John Mauldin sums up my thoughts about the latest development of the eurozone crisis:

The European leadership must have realized the wheels were coming off and brought out the nuclear option in order to stave off a very serious crisis. In my opinion, this buys time but does not solve the problem.

The eurozone leaders assume that this is a liquidity problem. It is not. It is a solvency and balance sheet problem. You do not solve a debt problem with more debt. This only shoves the football a few yards (or maybe I should say meters) down the field. And it is going to cause a MASSIVE misallocation of capital once again which will create more imbalances that will have to be dealt with.

Source: John Mauldin’s Outside The Box

One thought on “Eurozone Crisis Is a Solvency Problem, Not a Liquidity One

  1. You surely are making a sense here. I agree with you. I did state in some other way: the problem has to do with permitting speculators to dip their hands into the debts, via hedge funds on the secondary debt markets. The hedge funds/hot money operators are disappearing in the equation of analysts which is simply an augury of blindness and philistine understanding of the problems there.

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