THE EURO-SAGA CONTINUES

As I wrote in previous Posts, the EuroZone (17 countries using the common currency) has had mostly contracted economies (GDP), but not their respective National Debts. Accordingly, the Debt-to-GDP ratio just gets worse and worse. That Debt-to-GDP Ratio is what the Financial Markets use in determining the risk involved with a Nation’s Debt–and the interest rate to be expected. Countries with lower ratios (like Germany) can finance themselves more attractively, while Countries (like Spain or Italy) with higher ratios, will pay a higher rate.

So far, the EU and the EuroZone have avoided a recession for the first half of 2012; but just very marginally. Although the economies of both shrank slightly during the Second Quarter, they were flat in the First Quarter. A recession is defined as two successive negative quarters. For more information, see the linked article (from the AP), in today’s The Washington Post, Euro economy shrinks 0.2 percent in Q2; Germany prevents an even bigger decline, http://www.washingtonpost.com/business/euro-economy-shrinks-02-percent-in-q2-germany-prevents-an-even-bigger-decline/2012/08/14/e389040e-e5ee-11e1-9739-eef99c5fb285_story.html

According to the linked article from NBC News (from Reuters), the recession was averted only because Eurostat (the EU Statistical Agency), revised the GDP for the First Quarter to zero from a one percent contraction. You can read more at: http://www.msnbc.msn.com/id/48664633#.UCr-tGB5Eb0. I do wonder if that revision was made at the encouragement of the European Central Bank.

And, after 30 months, the Triumvirate of the ECB, European Union (EU–representing all 27 countries) and the International Monetary Fund (IMF), appears not to have actually done anything constructive in solving the Debt Problem. Besides being the major distraction to the markets, it also appears to have been the major cause in slowing the World Economy.

Lately, the US Financial Markets seem to have reached somewhat of an Equilibrium–a situation where new money being added to the markets more-or-less equals money being pulled-out. I kind of wonder if some of the money that was pulled out of the markets during the Financial Melt-Down, back in 2008-09, is slowly re-entering. There has been a good bit of it sitting in Cash, earning next to nothing. Otherwise, I simply cannot find any reason for the buoyancy that the stock market has demonstrated so far this year.

 

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