John Taylor of the world's largest currency hedge fund FX Concepts, whom we recently presented as opining that the Euro would drop to $1.20, is pretty much certain what the final outcome from the events in Europe will be: "The powerful elite political forces, and their co-opted market allies, involved in this fanciful decision-making can not control the economic reality that will eventually destroy Greece and Europe." That's about as short and sweet as it gets.
Greece Is Out, We Just Have To Sort Out the DetailsIt's sad to read such a quote coming out of the largest currency hedge fund.
April 8, 2010
By John R. Taylor, Jr.
Chief Investment Officer
Global monetary and macro economics have become more like the literary nonsense in Alice in Wonderland. It is great fun to read, but unfortunately for all of us, we are living through this economic house of mirrors, which is more and more rapidly spinning out of control. The situation in Greece is the most poignant example at the moment. Although there do not seem to be more than 100 people in all of New York City that have any interest or concept of what is going on in Greece and within the euro, the events of the next few months will have a tremendous impact on the world. If the political actors in this tragedy-comedy play their roles well – staving off collapse – our suffering will be worse. There is no way to win. The powerful elite political forces, and their co-opted market allies, involved in this fanciful decision-making can not control the economic reality that will eventually destroy Greece and Europe. Hopefully, they will be forced to give up before the damage is too severe. The quicker the crisis comes, the better for the world, but almost everyone is working in the other direction, stretching it out to inflict maximum pain. At this point, the best way out for Greece is very clear. Greece should pull out of the euro this weekend, issue new drachma notes as soon as possible, and let the lawyers clean up the mess. If I were running Portugal, Italy, or Spain I would do the same thing – the first one out is the winner.
I've already mentioned it in the past, but the best solution for the Greeks is to do the exact opposite of what you've just read: stay in the Euro, default on their debt, wipe out the lenders who didn't do their homework and due diligence and start over on a sound foundation, by reducing drastically the size of the state, privatizing as much as possible, reducing taxes and getting rid of as much public servants as possible.