Weekly Economic Update

The ECB’s decision to purchase government debt as part of a support package for Greece and to limit contagion to other countries crossed a bridge from which there may be no return. The ECB’s independence has been brought into question.

There are only three ways out of a fiscal crisis: cut the deficit, default, or inflate. For many countries the first is extremely difficult and European governments are ruling out the second. Inflation fears, as a result, are growing.

Market moves today were, in part, driven by fears of a breakup in the euro. The Eurozone countries will avoid this at all costs for many reasons including the implications for the solvency of many European banks.

Once again, U.S. fixed income benefits from flight-to-quality buying. However, if government debt is the problem, the U.S. can only be immune from these problems for so long.

Source RDQ

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