Who is going to be the next Greece?

This seems to be the major question asked by most commentators in most media outlets. Is it going to be Spain? Japan? The U. K.? Italy? Portugal? Just who might it be?

Might it be California? Or New York? Or some major city?

Who are the hedge funds attacking this week? Where is the bailout going to come from? What about the IMF, what role is it going to play? And so on and so forth?

As far as the United States is concerned, thank goodness for all the attention being paid to the problems being experienced by these other countries, and states, and cities. At least others governmental units are getting the headlines about the debt problems going on in the world, and not the U. S. government.

And, the nice thing about the problems going on in the rest of the world is that investors still consider the dollar and dollar-denominated securities to be the least-risky of the lot. Flee to the dollar! Flee to U. S. Treasury securities!

Sometimes it is good to rank things on a relative basis. The person who receives a grade of D can save his own self-respect and place in the world when compared with the rest of the class who received a grade of D-. Doesn’t say much, however, about the whole class.

The United States dollar, a currency under attack until the financial crisis of 2008-2009, once again finds itself gaining strength as the financial condition of other countries come under attack and their currencies come under selling pressure.

The value of the United States dollar, which was once again under attack in the late summer and fall of 2009, has risen by more than 6% against major trading partners since the beginning of December as investors “flew to quality.” The United States dollar has done even better against the Euro as it has risen by about 18% versus the Euro over this same time period.

And, what are central banks doing under these circumstances?

They are still primarily operating under the umbrella of “quantitative easing.” That is, the central banks cannot drive interest rates any lower so they continue to provide reserves to their own banking systems in order to keep those banking systems afloat.

For the vultures circling over the scene it seems to be banquet time. The big banks, the big hedge funds, and others seem to be prospering in this environment of close to zero borrowing costs. These organizations are earning record profits! Not so, of course, for the small- to medium-sized financial institutions that are hanging on for their lives.

There are no good solutions! Every path out of this situation is full of difficulty and pain. And the strong get stronger and the weak, weaker.


The problem faced by politicians is that they must appear as if they are being active in the attempt to resolve the problems that their countries are now facing. Yet, to increase stimulus packages only exacerbates already stretched budget deficits. But, to cut spending, because revenues are down due to the weak economic conditions, only causes greater misery and social unrest. The fiscal conservatives attack those that push for more economic stimulus; the social liberals attack those that push for more budget restraint.

The central bankers worry about what will happen when interest rates begin to rise and asset values and business expectations start to fall again.

The world is in a tough spot when the basic question being asked becomes “who is going to fail next?”

It seems as if all these countries (states and cities) can do is attempt to reach a balance between improving the fiscal discipline being demanded by investors and voters and between the safety-nets that need to be created to cushion the difficulties being faced by many of the people within their domains.

With no “good” solutions available, governments must “muddle through” as best they can. There is no panacea.

The thing that should be avoided, but, in the distress of the moment, will, in all likelihood, not be avoided, is to create programs or solutions that will not be helpful once the crisis period is over. Politicians and others tend to “rush in” during “crisis” times and create programs, rules, regulations, or laws. (As Rahm Emanuel has stated, ““You don’t ever want a crisis to go to waste; it’s an opportunity to do important things that you would otherwise avoid.”) Once on the books, however, these programs, rules, regulations, and laws remain in practice for a lengthy period of time, and, over the longer-run, many fail to achieve the positive effects that was desired when implemented.

It is important for leaders, in my mind, to appear as if they are in control during times like these. In essence, all of these leaders are heading “turnaround” situations. These leaders must be pragmatic in practice. They must re-establish discipline in all that is done under their watch. They must not be the slaves of some ideology.

What these leaders do will not be pretty, but they need to be strong in order to bring people behind them. These leaders need to build support and trust. The worst thing that they can do is to look as if they are not in control for the vultures will jump on this appearance and dominate events.

What do the markets seem to be saying in response to the efforts of current leaders?

The headlines we are now reading in the newspapers and hearing on newscasts indicate that governmental leaders are not in control. It appears as if the future is being driven by hedge funds and others who are taking advantage of the feeble conditions in the various political units around the world. No one seems to be in charge and no one seems to be rising to the task!