economy, and I think that makes sense.

As I've been pointing out for a long time, in my attempts to justify my belief that equity valuations have not been inflated, there has been no shortage of things for the market to worry about. Here's a short list: Will the Fed reverse its massive quantitative easing in time to avoid a surge in inflation? Will the coming wave of mortgage defaults trash the housing market again? Will soaring U.S. deficits lead to a major increase in tax burdens? Will the deficits of the PIIGS result in the downfall of the euro? Yesterday we saw the perfect storm: Greek riots, numerous pundits predicting the imminent demise of the euro, widespread concerns that Greece's woes will prove to be contagious and eventually cripple the Eurozone economy and short-circuit the U.S. recovery, and the coup de grĂ¢ce, electronic trading run amuck. Unusual levels of fear and uncertainty have been with us for well over a year now—it's nothing new. All that happened in the past few months was that a new source of fear (a threatened Greek default and all the consequences that might bring with it) has appeared. The market has not yet become confident enough in a global recovery to avoid panicking at one new set of unknowns.

It's understandable that investors' confidence has been shaken to the core; there are just so many unprecedented things going on in the world right now. Buying and holding equities—or any risk asset at this point, since all have been hammered of late, as the next chart shows—requires true conviction, and the willingness to put up with some gut-wrenching volatility. But isn't that the case with the early stages of any bull market? Things are never clear until well after the fact.

My approach to situations of great uncertainty, such as we have today, is to focus on the underlying fundamentals, in the belief that a) the fundamentals usually win out in the end, and b) it never pays to underestimate the ability of the U.S. economy, in particular, to cope with adversity.

For some time now we have seen so many signs of recoveries (many of the V variety) that an economic relapse seems almost unthinkable at this point: commodity prices are very strong; credit spreads are much tighter; industrial production has turned up; the ISM indices are on a tear; Asian economies are booming; world trade is expanding; the U.S. economy is in job-creation mode; corporate profits are very strong; and productivity gains in the past year have reached record-setting highs, to name just a few. None of these signs of recovery have deteriorated by any significant amount, and most just continue to improve; moreover, recoveries are self-sustaining once they get started, thanks to the inherent entrepreneurial abilities of our economy and man's insatiable desire to raise his standard of living.

So many positives, yet none of the negatives, like very tight monetary policy, that typically lead to a recession. To be sure, there is the real threat that U.S. tax burdens might rise significantly starting next year, but we have an important election in November that could shift the balance of power from those pushing for higher taxes to those pushing for reductions in spending. It's too soon to give up hope on the fiscal policy front.

But what about our markets, that appear so vulnerable still to program trading, derivatives, etc.? I think there is a good argument to be made that trading-induced volatility, such as we suffered through yesterday, brings with it the seeds of its own correction. On average nobody benefits from extreme price moves, and most people lose, even the ones who got the whole thing started. I'll wager that those running electronic trading programs will think twice and three times about letting them run unsupervised in the future. The market has evidently not regained the liquidity necessary to support a lot of trading. Until it does, the potential for expensive whipsaws is going to be a major force restraining participation in high volume trading.

In any event, high levels of implied volatility act as a natural shock absorber for nervous markets. That's because it becomes more profitable to sell options rather than buying them, and this serves to automatically dampen market moves. Selling options is akin to buying low and selling high (that's how delta hedging or dynamic option replication works), so high implied volatility provides a huge incentive for traders and speculators to adopt strategies that will effectively add liquidity to the market. In short, there are many ways in which the market, left to its own devices, can sort things out and become more efficient.

I remain convinced that we are in the early stages of a sustainable recovery. It's not a robust recovery, unfortunately, because government has grown like topsy, and regulatory and tax burdens are rising. "Stimulus" programs based largely on transfer payments and make-work projects only squander the economy's resources. But it is nonetheless a recovery, and 3-4% growth rates for the foreseeable future are entirely possible and quite likely. It still pays to be optimistic.


Cabodog said...

