Quick Take: Greece Is Better Off Than Detroit
Detroit's Chapter 9 bankruptcy filing is the largest municipal default in United States history. Like Greece, Detroit's pension liabilities were one of the many factors that caused the city to slip into economic distress.
However, Merk said that the situation is different in Detroit because once the slate is wiped clean, the city still doesn't have a "path forward" -- meaning the underlying problems are still not fixed.
The one advantage Detroit does have over Greece, he said, is the Chapter 9 process is much smoother than typically seen within the eurozone, which can be much more chaotic and painful.
In a situation like this, how much help could be the federal government be? According to Merk, not much. Considering that Detroit can't print its own money and the U.S. government is in its own state of financial stress, there's really no easy way out of it.
Plus, as Merk stressed, the underlying problems in the once-booming economy of Detroit haven't changed yet. Until they do, losses are going to continue to mount. He also said he expects similar issues to arise in the future with more municipalities and even some states.
He concluded that investors don't want to put their money in places like Detroit and Greece, where paying off the principal balance is hard enough, let alone the interest owed on the notes.
His suggestion is to go long the euro, since central banks will ease when they have to but are much more reluctant to do so than the Federal Reserve.
-- Written by Bret Kenwell in Petoskey, Mich. .