Monday, July 6, 2015


Relax said the night man
We are programmed to receive
You can check out any time you like
But you can never leave
--The Eagles

This weekend Greek people overwhelmingly voted 'no' on a referendum requiring Greece to accept EU policy demands oriented toward fiscal 'austerity' in exchange for a restructuring of Greek sovereign debt which is now technically in default.

EU policymakers faces two primary choices. Agree to sit down once again with Greece in yet another round of Groundhog Day-like negotiations. This option makes Greece look like a winner in this battle. Plus it emboldens other EU countries teetering on default (e.g., Italy, Spain) to ignore future EU demands for fiscal policy reform.

The other choice is to boot Greece from the EU. Absent some sort of ECB bailout (which of course is possible), this option will eviscerate holders of Greek bonds.

Greece, on the other hand, in the throes of capital controls, is pondering the prospects of outright printing of euros to pay obligations. This, of course, would eviscerate the Euro and spark Big Inflation.

After futures markets sold hard over the weekend, investors have been putting on their brave faces once again this am, erasing nearly all red ink since the 'oxi' vote came in yesterday. Conditioned by previous bailouts, market participants obviously believe that policymakers will once again ride to their rescue.

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