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Wednesday, June 15, 2011

Too small to fail and foreign exchange


I grew up listening to the following saying… When the US economy catches a cold, the developing world catches pneumonia. Forget about that. It is the reverse what holds.

Forget about the behemoth corporations so big and influential that their demise could compromise the entire financial system of the planet.
How about too small to fail? How is it possible that the world markets are so obsessed with one country; Greece which represents a mere 0.44% of the world’s GDP? Even if we add Portugal and Ireland we only get 1.06% of the world’s GDP…

You may be thinking, well the markets are really worried about Spain, the big daddy of the PIGS… Let’s add it and we reach a still minuscule 3.07% of world’s GDP.

When was the last time that Australia (same size as Spain) threatened to derail world's financial system.
  According to reports, today between 20- 40 thousand protesters took the street s of Athens and clashed against the police. These protesters have immense power over 7 billion fellow human beings.

Think about it. Too small to fail is the new too big to fail.

The only difference… the Euro and its artificial imbalances. Forex market would have corrected this issue long time ago.

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