Why Greece Matters!

If you have been watching crude oil prices over the past few weeks, you have seen some wild fluctuations. Over the past ten days, it looked for awhile that there may have been some relief in oil prices, and the fall in oil prices were being touted as a precursor to a fall in gasoline prices over the next few weeks. Wrong, diesel mouth! Stuff doesn’t happen in a vacuum. There is a cause, a reaction, and a re-reaction to everything that happens in the markets. So for this lesson, heat up some spanikopoda and cut yourself a piece of baklava.

Many forces go into the cost of crude these days, and most of them are bad. Instability in the Mideast, particularly Libya, fueled that the last rapid crude pop. Bad energy policy in the United States that is promoting AND PAYING for fuel drilling off the coast of Brazil but not in our own waters is another cause. In 2011, however, the worst of the worst is bad monetary and fiscal policy in the United States and other countries. Currency matters, and right now ours sucks.

Over the past several years, contrary to what the Federal Reserve and the Treasury Department have stated, the United States has promoted a weak dollar policy in an effort to boost exports. Unfortunately, and unintentionally, things got out of hand as the American debt skyrocketed and the economic collapse of 2008 fueled uber spending by the government and massive printing of money by the Federal Reserve coupled with artificially low interest rates. The dollar sank against the Euro, and the cost of importing oil went up and up and so did the price of gasoline, acting as a tax on all of us for our misguided ways.

But all is not honey in Euroland. The European Union has its own share of fiscal and monetary problems, albeit approached much more conservatively by the European Central Bank and the Bank of England (the only member of the European Union to maintain its own currency), hence the stronger Euro against the dollar.

In Europe, while members of the Euro Zone share a common currency, each country maintains its own fiscal policy with no accountability other than promises to other Euro Zone member countries that each will maintain certain debt and growth levels. That hasn’t worked out so well. Countries like Germany and France have exercised fiscal restraint promoting pro-growth policies and are doing well. Other countries, like Ireland, Greece and Spain, have gone hog wild on social spending and are now European basket cases economically.

Greece seems to be the worst of the offenders, and went to the EU last year for a bailout to save the country. Germany seems to be the EU member with the bucks, and loaned money to Greece as the German population went nuts. Germany, translate the EU, required the Greeks to impose strict spending limits…and the Greek citizens went nuts with rioting in the streets for weeks.

The Greek government managed to get things under control, but things began to unravel several weeks ago when the Greek government went back to the EU for a redo of the bailout. Germany balked… and last week Greece leaked it would consider leaving the Euro Zone and re-issuing its own currency, which for all intents and purposes would be worthless.

Traders dumped the Euros, and the Dollar experienced the most rapid strengthening in years. Thus, oil prices started to come down as traders and speculators unwound their position calculated in Euros to move into position calculated in Dollars. Hurrah…the problem was over for you and me. Experts were predicting a 50 cent drop in gas prices over the next few weeks.

Over the weekend, the Greeks met in secret with the European Union, which is claiming the Greeks cannot leave the EU much like US Government said to South Carolina just before the Civil War. Holly Drachmas, Batman!!!

Although some rapprochement was made with the EU by Greece, the uncertainty is still there. And here is the kicker, the financial condition of the United States is not all that much better than Greece, and traders are once again looking for a safe haven. Where that safe haven used to be the dollar, now it is commodities and oil shot up $5.50/barrel today! So much for cheap gas!

This is the price we are all paying for our government’s misguided fiscal and monetary policies. And that’s no feta!!!!