Greece To Join The Party And Issue Dollar Bonds

Zany things happen in a world awash in credit and debt.

Bloomberg reports Greece will be the latest country to issue dollar bonds, possibly by early May. It will thereby join Spain, Portugal, Germany, Belgium, Ireland, Canada, and India in issuing bonds in US dollars. The folks at Zero Hedge and Global Perspectives are in a lather about this, citing that the destruction of the dollar is such a certainty that foreign governments are lining up to take advantage of it. The only certainty is that governments are always late to the party.

From an Austrian School perspective, a world awash in credit and debt is actually in short supply of the underlying reserve currency (US dollar). Yes, I know it sounds bizarre. But study your charts from the early 2000s. You'll see that with the sole exception of the dollar everything went up: stocks, bonds, metals, energy. Then study 2008. Massive dollar spike, and massive contraction in everything else. Did the dollar fundamentally change overnight? No way.

Instead, the market woke up to the sudden realization that it needed the medium of exchange -- cash -- not credit. In a world awash in credit, in a world of fractional reserve banking, overcapacity, and endless amounts of stuff, cash becomes the real gold standard. How do market participants get cash? They sell stuff. They sell bloated assets. They pay off debt. They even sell gold and precious metals. Anything to get cash in dollars (or as close as you can get to it: note that US treasuries spiked higher on a flight to safety in 2008).

It's pure supply and demand. Credit is everywhere. Cash -- real dollars backing the credit -- is in short supply. Eventually the diminishing returns of credit in a fractional reserve system reach a limit. There are more dollar credits existing as blips on a computer screen than real dollars to back them up. I do not for a second think that washout that began in '07/'08 has concluded. It is my opinion that foreign governments are floating dollar denominated bonds because they're short on cash. Cash that counts. Not Euros. Not Yuan. Dollars. US dollars.

All that said, it would not surprise me to see the USD have a good pullback here, possibly into the 79 area. If that happens and the SPX starts gunning for 1200-1250 and JPY suddenly starts diving toward 89 and below, get ready to take risk off the table quickly. That could be the only clue you'll get that big players are in the process of doing the same.