3 of Greece's 'Unintended Consequences'

02/29/2012 8:20 am EST


Jim Jubak

Founder and Editor, JubakPicks.com

Given the best-case scenario that the current rescue plan for Greece will succeed, MoneyShow's Jim Jubak looks at how this may impact some of the other key global markets.

Let’s talk about unintended consequences of the Greek rescue deal.

OK, let’s be optimistic for a moment. Let’s say Greece scurries around and gets all the loose ends tied up, and nobody in the Eurozone parliament throws a monkey wrench into this, and Greece does indeed get the deal all wrapped up and doesn’t default on March 20. We all know this is really just kicking the problem down the road, but let’s look at the unintended consequences of this.

There are some interesting ones. So, for example, if the euro doesn’t look like it’s going to crash and burn in the next week or so, you’ve got a lot less demand for safe-haven currencies. The key one we think of, living in the United States, is the dollar, but even more important has been the Japanese yen.

So, an unintended consequence of this is the Japanese Yen, which has been really, really popular as a place to stash money, a place to borrow money, and consequently has been getting more expensive, now starts to get cheaper as the demand for it goes down.

That’s a really good thing if you’re a Japanese exporter. You’ve been suffering under the fact that your Toyotas (TM), your Canon (CAJ) cameras, your whatever, have been getting more expensive as the Yen goes up. That hurts you with your customers. That hurts your profit margins.

Now, as the yen is getting cheaper...I think now, again, the time span is of the Greek deal getting kicked down the road, so we’re talking about a few months. But within that time period, Japanese exporters look like they get a big plus from a deal that had nothing to do with them.

The United States also gets an unintended consequence, but it’s not a plus, it’s really a minus. One of the things that the United States has gotten out of being a safe haven in all this is we’ve gotten lower interest rates. So, I think we’re looking at a big spike in US interest rates.

Certainly, we’re looking at it in an environment where Treasuries are not quite as attractive at current interest rates. People are going to ask for a little more, since they’re not so concerned about safety. So instead of seeing rates go down or stay steady, you might see them kick up a little bit.

If that leads to worries of "Oh my God, the sky is falling," then we’ve got a problem. So that’s the thing I would watch for. Not so much what rates are doing, because I don't think they’re going to move a lot, but whether commentators start to go, "Oh my God, Oh my God, it’s the end of low rates in the United States."

The last thing really is emerging markets. One of the things that a faith that Europe is not going to fall apart does, is it makes it possible to take more risks anywhere in the world. So, whether you’re Brazil or China or India, all those markets were depressed by the fact that Europe was undergoing a crisis.

This crisis hasn’t been settled in the sense that it’s made Europe’s economies grow more, so we’ve still got those growth fears. But in terms basically of just taking a risk, I think after the Greek deal is done, you’ll see investors more willing to go a little further out on the risk spectrum, and that works for emerging markets too.

So, those are three unintended consequences of the Greek debt deal.

Related Reading:

Hang On for Mr Dollars Wild Ride
How Greece Has Cost You
What Happens if Greece Goes Bust?

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