Excellent post Scott. Thanks for taking the considerable time to share your thoughts.

Benjamin Cole said...

Excellent post.

My only quibble: Anybody who has faith that either political party will pare the deficit willfully is engaging in wishful thinking.

Perhaps we will see tax cuts--but not spending cuts.

Spending may come down as a result of an improving economy, meaning some amount of decreases in unemployment insurance outlays etc.

We have two parties: The Tax & Spend Democrats and the Borrow & Spend Republicans.

I wish it were different, and eagerly await any evidence to the contrary.

Bill said...


Didn't most experts dismiss the subprime crisis as not a big problem and therefore not enough to derail the economy back in early 2008? If people loose confidence in the financial system again, isn't it possible to reverse all the positives we've been experiencing to date?

Benjamin Cole said...

Remember, in the United States, the top 1 percent on households, in terms of wealth, control 50 percent of the stocks. They also make a huge fraction of income and sales.

I hate to say we have to pander to the wealthy, but until the top 1 percent feels comfortable, we may see sluggish growth and a jittery stock market.

Google "Citigroup" and "Plutonomy" if you want to know how serious this situation is.

It does lead me to a question, that will have me branded as a leftie-pinko: Is is possible that we have too many wealthy, and they save too much, leading to constant gluts of capital? Since there is nothing to do with all the money, they save and lend it out, resulting in bulging debt burdens.

Eventually the debt burdens become too much, leading to collapses.

brodero said...

Over the last 21 years of data I have....the VIX's first entry into
the 40 range has occurred four times..notice I say "first entry"
They have been...
9/03/98 S&P 500 3 months later

9/17/01 3 months later

7/22/02 +9

9/29/08 -20.8%

5/07/10 ????

If you don't think we are going into a recession ( and hint we had the best 4 month job growth in 10 years)....then this is a buying opportunity

Aethal said...

I'd wish to contact you with a couple questions, if that's all right. I'd appreciate it if you could disclose your email address to me. TMy contact is the gmail account I've provided. Thank you for your time. :)

John said...


Good comment. If you want the opportunity to invest in high quality long term earnings streams the best times are when most other investors are experiencing fear. Warren Buffet has said 'be bold when others are fearful'.

This mornings Barrons cover is saying it is a good time to go shopping for good quality beaten down stocks. As Scott's fine post above points out, this is unlikely to derail the economic recovery building in this country.

Although I have not seen anything yet, I expect more from the ECB. I also believe they have a most powerful ally in the US Federal Reserve. They will all be working together to put out the fires of this panic. I say again this problem is manageable in the short run.

The finishing touches are going on the new financial regulations bill. We will soon have clarity with this and another unknown will disappear. The bank stocks should rebound as this develops.

Finally, BP has 85% of the oil leak in the gulf capped. The spill is terrible and 'my' beautiful beaches will likely soon be stained but the worst case scenarios are clearly not going to happen. Another unknown is developing defineable parameters.

Scott, this is a fine post IMO. Very me at least.

One last thought. The loss of life on the destroyed rig is the worst tragedy of this. And the damage to Louisiana's wetlands and wildlife breaks my heart. Beaches are easily cleaned and are trivial compared to the real losses that are being suffered. Thank God this is finally the end of the beginning of this terrible event. We will clean the Gulf, its marshes, wetlands, and beaches....and the markets will recover too.

Bill said...


Thanks for your great comments and positive thinking. This blog is a great antidote for those of us who tend to worry a lot and expect the worst based on all the bleak headlines.

Mark Gerber said...

Hi Scott,

Reading your latest post, this stood out: "man's insatiable desire to raise his standard of living." It stood out because it appears that we are approaching a tipping point where the majority of our nation pays no income tax and expects to satiate their desire to raise their standard of living on the backs of others who do pay income taxes.

