Tuesday, November 30, 2010

As The Euro Goes The Way Of The Dodo, Where Does That Leave The Dollar?

The Eurozone is heading for a crash—anyone saying otherwise is either stoned, works in Brussels, or hasn’t checked the European bond market action lately: All hell is breaking loose there.

The Euro:
A famed, flightless bird, now extinct.
And if, as I have argued here, the Irish Parliament decides not to pass the austerity budget next December 7—that is, decides not to take the European Central Bank bailout—then hell is going to break out in Europe just in time for Christmas: Satan and Santa Claus just might be squaring off on the Rue Belliard before year’s end.

Therefore, the smart money starts thinking about what’s going to happen after the euro-crisis-climax happens.

In other words, what’s going to happen to the dollar, once the euro goes the way of the dodo.

First, we have to understand how we got here, in order to figure out what’s going to happen next.

The Banana Republics of Europe

In the 1970’s and ‘80’s, various Latin American republics foolishly pegged their currency to the U.S. dollar.

It worked like a charm—at first. At first, all these small-fry countries took advantage of the fixed currency exchange rate to get indebted in dollars, and go off on a big-time shopping spree.

It all ended in tears, of course, when the bill came due. Chile, Argentina, PerĂº, Uruguay, at various times they all had their currency pegged to the dollar. And in each of those situations, once the currency peg became unsustainable, their economies crashed. 

This is exactly what the smaller economies of Europe did. As I argued back in April, if you look at the euro as simply a very complex currency peg, then the solvency crisis we are witnessing in Europe was inevitable.

Just like the banana republics in Latin America, the PIIGS of Europe got over-indebted to the point of insolvency. 

What Are The Europeans Doing? Trying To Save The Gangrenous Limbs, Instead Of The Patient

When the Latin American economies and their bondholders realized—the hard way—that their dollar-peg was unsustainable, the countries devalued their local currency, and started rebuilding their economies.

The bondholders? That is, the people fool enough to lend to these countries which had pegged their currency to the dollar? If they were lucky, they took a haircut. If they weren’t so lucky, they went home with a big fat bagel—a big fat zero.

What has the ECB been doing, with regards to the failing eurozone economies of Greece and Ireland? They’ve been trying to prop them up with bailouts—but keeping those economies pegged to the Euro.

What are the bailouts? Why, they’re loans. In other words, the Euro-morons are lending money to these shaky economies so that they can pay off their other loans. The Euro-drones in Brussels are not allowing Greece and Ireland to default and restructure: They are instead insisting in bailing them out and imposing austerity measures, without forcing haircuts on the bondholders.

So as the Greek and Irish economies continue to deteriorate, they have an overly strong currency for the weakness of their economy, and they are being forced to pay 100c on the euro, on loans they cannot possibly repay.

The effects are obvious:

Already, the Greek bailout of this past spring—which was supposed to be repaid in 2014 and 2015—is being extended to 2017. And casual observers of the Irish situation realize that, with the bailout costing €85 billion at 5.8% interest, there is no way that Ireland will ever be able to grow its way out of this debt. Greece and Ireland will be debt slaves forever, even as the crushing weight of the euro grinds their economies down.

Meanwhile, the bond markets realize that the bailouts of Greece and Ireland are only kicking the can down the road—the bureaucrats in Brussels are simply giving Greece and Ireland more loans to pay off older loans. So the bond markets are simply leapfrogging ahead to the next crisis-point:

Spain.

As I have argued here, Spain is the battleground where the Eurozone will either survive as a much smaller partnership of core member, or where the Euro will be utterly wrecked—and possibly the European Union along with it. 

So What Would Happen To The Euro?

There are two possibilities:

One, the Euro-shitheads of Brussels try to do in Spain what they’ve done with such remarkable incompetence in Greece and Ireland—prop up the sovereign debt with more loans. The bond markets—just like in the Greek and Irish cases—realize this is futile, or at best palliative, and therefore go to the next weak economy on the list: Italy.

Just as Greece and Ireland went down the tubes, Spain goes down, Italy goes down, until the bond markets settle on France—the ultime eurozone member. French sovereign bonds are attacked, Germany pulls out altogether—

—in short, a big old mess, with the euro left for dead on the side of the road, and all the countries going back to their original currencies, but with interest rates in the double digits, as the European bond market is wiped out.

That’s the worst case scenario.

The second possibility—the possibility that should have been implemented with Greece, and which I think the Euro-crats will implement come the Spain-Italy debacle—is to kick countries out of the eurozone.

This is the sensible thing. I also think that it is the likely thing: The weak and insolvent economies—Greece, Ireland, Portugal, Spain, Italy, Belgium—get tossed out of the euro, and go back to their local currencies, with their debts restructured.

