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Personal Observation on the Grand Plan
Some personal opinions, observations and "gut feels" regarding this weekend's EU Summit:
- Austerity measures reduce economic conditions and, where present, worsen economic contractions.
- EU leaders will come up with some type of agreement since admitting failure is not an option.
- At first glance the "Grand Plan" will look OK.
- Later, deeper examination will expose numerous blemishes.
- Having the countries needing assistance provide funds to the structures designed to provide the assistance seems to be a circular solution.
- What happens if Italy and/or Spain actually need support? Just how realistic is it to assume they will be able to meet their bailout fund contribution obligations if they themselves need to
be bailed out?
- Why will Portugal, Hungary, and Ireland just sit back and do nothing as opposed to negotiating their own new, revised and better bailout deals?
- Greece will default and not just in present value terms. The country will actually reduce the total amount of principal to be paid to bond holders; permanently. At well over 170% of GDP and
climbing, its debt level, in the end, must be reduced dramatically.
- It's an "election year" in the U.S. That means that at some point someone will quite likely point out that since the U.S. funds nearly 18% of the I.M.F. and since the I.M.F. is helping
funds the bailouts of Greece, Portugal, Ireland, French Banks, etc., that means that U.S. taxpayer dollars are helping bailout out foreign countries and banks. This likely will not be received
well by U.S. voters.
- Even if all the "bailout maneuvers" work, the Eurozone will slide into a recession. The austerity measures that are being, or will soon be, taken in Greece, Portugal, Italy, Spain, England,
Ireland, Belgium (did I leave anybody out) virtually assure an economic slowdown.
- The growing economic slowdown/recession in Europe will worsen conditions in the U.S.
- Facing these worsening conditions and re-election at the same time could lead politicians from either or both political parties to attempt some truly novel and dangerous (possibly harmful) policies. Beware the Unintended Consequences!
Bottom-line, government leaders are now tossing about trillions of Dollars and/or Euros. I believe it is very difficult for most of us to fully comprehend such large numbers. Perhaps this item which Art Cashin provided his readers recently will be helpful:
Have a good one...
Curtis Bergquist
Co-Manager: Daily Decision-PRO
P.S. Here's an unabashed pitch for Daily Decision-PRO Service - It's beaten the market handily for five months running now.
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