Investing in stocks is risky. Investing in bonds is safe. Sovereign bonds are the safest because they are backed by the full taxing power of the nation. Investors in Greek sovereign bonds just lost half of their money. The U.S. stock market will soar when it opens. So much for safe.
When a nation has depleted the wealth of its citizens, who can they tax? When a country’s full taxing power becomes near worthless who will lend them money they cannot pay back? When a corporation goes bankrupt it sells some assets, perhaps all. When the Soviet Union went bankrupt they could no longer keep their satellites under control. When members of the European Union go bankrupt the functional nations pay the bills of the squandering nations. How long and how often will they be willing to do that?
The shelf life of the Euro is shorter than that of the dollar, but that’s not saying much unless we stop following Europe into the dustbin of insolvency.