Europe in Crisis - Don't think for a minute this means the U.S. is in better shape.
February 08, 2010
– Comments (12)
Well, Fools, extraordinary events are underfoot, but with a Superbowl weekend and the Olympics looming you'd hardly know it tracking the American "press". For a broader view, it is crucial to head outside of the country for one's news. I have repeatedly pointed to Ambrose Evans-Pritchard as a fine source, even though I believe he does not fully comprehend the mechanics at play. Although occasionally flawed in my view with errant interpretations, his coverage nonetheless offers some of the best treatment of critical topics in global finance throughout this crisis.
Greek Ouzo crisis escalates into global margin call as confidence ebbs
"Flow data shows an abrupt withdrawal of German and Asian capital from Club Med debt markets. The EU's refusal to offer Greece anything beyond stern words and a one-month deadline for harsher austerity – while admirable in one sense – is to misjudge how fast confidence is ebbing. Greece's drama has already metastasised into a wider systemic crisis. The world risks a replay of the Lehman collapse if this runs unchecked, this time involving sovereign dominoes."
While you're at it ... you might as well just bookmark Ambrose Evans-Pritchard's article page:
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/
Fears of Lehman-style Tsunami as crisis hits Spain and Portugal
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7159456/Fears-of-Lehman-style-tsunami-as-crisis-hits-Spain-and-Portugal.html
"Julian Callow from Barclays Capital said the EU may to need to invoke emergency treaty powers under Article 122 to halt the contagion, issuing an EU guarantee for Greek debt. “If not contained, this could result in a `Lehman-style’ tsunami spreading across much of the EU.”
Japan's high-risk strategy shift
"The change of tack by the world's second largest economy sparked jitters on Tokyo's bond markets and may have implications for the global currency system, leading to a revival of the yen "carry-trade" that helped fuel the last international asset bubble."
Meanwhile, G7 finance ministers are meeting so far up in the Canadian Arctic that you'd have to rent a dog sled team to stand outside a chilly no-free-speech zone. Perhaps they didn't want a repeat of this embarrassing mis-step from the meetings in Italy last summer.
Your national debt ceiling has been raised to $14.3 trillion dollars. Do you not recall how recently we notched beyond the $10T mark?
Let me pose this question to you. Before you assume that the dollar will continue to exhibit counter-cyclical strength as the Euro tanks and the Yen is placed back onto the firing line, do we not have our own Greece in California? Do we not have our own Spain in New York or Pennsylvania?
Look at the debt to GDP of the so-called PIIGS nations (Portugal, Italy, Ireland, Greece, and Spain). The U.S. fits right around the middle of the pack.
Before you sigh in relief at the thought of foreign currencies more impaired than our own, save your breath. The U.S. dollar is no safe haven, and at some point one has to ponder the notion of a world in which fiat currencies writ large are facing collective devaluation in a manner that force gold to break away from its dollar-centric correlation ... revaluing instead against each of the impaired currencies simultaneously. If the Euro, Yen and USD see simultaneous weakness, then gold will rise no matter what the USDX does.
Unfortunately, the things I have been trying to warn my fellow Fools about for more than 3 years now are about to become obvious. The scale of the derivative meltdown will become apparent. The extent to which the reflation strategy will remain the fiscal law of the land is matched only by the unimagineable harm that this will do to the purchasing power of your hard-earned dollars. Recovery is not just a myth ... it's a lie. Deflationary collapse is not a politically feasible outcome, and therefore we will have an inflationary one. Those that have resumed their investing activities in a "business as usual" way, failing to shift their entire fiancial paradigms to reflect the ramifications of the failure that is still underway, will once again be shocked at the breadth of our collective financial predicament. Those believing the declarations that we are out of a recession are perhaps technically correct ... since we were never in one. No, from the very beginning, this meltdown was indicative of a depression of epic proportions. Think the latest $100 billion jobs programis the last stimulus package we'll see? Think again. Think the word bailout is a thing of the past? Then ask yourself how many states the U.S. can afford to let slip into default. If you are preparing for deflation, then you may just be underestimating the lengths to which those in power will go to maintain their hold on power by reflating a broken system.
The banksters have done it again. As they have so many times throughout modern history, they have robbed us blind. The financial "geniuses" who collected fortunes peddling OTC derivatives have played roulette with our future ... and lost. The geeks at AIG who buried that company are now earning massive bonuses. The trading houses are market makers, and also market breakers. Everything our founding fathers warned us against has come to pass yet again, as meaningless paper has again hijacked the interests of the people for the fleeting wealth of the few.
The years ahead will not be easy. I wish each of you the very best of luck in adapting, and implore any of you who have not already done so to ease the shock of adaptation through preparation.
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