Doug Kass: From Exceptional to ... Greece
Today's expanding debt crisis may be eerily similar to 2007.
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As we "Rethink American Exceptionalism" we should also be considering: Are we turning into Greece?
Indeed, it appears investors are dancing like "Zorba the Greek," while the U.S. spends gluttonously,
Just a day after the $3.8 trillion "Beautiful Bill" was passed in the House of Representatives, the cost of U.S. credit default swaps (which pay off in the event of default) have astonishingly intersected with the price of Greece's credit default swaps:
The bill's debt impact -- with a 220% debt-to-GDP ratio by 2055 -- reflects the Republican party's ideological shift to the Democratic party's liberal big spending of the past.
The chart below shows credit default prices for U.S. Treasuries anticipating a six-level credit downgrade from their current AA+ rating (down from BBB+) -- that is just three notches above a "junk" rating:
It is shocking to me why equities don’t seem to care that we ... are Greece now.
It could just be retail once again hoovering up the institutional selling. Retail does not know any better, but if that is the case, I have no idea where they keep finding the money.
Could be the pros think this forces quantitative easing or something of that ilk, but it feels like at some point that is no longer a solution and does more harm than good, because the combination of this and everything else going on (tariffs, trade tension, and the like) will almost surely lead to a big inflation problem.
The real solution is cutting expenses, and biting the bullet that way, but neither party seems willing to do that. (See Rethinking American Exceptionalism.)
But the pain that comes from cutting expense is at least a real solution and better than the type of pain that comes from continuing to do what we are doing.
Zorba The Greek is a novel that delves into some profound themes such as the nature of life -- contrasting the intellectual pursuit of knowledge with the raw experience of living, emphasizing the importance of embracing life's uncertainties.
Maybe this is all as simple as Zorba the Greek's "The Final Dance."
Worse yet, to this observer, today's expanding debt crisis may be eerily similar to 2007 when Citigroup's CEO, Chuck Prince, famously said, amid early signs of the subprime mortgage crisis as the financial crisis (and Great Recession) unfolded:
"As long as the music is playing, you've got to get up and dance."
The quote has been interpreted as suggesting a lack of foresight and a willingness to continue risky practices even as warning signs emerged -- while investors.... dance, dance, dance. I am also reminded of Prince's 1999 premonitions as the dot.com bubble began to mature:
The sky was all purple
There were people runnin' everywhere
Tryin' to run from the destruction
You know I didn't even care
Say, say, 2000-00, party over
Oops, out of time
So tonight I'm gonna party like it's 1999
Be forewarned.
This commentary was orginally posted in Doug's Daily Diary on TheStreet Pro.
