Paul Krugman, "That 1914 Feeling": Greece? What About Puerto Rico? What About the US?

Examining the Greek debt crisis in his latest New York Times op-ed entitled "That 1914 Feeling," Paul Krugman notes the concern of Jacob Lew, America's Treasury secretary, who "recently warned Europeans that they had better settle the Greek situation soon, lest there be a destructive 'accident.'" Krugman goes on to say:

"Some major players seem strangely fatalistic, willing and even anxious to get on with the catastrophe – a sort of modern version of the 'spirit of 1914,' in which many people were enthusiastic about the prospect of war. These players have convinced themselves that the rest of Europe can shrug off a Greek exit from the euro, and that such an exit might even have a salutary effect by showing the price of bad behavior.

But they are making a terrible mistake. Even in the short run, the financial safeguards that would supposedly contain the effects of a Greek exit have never been tested, and could well fail. Beyond that, Greece is, like it or not, part of the European Union, and its troubles would surely spill over to the rest of the union even if the financial bulwarks hold."

The national debt of Greece? Almost $378 billion, and debt per citizen of over $34,000. Yes, it's worrisome.

But closer to the US, what about Puerto Rico, which also stands on the brink of default with debt totaling some $73 billion? In April, Standard & Poor's reduced Puerto Rico's general obligation debt from a B to a CCC plus rating, i.e. junk.

Meanwhile, America's debt has risen dramatically under the careful guidance of the Obama administration to an unsustainable $18.3 trillion, or debt per citizen of some $57,000.

A "1914" feeling? How about 1929?

You Lack Faith in the Creditworthiness of the US? Buy Cow Manure, Not Gold!

I had many calls from clients over the past 24 hours concerning my stance with regard to the malaise affecting world financial markets. Let me make this as short as I made it to my customers: I bought shares yesterday in the companies in which I believe. Obviously, it could be that I bought them too high, and if I were to have waited, I might have been able to buy them at a better price; however, there is no doubt in my mind that the markets will recover, and the share price of the companies in which I invest will do well over time.

When asked whether I recommend the purchase of gold, I told my customers that I prefer cow manure. I explained that unlike Standard & Poor's, my faith in the ability of the United States government to repay its debt has not changed one iota, and if it did, gold would offer me little security over the long-term. On the other hand, if the US government were to default, we would all be growing vegetables in our gardens, and cow manure for fertilizer would ultimately prove more valuable.

Never good at growing vegetables, I will stick with my belief in the creditworthiness of the US and take advantage of the decline in world equity markets to add to my positions in the companies which I respect and trust.