Would you buy an American Company’s bonds, denominated in U.S. Dollars if that Company could not repay the loan? Hardly! Why should any clever international investor buy Greek bonds, denominated in Euros, if Greece cannot repay the loan? AND, standing around the Lending Room, are four other Fat Fellows with their hands outstretched: Portugal, Spain, Ireland and Italy.
Too many OTHER COUNTRIES needing a hand-out.
THE LINE IS GETTING LONG
Not only are there the PIIGS needing a hand-out, the famous White Lady, Great Britain, is also looking for a loan. The entire Western World is living on credit and ignoring hard work. This is a manifestation of the underlying force of human nature. Conserve energy – do not work unless you have to.
Today, March 31, 2010, the Greek Government issued a statement that they would raise additional capital by denominating their bonds in U.S. Dollars -Â since the price for Greek Bonds in Euros is falling.
This will not solve the situation. There is only a small group of international investors who can absorb bond issues of over 10 billion dollars. These investors see currencies as mutations of an underlying force: Purchasing Power. All the currencies of the world are equal when it comes to buying an ounce of gold or a barrel of oil.
The only advantage of Dollars over Euros is the future purchasing power of the Dollar over the Euro. Hence, when the Greek Government changes the denomination of its bonds from Euros to Dollars it is saying that Dollars will be worth more than Euros in the future. This, in turn, indicates that the Greek Government has little faith in the future of the EU.
The countries of the EU are not equal. They differ in terms of their social values, their capacity to produce goods and services and their willingness to accept the burdens of debt in order to maintain a high living standard.
When one country wants to borrow in order to live well, while another is willing to work in order to live well, you have an irreconcilable difference in values. In a family, this generally ends in Divorce.