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Simmering Hope

Hope is the expectation that something outside of ourselves, something or someone external, is going to come to our rescue and we will live happily ever after. – Dr. Robert Anthony

Jul 20, 2011

EU Debt crisis, followed by a possible USA default?

News agencies reported that today, July 20, 2011, German Chancellor Angela Merkel and French President Nicolas Sarkozy met to seek common ground on fighting the debt crisis before July 21, 2011 European summit. Again the EU government chiefs are trying to find a Greek rescue solution, that would be more palatable to their respective taxpayers. Greek Prime Minister George Papandreou said in an interview that the summit could be a “make-or-break moment” for the euro region. The rescue package is believed to be around 110 billion euros ($156 billion).

What is to be understood? That Greek is the Achilles tendon of EU? What about the other group of countries pejoratively named PIIGS (Portugal, Ireland, Italy, Greek, Spain)? Is it going to be enough capital available to bail them out?

An interesting article from February 2011 is worth reading as it sheds some light on why the stock market did and would go short on euro.

In the mean time, things are not nice and dandy in the United States either. While President Obama was in talks with German Chancellor Merkel regarding Greek’s rescue package, remember that he has a bigger fish to fry at home, where the Federal Reserve is preparing for the possibility that the United States could default. What’s going to happen if the world’s biggest economy runs out of cash on August 2? In Washington, lawmakers were working on a plan to raise the U.S. debt ceiling with market-pleasing(operative word being ‘pleasing’) proposals to cut spending. Congress must approve an increase in the $14.3 trillion U.S. debt ceiling by August 2 or the government will run out of money to pay its bills.

Karma is a bitch, isn’t it? Years ago Latin American countries have been lectured ad nauseam by Uncle Sam over where to make budget cuts and how to address their debts. Ten years ago, Argentina defaulted on about $100 billion in debt. In a dramatic role reversal, the USA faces the same problems, only multiplied a thousand fold.
I found it sadly ironic that ‘Brazil, the region’s economic powerhouse, which just a decade ago had to come to Washington to ask the International Monetary Fund for a bailout, is now the United States’ fourth-biggest sovereign creditor — holding about $211 billion in U.S. Treasury securities, according to U.S. data from May’ (source: Reuters)

More from Reuters:

Below are the top 10 largest holders of U.S. debt as of the end of October 2010

— China, mainland: $906.8 billion

— Japan: $877.4 billion

— United Kingdom: $477.6 billion*

— Oil exporters, which include Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria: $213.9 billion.

— Brazil: $177.6 billion

— Hong Kong: $139.2 billion

— Caribbean banking centers, which include Bahamas, Bermuda, Cayman Islands, Netherlands Antilles and Panama: $133.7 billion

— Russia: $131.6 billion

— Taiwan: $131.2 billion

— Canada: $125.2 billion (No wonder we are getting anxious and at the same time mad when politicians like Hillary Clinton asks for a revision of NAFTA to favor them even more than it does right now. Seriously?)

It remains to be seen if the market is going to experience the dreadfully predicted ‘second dip’ and throw us all into a deeper recession, or if that powers that be are going to provide a life line.


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