Photo: Associated Press
Cut it out. The biggest thing we should be worrying about right now is whether political leaders and central bankers have gotten way too good at bailouts.
Let’s take a step back and look at our own crisis, and the policy response.
We basically got our bailout in three parts.
- First was the bailout of individual institutions (Bear, Fannie & Freddie, etc.). These did very little.
- Second was the passage of TARP in early October 2008. That helped stop the acute financial crisis (a run on the banks, basically), but the stock market basically continued to tank.
- Finally in March 2009 Bernanke announced quantitative easing, and THAT’s when the market bottomed, and it’s basically been rallying until today.
Naturally, this was a period of a weakening dollar, and rising gold prices.
So Europe, having seen our response collapsed its response and did one big bang. What we got this weekend was everything rolled into one: A country-specific bailout (for Greece), a TARP-like fund, and quantitative easing. When you think about it that way, it’s clear Europe really did go nuclear. The continent will be smothered by a flood of liquidity, that will inevitably find its way into stocks (especially if you think that weak underlying fundamentals won’t justify the allocation of that capital into real investment). To bet against European markets is to bet against a player that can smother you without a problem.
Beyond that, a weaker euro will offer fundamental benefits to European economies. A weaker euro will make Greek labour markets a bit more competitive, something the country desperately needs. Actually, all of “Club Med” needs this. German exporters will love the weaker euro, too.
The key thing is to not get distracted by a declining euro (currency) and think that somehow that represents failure. People always make that mistake, but it’s exactly what Europe wants right now. And if you’re focused on today’s one-day breather, you’re totally going to lose the plot. Don’t fight the Fed, and don’t fight the ECB!
Now, as for the real long term… Eventually the piper has to be paid.
Now don’t miss: Here’s everyone who got saved by the euro bailout >