Greece Fire

What a day! The DJIA was down almost 10% in a single day, the worst decline since 1987 (20 years folks). The culprit most people say is Greece may not be able to secure a bailout by the European Union. This has sent the Euro down and the dollar up.

As of this writing, the Euro was equal to 1.26 American Dollars, the lowest point in over a year and I assume the Euro is probably headed down until this Greece thing is worked out.

This has sent the price of oil which is denominated in dollars, down. All other real goods would also go down in price on a stronger dollar. Oil ended the day at $77.

A strong dollar is again counter to the "export recovery theory" that I have been spouting, namely that in order for the US to begin to pay down its debt, the dollar would have to depreciate, (a.k.a. inflation) leading to increased US exports.

The problem with this theory is that, the dollar is not depreciating. It is growing stronger as foreigners demand dollars, putting downward pressure on interest rates (10 year Treasuries decreased 14 basis points to 3.398). I expect that rates are probably going to decline tomorrow as well.

This also means that since the demand for dollars is high, the US can issue more debt, something I was hoping we could avoid, lest we turn into Greece.

The Greek Debt to GDP ratio is 101%, meaning that Greece owes more than it produces.

For the US, the Debt to GDP ratio is around 88%. If current spending continues, we will reach above 100% in 2016.

The U.S. is not Greece however. 50% of the GDP of Greece depends on government spending, and a lot of the rioting we are seeing is because cuts to entitlement programs effect a lot of poor and unhappy people.