You know that I have profound respect for your work and ability to express ideas. That is why I am once again seeking your view about our economic future. On several occasions over the past decade or so, I have expressed my belief that demographics (age) is one of the most powerful forces within our economy and concluded that force would result in a 20 year stock market downturn beginning in 2007 to 2012. I further expressed that such a downturn would likely lead to a depression because of the burden of the national debt and unfunded entitlement programs. Over those years you always rebutted arguing we would be able to make adjustments as those accounting burdens become real, fiscal burdens.

Hasn’t that day arrived? Haven’t actions by our leaders in Washington shown that such responsible adjustments are not forthcoming? Isn’t this November the last chance for this country to prove it has the political will to avert a fiscal disaster? Isn’t that what this market correction is telling us as we watch Greece deal with the reality of an irresponsible government?


Scott Grannis said...

Bill: Confidence is what it's all about in the end. If people lose confidence in the financial system we are in big trouble. We saw what happened the last time that happened, in the wake of the Lehman failure. I would like to believe that the Greece/euro crisis is not big enough to lead us into another global financial crisis. I think there are a lot of things that are different this time around: people are now very skeptical, when before they were trusting; economies are picking up, when before they were slowing; governments have learned from their mistakes (certainly hope they've learned at least something).

Scott Grannis said...

Benjamin: as I've said before I can't agree that there can ever be too much capital, or that the rich save too much. If everyone in the world were as rich as the richest country today, then maybe I might say we could approach a capital glut situation. But we are light-years from that.

Scott Grannis said...

Mark: I would like to think that the situation we are in today, in which a majority of people receive more from the government than they pay in, is not the result of the majority voting themselves the money. It is the result of politicians' decisions, a decided minority. Politicians buy votes one interest group at a time, and the result, as we see now, is that politicians have promised a lot of money to a lot of disparate groups. I believe this situation can change, because I observe that there appears to be a new majority of voters who are not happy with the system we have ended up with.

John said...


I will leave most of what I think needs to be said re your post to Scott and others who may wish to address the worthy issues you bring up.

I would point out the speech Sec of Defense Gates is/will be delivering today. The gist is he is challenging the way the Dept of Defense does business, thus IMO signaling a sea change in how that dept spends money. It is just my cheap opinion but this is what I believe could be the opening blow to what will become a government wide new awareness that our fiscal house must be put in order. It is going to be a long hard slog and at times it is going to be ugly. Cuts hurt as we are seeing in Greece. Many will be cynical re this and boy do I understand why. Taking a politician off the government teat is like taking an addict off cocaine. It won't be slow or easy. Hopefully enough people like you will give them the courage to do what is necessary. We will see.

John said...


You are most welcome, sir.

Thank YOU for taking the time to say so.

Scott Grannis said...

John: let me also thank your for your very thoughtful and well-written posts.

John said...


Be careful. You are encouraging me. Many times I fear I talk too much.

Again, thank YOU for the not-often-enough appreciated job you do with this blog. You obviously put in a lot of time and effort for what appears to to be very little recognition. Also, thanks for your kind patience with my occasional rants. This is a terrific outlet and really helps me clarify my thoughts on what are to me very important topics.

John said...

Just a brief (promise) follow up to a previous post re an expected further ECB action.

Bloomberg is reporting that the EU (involving of course the ECB)is setting up a fund of undisclosed size to defend the Euro in the currency markets. There are various determined statements from EU officials and it will reportedly be functional when the Asian markets open tomorrow night.

This was not exactly what I was expecting but it will be helpful. I am still expecting something else from the ECB more directly.

We will see.

acrossthecurve said...

Too much capital can be a problem. see Tech Bubble, see Real Estate Bubble.

When you have too much capital and not enough quality assets to invest in, you get bubbles for "bad" assests ie: subprime debt, Tech IPOs for 0 cash flow business.

"sell in may and go away"

Scott Grannis said...

Nobody: "bubbles" are not caused by too much capital. They are the result of bad economic and monetary policies, coupled with badly designed government intervention into the normal workings of a market. They are the result of government induced excessive demand, and government induced excessive supply.

I would also note that "capital" is not the same as "money." too much money chasing too few goods can create inflation bubbles. Capital is best thought of as money that is associated with productive investments.

randy said...

