Many Market participants are clearly not understanding the current situation in Greece and the contagion it can cause. It’s not Greece alone, its the real systemic contagion risk and potential collapse of The European Central Bank (ECB) along with many globally interconnected institutions who have been joining in the fray. The ECB cannot carry nations alone because the EURO dollar is not the reserve currency like the USD, and the U.S. Fed only helps to carry one nation, The United States, not multiple nations like The ECB
Markets have become dependent on Central bank interventions around the globe, which allow for “easy money” leverage/borrowing. USA Markets clearly do not understand its own leverage situation caused by years of QE buying and a zero percent Fed Fund Rate. Failure to raise these rates makes the eventual correction a potentially catastrophic global financial collapse in and of itself.
·        Greece is small potatoes in and of itself
However, its current failings unmask the real structural issues our globe faces – living beyond its means on borrowed money.
The ECB cannot continue to buy junk debt of Spain and Italy and artificially keep bond yields low there without risking insolvency themselves as they do not print the world’s reserve currency and face a real risk of insolvency at some point.
Knowing this, the ECB has help in the form of global institutions also stepping in and buying the bonds/debt of these 2 countries which have little chance of real growth with youth unemployment skyrocketing. This is why the no vote won in Greece, primarily from the youth voters under 25 who face 50% unemployment in Greece, and about the same in Spain and Italy;
“Spain and Greece now share the same youth unemployment figure of 50.1%, while Italy has reversed its recent improving trend, and is now at 43.1% and rising.”
These are the young voters who feel hopeless and these same voters voted “no” to allow Greece to accept more Austerity. The youth voters in Spain and Italy are in the same ‘boat’ so to speak. Italy and Spain are not Greece! If any one or both of those nations default – “Houston, we have a Godzilla sized problem.”
