At long last: the ratings agency Standard & Poor’s has deemed Greece to be in “selective default”. The European Central Bank has temporarily suspended the use of Greek bonds as collateral. However, stocks have been moving higher in trading this morning following the vote in the German Bundestag yesterday to authorise the new 130 billion-euro Greek bailout deal agreed by finance ministers last week. The markets have after all had months to come to terms with the idea of Greek bankruptcy.
Moreover, as Jim Sinclair points out at JSMineSet.com: “Only the International Swaps and Derivative Association opines on what is a default as it applies to credit default swaps. S&P carries no power over the performance (or lack thereof) of CDSs.” It is this uncertainty about whether CDS written on Greek debt can be honoured that still has the serious potential to spook investors.
Many of you are by now likely sick to the back teeth with the Greek debt crisis, and the reams of ink that has been spilt by journalists and market analysts on this issue (not least at this website). But this column urges you all to read Detlev Schlichter’s cogent analysis of Greece’s problems, and the bigger picture surrounding the debates about austerity, debt, monetary union and the eurozone. Commenting on the now conventional wisdom that returning to the drachma would help Greece, Detlev notes:
“The economic commentators in the media seem to only ever see the superficial and short-lived benefits of devaluation. They forget that nobody wants to hold a currency specifically issued for the purpose of debasing it, and that includes the locals. Greek savers are pouring money into gold and London real estate and German banks not only out of understandable concern over the health of Greek banks but also out of fear of devaluation which always means robbing the savers. Leaving the euro now would be complete disaster for Greece, in my view. And even had Greece never entered monetary union and kept its currency, its economic model would have equally been on the way out by now. In any case, adopting an inflationary currency does not make running budget deficits and a bloated state apparatus harmless or even sustainable.”
Though precious metal prices were flat over the course of trading yesterday, they have risen this morning. Gold faces selling pressure around the $1,780 level, while silver continues to go from strength-to-strength – though as James Turk notes a new discussion at the King World News Blog, silver could face more resistance around $35-36. James expects that once resistance is taken out around this level, that silver will climb to $68-70 in the next two-to-three months.
