Yes, I know, more about Greece. But, Greece is center stage in the investment world right now. It is having trouble getting an austerity package done with enough credibility to make its European lenders comfortable. Soft deadlines keep passing and German and other creditors are increasingly demanding more austerity and more certainty that austerity will actually be enacted.
Meanwhile, the Greek economy spirals down with more and more layoffs. Full 1/3 of the country works for the government with generous salaries and pensions largely paid with borrowed money. Overall unemployment is now up to 21% and last quarter the economy shrank again, this time at a huge -7% rate. Yes, the government needs to shrink but there has to be economic growth to provide jobs for laid off public employees. Yet each quarter jobs are much harder to find.
The only way out of this mess really is for Greece to abandon the Euro and go back to the Drachma at a very discounted rate, thus cutting all their debt. The debt is piling up rapidly as Eurozone finance ministers continue to apply the wrong remedy. They are acting as though Greece is short on cash. No, Greece’s main problem among many is a crippling amount of debt that continues to rise as the economy falls. You can’t solve a debt problem by loaning the debtor more money.
I hope the U.S. is paying attention because our debt is also rapidly mounting and the president’s just announced new budget does not even propose to spend less money than the record pace of last year. And, as the total percentage of people employed keeps falling in the U.S. (see the Feb. newsletter) it calls into question the falling unemployment rate.
Today, U.S. stocks will likely finish near their lows for the day, down 0.6% on the S&P 500 index after failing once again to get over 1,355. Gold is up 0.5%, oil is up 0.7% and most bonds are down slightly. Retail sales, reported today were up but less than expected.