Mark G - if you are still listening: I remember your comments years ago about demographics, and I personally give that a lot of weight. With that in mind, I believe the most important political issue of the day may be immigration reform. Contrary to what most conservatives think, our "reform" should be to allow much higher levels of legal immigration for those that can attain legitimate jobs. Of course we especially want the engineers and other professionals, but I also believe the manual labor workers are not only necessary to our economy but also because their numbers, they are really the only hope of overcoming our demographic situation. Unless we want to become Japan. Of course immigration reform needs to include much more along the lines of educational requirements, limits on entitlements, wage reform, etc. I think the negative attacks on immigrants is huge mistake.


John said...


Well said.

We are a nation of immigrants.

Mark Gerber said...

Hi Randy, nice to hear from you. I agree that smart immigration reform, along the lines you describe, would be in our country's benefit and could favorably alter the path laid out for us by demographics. However, so far I believe Washington has had a dumb immigration policy, motsly neglect, which has on balance been hurting us.

Just like my skepticism that we will straighten out our fiscal house, I am skeptical that we will address immigration intelligently. I hope I'm wrong on both counts, but I believe we get the government we collectively deserve.


Benjamin Cole said...


The 1990s bubble seemed to be caused by irrational exuburance. It was a heady time. I suppose you could say monetary policy was too loose, but we were a very optimistic nation in the 1990s, free of foreign entanglements and wars, enjoying solid growth and low inflation. The Dow just about tripled in the decade if memory serves. I think in one year the NASDAQ rose 50 percent (1998 or 1999).
That was arguably a tech or bubble.

Other than monetary policy, I do not think the federal government caused the 1990s bubble, in the way one might argue it caused a housing bubble.
(Even the housing bubble argument is murky--there were property bubbles worldwide. Spain suffers from a collapsed property market, house prices fell in London and Canada, and the US commercial property market, sans Freddie and Fannie, has suffered value declines matching or exceeding housing. Office buildings buildings in OC are selling for half off.)

I think of these modern-era bubbles as a sign of if not excess capital, then at least very abundant capital. (BTW, there was also an energy bubble 2006-2009, with lots of capital pouring into algae to fuel schemes, and other biofuel plans that most likely will not pan out.)

When we have global prosperity, absolutely huge pools of capital are formed globally, far surpassing anything the world has ever known before.

Of course, this is a good thing. No good idea in R&D goes unfinanced anymore. The explosion of venture capital points to a wonderful era of innovation. Lithium batteries, medical advances, shale gas--man marches forward.

But I think abundant capital leads to bubbles too.

I realize money is not capital. But the mantra in commercial property markets 2006-2008 was "to much money chasing too few deals. " And it was global too.

I see no problem with acknowledging that free markets sometimes result in bubbles and huge amounts of capital destruction (some would argue that the M&A world does that too--very few mergers work out as intended. Think Time Warner AOL).

Really, did the federal government cause the Tulip Bulb bubble?

Man is given to heady bursts of optimism.

And bubbles!

Redbud said...

Mr. Grannis, your optimism rivals Mark Perry's!

Uplifting, but sort of skipping over the hugely deflationary actions of many levels of govts and businesses stuck with budgets.

Surely inflation must follow deflation, as fighting deflation ("negative inflation") appears to be the primary mission of the fed.

I sincerely hope the powers aren't paying you both, a la, just to build our confidence.

As a humble Kansan and natural optimist in a relatively healthy part of the country, I have defended our economy and course, and often share your thoughts (as well as Dr. Perry's) with family, coworkers, and students. I WANT to agree with you.

But now that my state is unable to make enough cuts to avoid new sales taxes, skepticism about our future seems more appropriate.

If my decades-old business is able to raise prices to accommodate new costs and reporting requirements in the pipeline, fine. But risks and costs seem (to me) to be rising faster than opportunities. Consistent optimism is my preference, no matter what, but it almost seems (and feels) suspicious now.

