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The Euro Has Some Muscle to Flex in Tough Times


As poor a currency as some folks want to believe the euro is, the dollar is that much worse.

It's hard to believe that a whole year has passed since the market lows were seen. Obviously, there was a tremendous amount of fear at this time last year, but printing money has worked and stock prices have subsequently done what they have done. That, compared to the jobs market, makes for quite a large dichotomy.

Indeed, the scope of the problems that need to be dealt with is rather enormous. Of course, since expectations were so dismal a year ago, a certain amount of improvement was due to take place. Currently, central banks are beginning to contemplate the removal of that liquidity, although so far none has been removed. If anything, backpedaling has been the order of the day. We'll soon see how far the Fed can go in its attempts to stop its quantitative easing.

Which sort of leads us to Greece and the euro, the latter of which is quite a paradox. For many years, I and others thought that when times got tough, it would be virtually impossible for the euro to hold together. That, because the Germans wouldn't agree with the Greeks (as we're seeing now), which is just one of any number of examples we could use.

They've Only Got a Garlic Press

On the other hand, the attractiveness of the euro is that no EU country can print them and that membership does have rules (even if they are flexible). The EU is doing exactly what it should do to attempt to make Greece behave in sensibly fiscal fashion. Yet, as Portugal, Spain, Italy, etc., deal with their own imbalances, it's hard to see how the euro will manage to come out the other side intact.

My reason for delving into this subject: If one looks at the dollar, we don't have any rules. None. Period. Can you imagine what the uproar in this country would be if the president proposed the sort of cuts that the Greek government is proposing? (Which isn't to say the Greeks don't have a lot of fat to cut.)

But neither the president nor Congress will do anything on that score because it's the pressure of rules for the euro that's getting folks to act -- and to repeat, we have no rules for the dollar. At some point, discipline will be forced upon us and it will be painful, but that will be during the funding crisis. So, as poor a currency as some folks want to believe the euro is, the dollar is that much worse. In any case, that's not an issue for today, but I offer this perspective as the world funding crisis plays out. (Quite likely, the next country to go to school on will be the UK.)
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