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Georges Ugeux

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Greece Should Not Influence the U.S. Markets: the U.S. Should

Posted: 05/16/2012 10:15 pm

The Dow Jones Industrial Average has been in the red ten of the past 11 trading days. The explanation that seems to summarize the market mood is: the Greek situation.

Far from considering the European situation with complacency or benevolent negligence, there is no rationale in attaching so much importance to Athens.

That Paul Krugman considers that Greece could leave the euro within a month, or Madame Lagarde, the French IMF Director General, openly evokes the possibility of Greece leaving the Eurozone can only fuel a market sentiment that it is actually possible.

The reality is much more simple: if Greece were to leave the eurozone, the speculation would immediately attack another of the European countries and the Euro would quickly disintegrate. Angela Merkel and Francois Hollande have, wisely and explicitly, excluded that option.

Furthermore, the Greek debt would immediately rise by the amount of the loss of value of the Drachma.

It is time to look at the reality.

Greece represents between two and three percent of the Eurozone, and less than 1 percent of the world GDP. Would we consider that the world is collapsing because California (bigger and more important) would be in financial trouble?

The other reason is because there is no correlation between Greece and the United States. The mutual trade is around $1 billion, with $200 million in favor of Greece.

The problem of the Greek debt has been largely resolved with a decrease of $140 billion forgiven by the private sector.

The United States should focus on its own weaknesses.

The reasons for the deterioration of the U.S. equity markets are primarily domestic.
Yes, companies who are very international like GE are suffering from a decline of their European activities, but GE is more Asian than European. The lack of performance of GE does not date from the Greek crisis, but from the departure of Jack Welch.

The banking sector is weakening, spending so much of its time in lobbying Congress that it even manages to fail, as did JP Morgan for $2 billion, to adequately use the loophole obtained to the detriment of the Volcker rule.

Last but not least, we need to remember that the macho culture of derivative products produced losses at Baring brothers, Societe Generale, Goldman Sachs, UBS and JP Morgan. The top management has been unable to clean that business and amply justifies the rule that it should not be used for proprietary reasons.

Greece is a convenient excuse. Let's correct our own weaknesses, starting from public indebtedness, rather than pointing the finger towards Europe. Our $ 15,000,000,000,000 debt is much more relevant to the world economy and prosperity. We don't need lessons from Krugman, Summers and other economists to know that Europe cannot survive without a combination of fiscal discipline and growth. When the boat is sinking, it is legitimate to first make sure it can float.

 
 
 

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