The European debt crisis continues to cause turmoil in the European economy and great uncertainty for the global economy. Investors are beginning to wonder if we’re on the verge of a Lehman 2.0 type event. Of course, if we’re due for a Lehman then we have to first serve up our Bear Stearns, right? And that’s exactly the fear here. The fear is not necessarily that Greece will default, but that Greece will lay the foundation for even larger defaults. And that’s where Spain comes in. Spain, in my opinion, would pose a bailout so large that it could very well become politically untenable. Greece and Ireland and Portugal are one thing, but Spain is twice the size of these three countries combined!
In the end, I still think that the Europeans have but one choice – suck it up, bail everyone out, and kick the can until you make the EMU a viable currency system. In the meantime though, keep an eye on this chart. Bond vigilantes in Europe could push Spain to the brink of disaster. And that could make everyone involved in this currency system reconsider its existence. In the end, it could very well push this crisis into a phase that no one wants to experience (again).
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
Comments are closed.