Ben Davies: Greece Is Just A Preview Of What's Coming For The Rest Of Us
14 Februart, 2012
All eyes are on Greece these days, with hopes the situation there can soon be resolved and the global recovery kicked into high gear.
Sadly, those hopes are misguided claims Ben Davies, CEO of Hinde Capital. In fact, he says, Greece's pain foreshadows the future awaiting the rest of the world.
It all comes down to simple math. Greece has increased its debts at a rate far faster than its income has grown. At some point, the debt became so large that the country could no longer service it.
What makes the rest of the PIIGS immune from a similar fate? Or Japan? Or the US? Or the OECD, in general?
Yes, Greece had a smaller, shakier economy and doesn't have a central bank to print its own currency at will like Japan or the US. But even those countries with a printing press learn that, after a certain point, expanding the money supply only complicates the problem of too much debt by inflating key economic input costs and dangerously weakening the currency.
The cold hard fact Greece is facing is that it's now at the point where extraordinary losses need to be taken. The problem is, no one wants to take them. And all the sturm und drang being exhibited by Brussels, the ECB, sovereign debt holders, and other world leaders is nothing more than a frantic game of hot potato.
The one thing we can be confident of is that at some point, these losses will be taken. The market will eventually force it.
And the second thing we can predict is: we don't know what will happen when they are. There is so much complexity in the counterparty exposure to Greece debt - as well as the much larger derivative exposure tied to this debt - that anything between "not much" and "worldwide financial conflagration" could be possible.
And that's just Greece. As other larger countries begin to sink under the weight of their sovereign debts, the risks to the global financial system increasingly escalates. Which is why Ben Davies has a hard time finding a good home for investment capital other than gold.