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Greece is The Word...

|Includes: BHP Billiton Limited (BHP)
-- A house divided cannot stand… this principle is no better being tested than right now on the global financial stage, both in Europe and the US. Let’s do a recap.
-- Bernanke has risen the emergency cash rate unexpectedly in the US. The market is speculating over this move being for the purpose of slowly unwinding the near zero rate against interbank financing to once again meet rising commercial stimulus and potentially head off inflation, encouraging the private commercial sector to once again take the reigns of driving the economy.
-- Ben must be fairly confident over the US market’s ability to take off based on recent economic data released in new housing starts and the job creation figures. With news about the Greek tragedy unfolding and details about their financial situation being funded only until mid March 2010 (at this stage), maybe Ben is doing his own hedging against the impact Greece not paying their bills on time and how that will affect the Euro against the US dollar will pan out?
-- The Greece situation is becoming more interesting every time I read more and think about it more… the drama unfolding suggests that countries that had a very high deficit to begin with at the start of the GFC are borrowing against forward tax revenue to stimulate the economy and maintain it with floaties so it doesn’t drown. Problem is, when governments start to borrow in advance, they take on a higher level of sovereign debt and IF the stimulus doesn’t work…. Tada!! You have a greek situation.
-- I think the UK saw this potential disaster coming as it reviewed it’s own position in participating in the Euro and wisely decided better of it. The Brits may have decided not to attempt to colonize Europe like they did most of the free world and instead have concentrated on building their economy with robustness, although they were not shielded either given their own deficit.
-- Now, here is a model to look at… have a look at the countries who had the following ‘components’ in place before the GFC and you will see these same countries protected from the damaging effects. Ready?
§         Liberal or Right Wing government in power
§         Budget Surplus
§         Mineral wealth export base
-- Since the GFC, any country in this basket has been using it’s budget surplus to stave off financial starvation for it’s citizens, especially if it is socialist/left wing in it’s policy. Add to this a product they have that will be in demand for at least the next 20 years in growing proportions and you have a country well placed to ride through the GFC relatively well.
-- For Australia, this has meant incredible spending and potential debt shortfall in it’s future generation, although Mr Swan & Co believe the continuing demand for infrastructure for nearly 2 billion people in two nations as they move through their own industrialization age means increasing tax revenues against mineral exports is seemingly guaranteed as Australia’s future public income.
-- Only question now is how will nations encumbered with massive sovereign debt and a static, volatile or shrinking tax base progress through this age?
-- You can hedge safer than Australia’s treasury ALL eyes are on Greece right now.

Disclosure: BHP.AX