The unfolding drama of the Greek economy has roiled markets and awakened fears of global economic calamity that had been dormant for more than a year. The $1 trillion rescue package assembled by the European Union and the International Monetary Fund may be enough to keep the Greek disease from infecting Spain, Portugal, Ireland and other overleveraged European countries. But the events of the past weeks echo the lessons of the near global meltdown of late 2008 and early 2009: the world is indeed a risky place, although not in the places most people think of as risky. The global economy is indeed riddled with problems, but not in the places most people think of as problems.
Can the Markets Learn to Live With Fear?
For the first time in nearly a year, financial markets have reawakened to fear.
Until a few weeks ago, global markets had been marked by an almost eerie calm, with equities rising modestly but consistently, bonds trading in a narrow, reasonable range, and activity from mergers and acquisition to new public offerings showing steady signs of progress. Companies have been generating astonishing profits even in an unsteady global economy, and earnings have consistently blown through expectations. But then Greece coughed and the whole world caught a nasty cold.
The World's Dollar Drug
For all the talk about the problems of Greece and their implications for the euro zone, there is another currency that presents equally profound problems: the U.S. dollar. The dollar is, as everyone knows, the world's reserve currency, and it widely seen as a boon and an anchor for the emerging global economic system. It is also the only thing standing between the United States and its own moment of reckoning, and that is not a good thing.