Hungary's "Debt Crisis" is Non-Sense

My first reaction to the news when it came out was "What?!" I was surprised not because of the sudden potential debt crisis from another European country, but because of the price action of EUR/USD. Euro is said to sink below 1.2 mainly because of this news. And the media were like "fears that debt crisis spreading to Eastern Europe blah blah blah".

Maybe I am missing something here. First, Hungary does not use Euro! It has its own currency, and it will NEVER default as long as the central bank agree to print more money. Simple as that! Yes, it may slim your chance of joining the Euro-zone if you print too much money which can cause high inflation. But if you default, you still can't join Euro-zone. Print money, or default? Of course, print money! If Hungary can manage well, they still can avoid a debt crisis while maintaining a healthy inflation rate. So the possibility of a default is practically Zero.

Second, I still don't understand how "sovereign debt crisis can SPREAD from country to country". Sovereign debt is different from corporate debt or any other kind of debt. So unless countries like Hungary bought bonds from the PIIGS countries, I don't see how they can be connected. Throughout the whole economic history, only the countries in South America had real default problems because the debt was denominated in Dollars, and the suddent change in exchange rates was the true culprit. But in Europe, it is different: the debt is denominated in euros. As long as ECB agrees to help, they will never default.

In my opinion, the news that Hungary's new cabinet came out and ask for "help" is merely a sensationalim maker. They can condemn the previous the government, while hope to get some money from ECB (since everybody else is). If they can't get the money(which is likely), they will print their own money anyway. It is the worth the try though!

One common misconception about the European debt crisis is that people think that the reason so many countries with debt problems come out at the same time is because "debt crisis spreads." Like I said, sovereign debt does not spread unless these countries buy bonds from each other (which is unlikely here). Actually PIIGS countries were having these problems for a long time, it is just the recent recession made them difficult to collect taxes and they also had to throw a lot of stimulus funds into the economy. The true reason is the Europe's high social welfare lifestyle, which is not sustainable. Austerity measure is indeed the solution, as long as they can maintain it.

Finally though I am very bearish on the stock market, I am not worried about Europe's debt crisis. Political risk is the only risk that stands in their way. Politicians sometimes make stupid decisions just to gain popularity and votes. They need to stand on the same frontline. As to EUR/USD, I am not worried either. For God's sake, United States is the country that truly needs a bailout! But we are not worried either, because Fed is so good at "printing money" and we will continue to be the beneficiaries of the the giant Ponzi scheme like we have for the last 40 years!

An article from bloomberg, comments from Moody's about Hungary http://www.bloomberg.com/apps/news?pid=20601087&sid=aSvd4abNVV2E&pos=7