The plot thickens Part II

An American Default Would Put Us “In The Land Of The Unpredictable”

By Robert Lenzner

The suave El-Erian hopes for a medium term resolution to the need to reduce the nation’s debt. “Otherwise.” he tells Zakaria ( I have transcript) there could  be “a catastrophic” succession of “legal contracts being triggered.” In other words, confusion, bordering on chaos, and even a loosening of all the strictures by which we keep financial and economic order.

At the very least, the nation should realize that the end of QE2– that’s June 30, next Thursday– “is a major event that the market is underestimating.”  And volatility in prices of stocks and bonds and commodities could result from this “major event that the market is underestimating.”

Stay tuned. Get focused. Is there some move you’d like to make before next Thursday– when Ben Bernanke will stop putting about $ 4 billion a day  into the monetary system. He has been doing this since late September, 2010– for y our information.

Add to a US default a Greek default, which some economists believe is coming sooner or later. Could this possibility trigger a Lehman-like global liquidity panic/  Another sophisticated financial analyst I know personally– Christopher Wood, author of the weekly commentary, GREED & Fear, said this past week the best hedge for investors against this risk is to short European financial stocks– “for this area remains the epicentre of systemic risk globally.”

He’s talking about the $1.5 trillion the major European banks have lent to troubled Greece, Ireland, Italy, Portugal and Spain. God help us if the insolvency of European banks in 2011-12 is   to be an event similar to the insolvency of the US banks in 2008.