Unless you have been living under a rock you will have noticed that investing markets have been whipped around by the hair like an unloved ragged doll. At the root of the markets gyrations is Europe and whether they can solve their debt crisis. The reality is, at minimum, Europe needs to come up with approximately 2.5 Euro (or more). The 2.5 trillion figure is derived by taking the total debts of the weak nations (PIIGS plus some more) take a 50% haircut and you have about 2.5 trillion. With no haircut we are looking at 5 trillion plus. The way I see it they have a few options.
- The first option is economic growth in a huge way in the troubled nations in particular. This means a complete reversal of the path they are on. This option is highly unlikely.
- The second option is they could find a huge pot or source of money. They will not just find money and the only place that can fund such is China and they are balking if not disinterested entirely. Whatever China does not cough up (if any) Europe will have to figure a way by borrowing which assumes there are entities willing to lend to their disaster.
- The third option is massive defaults above the 50% haircut. Remember that a 50% haircut is a default since 100% of investor money is not being returned.
- Print money on a huge scale and bail out the weak nations.
Option one is a dream of a dream. Options two is possible but unlikely that China will cough up all the cash. Option three and four are more plausible, not good for markets and scream protect your money.