As I see it, kicking out the weaker economies is the only way to cure this currency gangrene that is killing the entire eurozone. To stop gangrene, you gotta suck it up and cut off the limb. To stop what’s happening in the eurozone? Same thing.

If this currency gangrene is allowed to spread—if the EU and the ECB insist on bailouts for all the eurozone economies, while insisting they all stay in the euro and pay off 100c on the euro—then the European monetary union is doomed, as is the European Union itself.

Therefore, the weak and insolvent nations will have to be expelled from the eurozone, in order to save the stronger, healthier economies.

There are several countries in the European Union that have their own, non-euro currency—cutting loose economies that obviously are hurt by the euro is the rational thing to do.

Then again, with the Euro-twerps of Brussels, you never know. 

So Where Does That Leave The Dollar?

You have to understand one thing about the eurozone, if you are to understand anything about the eurozone: It is big.

Sure, the eurozone is smaller than the dollarzone—but not by much: Its GDP in 2009 was €8.5 trillion ($11 trillion), roughly 78% of the U.S.’s GDP.

The combined GDP of the PIIGS+Belgium in 2009 was about €2.5 trillion—therefore, if they are shown the door, the reduced eurozone would remain a very respectable €6 trillion.

Any big move on the euro would have a massive impact on the rest of the world’s economy, including the U.S., including the dollar—and don’t let anyone tell you otherwise.

Therefore—regardless if it’s a (worst case) full-on euro-collapse, or a (best case) orderly expulsion of the weak and insolvent economies from the eurozone—the big winners will be precious metals, commodities (industrial, agro and oil), the Swiss franc, the pound sterling, British gilts, the dollar, and U.S. Treasury bonds. In that order.

Europeans have history to guide them: They know that in times of trouble, precious metals are the safest haven. Furthermore, a lot of them—rightfully—don’t trust the crazies running the Federal Reserve: They think that QE and it various iterations are insane.

So they’ll flee from the euro to precious metals. Commodities, too, would rise as well, for roughly the same reasons.

The Swiss franc and especially the British pound will rise—hard—with a euro-quake. The Swiss are a traditional safe haven—but the British under Cameron are winning kudos for their austerity measures. Regardless of whether one thinks they are half-measures or not, there is the perception in Europe that the UK is firmly on the H.M.S. Austerity: This makes the pound very attractive, to Europeans.

Much more so than the U.S. dollar: The dollar will also rise in a euro-crash, but not because it’s so attractive—it’s not. Like I said, the Europeans do not trust the crazies at the Eccles Building. But with everyone exiting the euro, inevitably a portion of them will go to the dollar, if only as a hedge against sudden moves in the franc and the pound. Same with U.S. Treasury bonds. Their absurd yields will go even more absurd—but Treasuries will be an asset class of last resort, for European capital fleeing the euro.

So regardless of how the euro ends—either by a total currency collapse, or an exodus of weaker and insolvent member states—the dollar will strengthen somewhat, but that will be as nothing compared to the British pound and the Swiss franc.

And the dollar will weaken—substantially—against precious metals or commodities of all classes, when the euro crashes.

As many of you know, I’m Hyperinflation Boy. So as regards that subject, a collapse in the euro—total or partial—will in fact hasten the arrival of dollar hyperinflation.

The reason I think so is because, even as the dollar strengthens against other major currencies, it will fall against precious metals and commodities, both industrial and agro, including oil. As commodities are all bid up by Europeans exiting their ruined currency, it will put price pressures on the dollar, which will skew the American economy even further in the direction it is already tipping towards.

So a collapse in the euro is not good news for the dollar—on the contrary: It’ll hasten the dollar’s fall.

62 comments:

  1. For a very interesting in-depth look as to how the Europeans and Americans got into this mess, educate yourself by simply watching:

    "THE MONEY MASTERS"

    1 OF 22 HQ DOCUMENTARY EXPLAINS HOW THE BANKERS RUN UNITED" on YouTube.

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  2. But, but, but, but . . . .

    since the Irish bailout was not really for the country of Ireland, but for the Irish Banks, so that the German, French, English, and US banks would not have to take haircuts on their Irish bonds . . . .

    Then, if Ireland, Portugal, Spain, Italy, etc., get thrown out of the Euro monetary group, what happens to all their bank debt?

    This, to me, appears to be a far bigger deal than getting booted from the monetary union . . . because once those banks start defaulting on their bonds . . . there would be a massive toppling of dominoes that will collapse the entire world monetary system, no?

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  3. As a swede i hope for a total Euro collapse, so that EU collapses also, and we become free sovereign states again.

