Well it’s not just Greece. It’s the fact that they are all so overleveraged. Consider Greece the straw that broke the camel’s back. Greece isn’t as heavy as the other burdens, but Germany can’t carry everybody else AND Greece.
What has been happening is that they are coming to Uncle Sam for help. Which is problematic because Uncle Sam doesn’t have the money anymore to keep the system going.
If you take the entire world, We are currently about 50 trillion in debt on 70 trillion in income. Meaning that the debt buffer is about 20 trillion dollars and expanding about 3 or 4 trillion a year. The problem is that overspending is expanding existing debt faster than the economy is growing.
The good news is that stopping spending will still stop the train. The bad news is good luck getting most of the world to agree with it.
It went from $243 Trillion in 2007 to $700 Trillion in 2011.
As I mentioned to a friend this evening, the turmoil in Europe actually helped shore up our 30 year notes. The flight from gold to treasuries sure didn't hurt us in the long run.
Unfortunately, we've already reached the tipping point, where growth in the FedGov creates a corresponding contraction in the private sector. That's why counterfactuals on Bush's "rescue" and Obama's stimulus show the economy ending up in the same shape as if they had done nothing at all. We can't keep going down the same path as Europe, throwing money at the problem in the hopes it will resolve itself or attempting to inflate our way out of debt.
Some folks can position themselves to make money in the ensuing tumble, but the majority of Americans can't. It won't be pretty.