Please forgive me if my comments are off base. I very much appreciate that you offer charts and references with your comments.

But will you confirm your independence?

John said...

During the Lehman Bros panic the US Federal Reserve provided 'unlimited' currency swaps with selected central banks around the world. Among them were Brazil and South Korea and Mexico. I have no evidence of it but it would not surprise me in the least if the Fed was engaged in the same thing in this crisis with the ECB. It would make the Fed a marginal buyer of Euros. Along with the support package announced yesterday by the EU I would expect the Euro could well rally on monday which would be bullish for our equity markets.

There may be a little more backing and filling but I strongly suspect we are nearing the end of this correction.

It appears I was somewhat premature with BP's progress in capping the oil leak. I still am expecting it will be days and not weeks or months before the largest leak is capped. Oil is being reported on the Alabama beaches at Gulf Shores, Al. This part of the tragedy will get much worse before it gets better.

Bob said...

Senator Bob Bennett of Utah ousted from the Repubican primary. A portent of things to come? I hope so.

My thanks also, to all who contribute.


John said...

The powers-that-be in the EU are gearing up for a battle royale with the speculators over the price of the Euro in the FX markets when the Asian markets open tonight. The ECB has a political mandate from the EU to defend the currency (at what level we do not know) while the speculators are betting the Euro will fall further and are/will be selling the currency for US dollars, Swiss Francs, and other strong currencies. I would expect the ECB has swap agreements with the various central banks, including and especially with the US Federal Reserve so our Fed will be a marginal buyer of the Euro on a large scale, as will the others.

Apparantly the ECB will NOT be buying sovereign credit securities in the open market (what I call the nuclear option). I had halfway expected that they would do so at least on a small scale to spook the specs so to speak. Probably will not happen....yet.

My seat-of-the-pants cheap guess is the Euro will rally somewhat and bring the various bond and equity markets up somewhat also. After that, it depends on where the ECB's line-in-the-sand is.

One BIG point Michael Santoli of Barrons made in his column this weekend is that the sovereigns do not finance their budgets with overnight funds as many NYC financial institutions do/did. The vast majority of the debt is several years out in maturity. While the prices are very volatile there is little rollover going on at any particular time. Spain actually priced and sold an offering very recently at reasonable (these days) rates. Point is, they got the deal done at an acceptable price.

One more thing from Stratfor. Germany is the country to watch. As long as the Merkle government is behind the 'bailout' of Greece, they (Greece) will be kept on life support. The Germans (gov't) do not like their currency and economy being targeted by the specs.

Gun to my head, if I had to choose who ultimately wins this fight, I have to go with the EU and the central banks. I firmly believe the Euro has BIG long term problems but given a determined EU, they will manage this is the short term. The implication for our equity markets is that after some likely additional backing and filling this correction/mini panic will end and more attention will be given microeconomic fundamentals rather than the macroeconomic nightmares.

Public Library said...

Greece and the Euro are so small they need a EUR 500B bailout. We are reaching the pinnacle of Sovereign debt explosion. It just keeps getting better and better and better. Not...

Public Library said...


100% agree on demographics. Throw in the the assault on immigration (we are all immigrants), and the population picture gets worse.

Benjamin Cole said...


Be not too happy with the heave-ho of Bob Bennett, who came from a very good and established Utah family, and was a fairly conservative fellow. I may have disagreed with Bennett on a few issues, but he seemed like a very honorable man.

If the R-Party has no place for the Bob Bennetts of the world, just who is going to be left in the party? The Montana farmer on subsidies and some militia-men?

I think the polarization going on in US politics is toxic. I think both parties are tipping towards the extremes, yet with neither party truly wrestling with the fundamentals, that being the US deficit.

Seems like we are taking our cues from Keith Obermann or Rush Limbaugh, not real leaders.

You may see a Sarah Palin-Michelle Bachman R-Party ticket in 2012, btw.

Meaning our choice in 2012 will be Obama or Palin/Bachman.