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  4. Hi Gonzalo.. love your work and in the end, yes this complicated clusterf*ck is going to implode in one fashion or another. When it does, I have a feeling that it's going to be the Germans who leave, followed in short order by their cousins in Finland, Denmark and Holland. That said, any serious collapse would also trigger an avalanche of CDS's, thus ensuring that not only does the Euro go under but will ensure that a number of large US and other financial institutions go under with it, possibly taking down our own banking system. I wrote an article on it last summer on what would happen in the event Spain defaulted:

    http://themeanoldinvestor.blogspot.com/2010/05/update-523-worst-case-scenario.html

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  5. While everyone is analyzing the value of commodities and currency, I'm thinking about the quality of our people.

    The problem with the entire world right now is the folks running it fail to calculate the value of the human mind and human health. Our dismissal education and health right now in America is a recipe for disaster.

    My theory for turning this ship around is for societies need to make investment in educated moms. Moms spend money! Moms create the next generation of consumers and workers.

    What a mess people make with blinders on to ignore us! Please check out my idea for a solution:

    "You'll Need to Pay Me To Make Another Capitalist"
    http://ultimateoutcasts.com/?p=113

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  6. GL ... a euro collapse means what - in terms of new currencies? Are you suggesting that all the countries in Europe will flee the euro and go back to their sovereign denominations? Or instead will there still be a core group of countries (Europe without the PIIGS) that retain a common currency?

    You have made the suggestion that the US is headed towards hyperinflation. That risk is rapidly growing ... but it will take a little time. The next main step is to see the Asian countries unify under their own economic union (though not as strong an affiliation). Once Asia breaks with the USA - expect all hell to break loose with US assets.

    PeteCA

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  7. An example,

    Ireland is kicked out of Euro, new Irish currency collapses but debt still in Euros!! This scenario will destroy the euro (not to mention Ireland) and will be made worse if Spain etc are also kicked out.

    The only way out now is a haircut and to write off the losses and to nationalise the banks and reduce the emplyee wages!

    If the euro does crash then commodities will fall since Europe is a large part of global trade and this is only part of the long term deflationary scenario happening now!

    I think hyperinflation is possible if the Fed were to bring forward QE3, 4 and 5 forward in one tranche though!

    My 2 bits worth.

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  8. Good work. Please post daily. Time is now to have your insights. I'm short corporate junk bonds and long oil. Looking at taking another short position in technology or financials. Have my grow food books and remote land in NH.

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  9. Sequence of events coming seems to be this:

    1) Eurozone breaks apart, countries go back to individual currencies. Turmoil in bond markets, all the while precious metals, commodities spiking.
    2) China real estate and growth bubble bursts, bringing down commodities, as well as Canadian and Australian real estate bubbles. Precious metals rally more.
    3) Final bubble will be U.S. Treasury Market, which will pop at the first hint of a rise of interest rates, which will not happen for awhile. When it happens, boom, might see U.S. hyperinflation, depending on Fed response.

    4) Expect gold somewhere between 5000 to 10000 dollars. At this point, it might settle and the world will have to decide on a new reserve currency. However, it's doubtful it will be gold, as gold alone cannot provide enough liquidity. Might be some basket of precious metals plus commodities.

    By the way, none of this is good news. We'll be extremely lucky if we can get to the other end without warfare and famine.

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  10. Need to read this again more carefully, but given that the EUR is 15% backed by gold and it's MTM, it seems it's impossible for the EUR to go away. I don't know what the final result will be, just putting that out there.

    Also, I think the USD is in better shape then the Pound, as the US has gold and the UK doesn't.

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  11. Always enjoy reading your thoughts GL.
    But once again I'll take the other side of the bet with respect to commodities. Sure gold/silver may see a blow off top if the Euro were to collapse. I have no idea how to value gold since it pays no dividend has limited practical uses and is only driven by speculation.

    A banking collapse will kill the real economy as credit/letters of credit are withdrawn. Oil/iron ore/copper shipments will come to a halt.

    Declining trade/wealth will reduce the demand from Asia for meat protein that the grains feed.

    I think first we will see much more deflation. Maybe a few years down the road with massive monetary easing on the order of $7 trillion or more will bring about hyper.

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  12. If the PIGS leave the Euro, wouldn't that be a case for a rise in the Euro vs the USD etc?

    As a poster said above the PIGS debt would still be denominated in Euros but it would be less of a trial for the ECB to give the bondholders at least something back rather than bail out pigs in perpetuity.

    A default & leaving of the Euro means the PIGS will suffer anyway through a devalued currency but at least the 'more solvent' countries wouldn't have to keep paying.

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  13. I wonder if anyone has any insight on how the planned euro-bank run on Dec 7 and the Irish Parlaiment austerity budget vote on the same day might interact, play out, etc?

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  14. "The bondholders? That is, the people fool enough to lend to these countries which had pegged their currency to the dollar? If they were lucky, they took a haircut. If they weren’t so lucky, they went home with a big fat bagel—a big fat zero."

