So now, having seen two governments in Europe implode this week, and having seen the stock market rise strongly in response, we wake up this morning and realize that the DEBT hasn't gone away, but now, we no longer have governments in Italy or Greece to deal with the debt crisis. So we have both a fiscal crisis AND a political crisis now!
I need to pinch myself to make sure this is real life!
And the big money on Wall St thinks that Europe's problem is just Europe's problem, and that it is contained there. Europe has the highest GDP of any continent on earth; it's even bigger than that of the United States. They dismiss the facts that 1) Europe is now officially in recession, that 2) this is going to impact the earnings of American companies doing business there, and 3) those American companies are going to have to reduce their profit projections, and 4) reduce their headcount (ie., higher unemployment) here at home. They also dismiss that 5) Italy's government is considered to be too big for the rest of Europe to bail out! They also choose to believe that things are "different" on this side of the pond, despite that we are only a few steps behind Europe in the debt parade!
And Italian bond yields have now surpassed the 7% yield milestone. And now, France' bond yields are starting to rise. As one of only two AAA-rated governments remaining in Europe, the bond market is beginning to speak, as the bond vigilantes are now seeing France' debt as problematic.
There is some good news, however, the Dollar has broken out and is rising powerfully, sending the price of commodities lower. We may soon be able to afford to eat, drive, and heat our homes again!