That's a long way down from Eisenhower-Stevenson, or Kennedy-Nixon.

John said...

My favorite short seller has posted this evening that the EU's package is credible and will result in a "combustable rally" is equity prices.

Just sayin.

John said...

I would like to clarify something that to me is being misunderstood by some. The word "bailout" has become synonomous with a "gift" or a "forgiveness" of debt that by implication is not deserved. SO FAR, that is not the case. Greece has been awarded LOANS -- I REPEAT LOANS from the IMF and the EU member nations to finance their budget deficits. Now it very well may be that ULTIMATELY there will be a restructuring of that debt that will result in the holders recieving less than the face amount of the loan. But SO FAR, NOT ONE CREDITOR has had to write off so much as ONE EURO on a sovereign bond or note. I am sure there are large declines in the market value of many of these bonds but I do not know of a "Mark to Market" provision in Europe that would require the holders to recognize these losses currently even though the bonds are not for sale.

So lets be clear about what is and is not happening here. Greece is NOT being "bailed out" in the sense of being forgiven for fiscal transgressions at the expense of others....YET. They are being granter a reprieve to get their fiscal house in order and to ...IN TIME ... regain the confidence of the credit markets. They may ...or may NOT choose to do so. If they do not, the financial and social consequences will be severe.

Benjamin Cole said...


Good clarification. I read that Greece may "re-schedule" some loan re-payments.

Again, from what I read, Greece can both trim outlays and get mildly serious about tax collections and easily solve their problem.

Some very high fraction of Greece households in high-income neighborhoods report pittance incomes, again according to what I read,

John said...

This is my final post for the evening.

Very early trading in Japan has the Euro up sharply against virtually all competing currencies. Japanese equities are higher.

Our markets should open higher in the AM.

I apologize for all the posts today, but our markets are paniced and writing these posts helps me keep my thoughts clear and my confidence up. I appreciate Scott's patience with my anxiety.

Nite, ya'll

John said...

I am truly sorry guys, but I just can't help it. From Bloomberg News:

"The Governing Council decided to conduct interventions in the Euro area public and private debt securities markets to ensure depth and liquidity in those market segments which are dysfunctional."

The central bank also said that it will reactivate temporary liquidity swap lines with the US Federal Reserve to resume US Dollar tenders at terms of 7 and 84 days.

THIS is the ECB move I was looking for. They waited for the asian markets to open to spring it. Brilliant. All the short heggies (and boy are there a lot of them) are on the wrong side.

That is worth a hot diggity damn!!

sorry Scott. Feel free to delete. Just couldn't help it.

John said...

The best analogy I can think of to express what the EU has done here is the popular TV poker game Texas Holdem. When you bet with your highest conviction you go what is called "All In". Well, the EU went "All In" this weekend, including their nuclear option of directly buying sovereign bonds in the open market. It is there that the short sellers were very exposed. With Central Banks (not just the ECB, but the Swiss and British central banks as well) as potential buyers of large blocks of bonds the pressure to cover was too great. From there it snowballed.

I have never seen such a display of focused determination from the staid, quiet, deliberative EU and ECB. I have watched these European organizations for decades and I have never before seen what I saw last night from them. I wish I could claim this, but I read on another site this AM what HAD TO BE the reason. IT WAS THE RIOTS. The riots in Greece with people dying in the streets destroyed all opposition to pulling out every weapon in their economic arsenal to KILL THIS SPECULATIVE VIRUS or every country could be facing riots in their capitals. They had help from every central bank on the planet. It was as coordinated as a symphony in Vienna and it worked. Boy o boy did it work.

Folks, this panic is over... except among the politicians. The riots have sent EVERY SINGLE EUROPEAN GOVERNMENT the biggest wakeup call they could get. Believe me, every budget is going to be analyzed and cuts are going to be made. The change has started.

Bob said...


