Why We’re All Greeks This Week

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The economy doesn’t suck as much today as it did yesterday, apparently. How do we know this? Initial claims for unemployment fell by 16,000 to 414,000, according to the Labor Department. That other weak spot, housing, got some good news in that housing starts rose 3.5% and building permits rose 8.7% in May vs. April. (Keep in mind though that the housing starts figure has a margin of error of +/- 12.4%.) Meanwhile in Greece, the citizens rested after a busy day of rioting that sent a message their government, their northern European bankers and the IMF: take your austerity plan and go to Hades with it.

Any individual day on Wall Street is noise in the grand scheme of things, but it can point out the crazy linkages in global markets.

Let’s say you’re a fireman in Athens. So 10 years ago you joined the fire department and signed on to whatever deal was being offered—on salary, pension, 104 holidays, retiring at what, 45? Whatever. You took it; you fulfilled your part of the bargain. You put out fires. And now you are being told you are an overpaid drag on the economy. You have it too good and are going to take a hit. Faced with that prospect, I might be protesting in the streets, too. And I would not care whether my crazy little country, with a GDP about 1/10 the size of Germany’s, has got Europe by the big toe and about to drag it into the Aegean.

Let’s say you’re a firemen in Madison, Wisconsin. Greece matters to you because your pension is likely underfunded and the governor thinks you and the teachers and other state workers are an overpaid drag on the economy and demands austerity. Your pension is funded through investments in the stock and bond markets, which have not done well enough over the last decade to cover promised payouts. More austerity needed. The  markets are nervous because if the Greeks can’t pay off their bonds, the ability of Ireland, Spain, Portugal and Italy to repay their bonds becomes more suspect. So do the stocks of the French and German banks holding a ton of those bonds—stocks your pension fund might very well hold. And so the contagion spreads. Which is why a fireman in Madison may have more to gain if Greece imposes its austerity plan than a fireman in Athens.

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