Redrum, a little correction about the percent of debt to GDP in the US compared to Greece. Here is a lovely slideshow about the biggest debtor nations, with the US at 96.5% of GDP and Greece at 170.5% of GDP.
http://www.cnbc.com/id/30308959/The_World_s_Biggest_Debtor_Nations
For what it’s worth--which is nothing, I agree with orwellian that the decline in euro demand doesn’t have as much to do with confidence in the Greek bailout as the fact that there are other European economies which may also need a bailout. In the medium-run whether or not other bailouts come to pass, it is certain that growth in the Eurozone will slow some as a result, meaning less demand for the euro currency. Questions about the euro’s capacity as a currency to confront crisis has caused its demand to slump because investors are worried about euro investments’ ability to hold value in the short term...because quite frankly these unanswered questions essentially create more risk for euro valued investments. That’s the explanation I have heard that makes sense to me.
But come on! This doesn’t mean the EU or its economies are failures y soy una yanqui. We have been permanently “bailed out” by China and other holders of US currency and bonds.
The dollar has been used as the international reserve currency since Bretton Woods established the international monetary institutions. As such, people turn to the dollar in economic crises because worldwide there will always be some stable demand for the dollar. So this designation of the dollar in some ways is sort of a false stabilizer of the dollar’s value independent of the US economy.
We talk a lot in my macroecon class here in UBA about how there are a lot of weird things the US can do with their fiscal policy in terms of going into debt without taking on the monetary and currency consequences that small countries like Argentina have to face. It is not just because the dollar is the currency of reserve but also because US Treasury bonds are still the safest investment worldwide, even when the US economy was in crisis. And this does have to do with investors’ perceptions of the stability of the US economy, though not necessarily its growth potential. All of this to say, maybe, probably inevitably, the US will “fall” one day or at least more hopefully be forced to make decisions multilaterally instead of unilaterally and not wage illegal wars. But if the bond market is any indicator, this is not going happen soon.
The stock market and currency markets are NOT economies, though they do influence them and give us some insight. Case in point, all the rallying in the US stock market has not meant the end of the recession for all the struggling, real people out of work there. All of this means, we can’t just look at the way currencies are trading or government fiscal policies or even stock markets as a long run indicator of an economy; we certainly can’t make doomsday predictions about the fundamentals of an economy based on them.