I don't have a thought really about Bob Bennett as an individual or as a conservative senator. I just recognize that sometimes it is necessary to go to the extremes in order to come back to the middle, which, overtime, has raised itself to the high level of mediocrity. Bob Bennet was part of that mediocrity, as is Crist and others. Besides Bennett is 76 years old. Time for new blood. You said: "That's a long way down from Eisenhower-Stevenson, or Kennedy-Nixon." I don't think so if you don't suffer from presentism. Remember our Founding Fathers were considered pretty radical in their day.


Stop apologizing for posting already :). I enjoy reading your comments.


Public Library said...

You are celebrating the continued issuance of astronomical debt loads.

This is the sad state of the 'free markets' today.

John said...

What I am celebrating is an end to a financial panic that had the potential to wreck havok not only in European capitols but globally if it had been allowed to spread.

Debt is a disease only if it is abused. It is nor evil in and of itself. There is no question a lot of countries are included. But you don't deny treatment because someone exercised bad judgement. You give them medicine and counseling and nurse them back to health.

I understand your cynicism...much of it is justified. We have a long hard slog ahead to undo a lot of damage. I believe it can be done but sometimes you have to cut good tissue to heal the patient...or at least TRY to heal him. As long as he is fighting, I say you don't turn off the respirator.

Scott Grannis said...

Redbud: I understand your concerns. The world is far from perfect and policies have been bad for some time now. But there is still room for optimism. Things could be an awful lot worse.

Whatever the case, I can assure you that the views I present are mine alone. I receive no compensation from any government or Wall Street source, or from anyone for that matter.

Scott Grannis said...

I think Bennett's ouster is a good thing. Surely there are good people out there who are more conservative, and more in tune with Tea Party ideals. Bennett had been in the job way too long; that's a bad thing in itself. There's a lot to be said for Term Limits and citizen politicians. The Tea Party has burnished its credentials with this, and will gain new respect.

John said...


I don't think Greece's budget problems are going to be easily solved. I believe the jury is still out on whether they have the political will to endure the economic hardship that awaits them. They need a growing economy AND deep and painful budget cuts to have a decent shot at coming out of this in a reasonable time. They also need a better tax collection system (as you suggest).

They basicly have two choices:
1) Endure the pain and stay within the EU. They could restructure their debt or not, but either way its a long row to hoe as we 'field hands' say.

2) Leave the EU. This would almost certainly involve a restructuring of some kind. It would mean quite high inflation and VERY high interest rates. They probably would still have to borrow in Euros or US Dollars since their currency would steadily depreciate.

That's a quick and simple take on their broad options - neither is very appealing.

I think it is ironic that Turkey, Greece's neighbor, who practicly BEGGED for inclusion in the EU and was denied, has sat out this crisis in relative prosperity while Greece, who was admitted has all but imploded.

Just goes 'ta show. Be careful what you wish for.

Benjamin Cole said...

Well, John called it. Big rally today. EU action on Greek and other debts seems to "fix" problem for now.

John said...


Thanks. But 'calling it' alone is a little like kissing my sister (if I had one - I don't). But you get the idea.

What blows my dress up is...I bought on friday!

Benjamin Cole said...

Congrats John. You bought when everybody was scared.

Bob said...

I have been to Turkey many times. I used ask my Turkish friends why they wanted to join that socialist mess called the EU? I told them they would be better off joining the North American Free Trade Zone :)). Turkey is going through a bit of paradoxical change. They are not so quick to want to join the EU and their government is embracing a more fundemental Islamic viewpoint. But at the same time this government is eliminating the old gaurd military corruption that has kept Turkey stable but also has kept them in a third world status.

Time for a little Bob Dylan, the times they are a changin'.

We leave tomorrow for Ankara, Bodrum (Halicarnusus) and Istanbul. I am looking forward to great disussions about current events with my Turkish friends.

John said...


How cool! I am GREEN.

FWIW Stratfor, the geopolitical thinktank I read is sky high on Turkey's longer term prospects. They have Turkey tagged for great things in the future.

I would be interested in your observations of life there as well as your friends' perspectives.

Give us a post or two while you are there. Have a GREAT trip.