Just when I was getting comfortable thinking things were ok, two new threats appear on the horizon from different directions.
1. Republican Mainstream Flirts with Brief US Default
Summary: Many Republicans doubt the Aug. 2 deadline, and are willing to go into short-term technical default in order to force spending cuts. David Frum and others believe that this could hurt mutual funds and lead to a bank run and provoke another global crisis. Quote: "Foreigners don't buy Treasuries for the yield but for the safe-haven status".
2.Obama Presses Europe, Pledges Help for Greek Crisis
Summary: It is all in the headline. Obama urges Merkel to bail out Greece and "pledged U.S. support".
The "alchemy" I have been talking about that allows us to go into almost infinite debt relies on the special place of the US in the world and the dollar's reserve status. Anything that weakens the reserve status will hurt this magic. Even a brief US default will make foreigners question the legendary safety of the US dollar.
The 2nd article requires more explanation. The US could easily afford to send $100 billion to Greece and keep it afloat for 2 more years. The problem is the precedent that it sets. Once you starting helping someone, when do you stop? Greece is a black hole that will swallow all aid and bailout money sent to it. The money sent to Greece won't help it, instead it will just go to the international bankers. The best thing to do for Greece is to not help, and let it default and escape from the EU. That is what the people of Greece want. And yes it would damage the euro in the short-run, and help the dollar. The US can't afford to bail the entire planet out, and if the US tries then it will overextend itself and collapse. Let Greece go - it is better for the Greeks and it is better for us.
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