Back during the debt-limit debate (July 18) that threatened to result in default or debt downgrading, I posted a blog with the title, “Who Cares Enough to Blink?” I was referring to King Solomon’s decision to split the baby in half, with the real mother’s backing off to save her child. The one who cared the most blinked for the greater good.
Neither side on the Super-Committee blinked. The greater good was not served. A similar stand-off is going on in the Euro zone. The European Central Bank, the guardian of the Euro, seems willing to let its charge go down the drain on principle, or legalisms. After all, it was apparently not given lender-of-last-resort powers. The Federal Reserve was, and they were used effectively, only to see them taken away in the so-called “regulatory reform” of Dodd-Frank.
On both sides of the Atlantic, those elected officials who do the right thing for the greater good are given their walking papers for their trouble, those in Greece, Italy, and Spain being only the latest examples. Perhaps the new Spanish leadership will do the right thing more effectively and with more popular support than its predecessors.
Meanwhile, financial markets are not behaving. Negative events that are, to me, fully anticipated, are, nevertheless, trashing the stock market as if they came out of the blue. Apparently, we are supposed to sell on the rumor and then sell again on the news. I no longer believe I can stay solvent as long as the markets can stay irrational. Or, is it the other way around?