After the dramatic new European bailout announcement, and despite few specifics, stock markets skyrocketed. But a day later, after investors saw how scant the bailout details were, markets sold off around the world, except in the U.S. where the market was up about 23 points. Also European representatives immediately went to China to beg for money and were told to provide far more details of their bailout. If China eventually participates, the terms will be onerous, which is reflective of the risk. And worse yet, bond investors despite the new "guarantees" bought little of Spain's and Italy's bonds yesterday and those who did demanded higher interest rates. In other words a vote of no confidence. Yet there is a far greater problem:
The economies of Portugal, Ireland, Italy, Greece and Spain are in a vicious tailspin and as they sink, their money needs soar. Yet to comply with the loan covenants, far more public sector people will be laid off, wages will be cut, retiree pensions will be slashed and taxes will rise. This will kill any potential economic recovery as it impacts the private sector as well. Already in Athens for example 40% of their youth are unemployed, one in four storefronts are vacant and over 100,000 people have repeatedly protested on the streets, while their strikes have shut down the country, including tourism, a vital part of the Greek economy. There are already calls to get rid of the Socialist government that just agreed to these bailout terms.
European unemployment rolls, home foreclosures and credit card defaults will soar and home values will fall. European governments are trying desperately to convince their citizens the severe economic problems are being solved as they Band-Aid them. Brace yourself for tough times, for their problems will have global impact, and please willingly help others as together we will eventually triumph over the world economic collapse.
Dick
For more information, please see "No Bounce for Greek Spirits," The Wall Street Journal http://online.wsj.com/article/SB10001424052970203554104577001773720092842.html
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