    Hang on there Gonzalo. I know you're not a big fan of Mish, nor am I, not with his Treasury bond shilling, but this is off his website;

    "Another idea that has gained some ground recently is a Brady plan for indebted European economies. The plan was recently put forward by a former Treasury secretary, Nicholas F. Brady, who led an effort in 1989 to help Mexico and other Latin American economies restructure their debt — requiring bondholders to take a loss of 30 percent in exchange for new, longer dated debt instruments that had lower rates and were backed by 30-year United States zero-coupon bonds. Much criticized at the time, the plan is now seen as the first step of Latin America’s recovery."

    It would seem that Latin American countries were in a sense 'bailed out' too.

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  15. Could the efforts of the Russians and the Yen combo have any effect on any of this in some larger way?

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  16. Why would they not change the rules so that countries can default and still stay in the Eurozone? It seems less total stress on the system to do this. They could bribe countries to have reasonable deficit/GDP ratios by giving bigger shares of newly printed Euros to countries with reasonable ratios. Probably they will not do such a sensible thing, but it seems like the Euro could still be saved. To me it seems far harder to find any way that the dollar or yen could be saved. But the Euro may well be the first to go.

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  17. Anonymous @ 8:17pm said, "However, it's doubtful it will be gold, as gold alone cannot provide enough liquidity."

    They could back a note based on the atoms in gold.

    Dave Narby said, "the EUR is 15% backed by gold..."

    Is this true? Got a URL for that fact? I didn't think Any fiat currency was backed by gold at all, the last one to do so were the Swiss.

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  18. Looks like the ECB has 347 million oz of gold though "including gold deposits and gold swapped" may mean that is not all physical gold.
    http://www.ecb.eu/stats/external/reserves/html/index.en.html

    Seems to be over $2 trillion Euros.
    http://webcache.googleusercontent.com/search?q=cache:PqJ1DjASaO4J:english.pravda.ru/business/finance/03-08-2010/114456-how_gangsters_are_saving_the_eu-0/+&cd=11&hl=en&ct=clnk

    By my math the ECB gold reserves might be 24% of the value of the Euros issued. So 15% could be right. :-)

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  19. At least one error in my math was using the dollar price for value of gold and dividing by $2 trillion Euros. Correcting that does get closer to 15%.

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  20. I wonder who gets all that gold if/when the Euro crashes,... if it's really there and not leased from some other central bank.

    From the link above, "the ECB is "super solvent." (Just like the Fed, except that this is more supersolvent it is the queen"

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  21. As the number of variables increases, the outcome becomes unpredictable, because the possibilities tend towards infinity...

    Having said that, this euro debacle is a consequence of a larger phenomenon: global civilization has totally rejected the concept of creative destruction, a concept which not only is a foundation of capitalism, but also a foundation of life!

    Once someone is born, or something is made, our society looks at it as if it was either sacred (someone) or perfect (something), and thus should be kept alive, or in working order, at all costs.

    A human example: Ariel Sharon

    Man made things examples are plenty: banks, GM, euro, fiat money, energy production and so on..

    A civilization which is fighting against laws of nature and principles governing the systems that support it, is doomed and, obviously, so is its monetary system.

    Heather, I agree with you.

    Click on my name to visit my blog.

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  22. So where does this leave Obama's export strategy ?

    Just more proof the global financial architecture is terminally wounded.

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  23. I am returning to argue the Deflationato case.

    We are agreed of course the Euro is Toast, it will be nothing short of miraculous if the bond spreads all the way through Italy aren't the size of the Grand Canyon before Christmas.

    I have to disagree that either British Gilts or Swiss Francs can absorb the outflow of capital looking for a safe haven, neither economy is large enough to support that kind of influx. Besides, the Brits have their own debt problems, and the Swiss are over committed to failing loans in Eastern Europe, so their solvency is in question.

    Money looking for a safe haven will fly to Gold, however actually taking delivery on any of it will become quite problematical. There also will be ay number of folks forced to sell as margin calls are made on other assets classes.

    The real problem with the Eurozone breakup results from the TBTF Banks being forced to mark to market all the Bond Trash they hold once the PIIGS either exit on their own or are forced out. Either way, it renders insolvent all the French and German Banks, which would then force Germany to print D Marks or whatever it is they reboot for currency.

    Euro collapse would basially price Oil out of the market for all the Euro states, and the Oil price will tank as a result. In fact it is already tanking, and this is clearly deflationary. Long as the Dollar and the Oil are pegged, the Dollar will follow the real price of Oil in the market.

    Of course, once the cascade really gets going, coutnerparty obligations between the TBTF banks on both sides of the pond will overwhelm Helicopter Ben, JC Trashit and anybody else who tries to print enough to stop the cascade. Anything can happen one that really gets going, but at least until the Euro fully collapses, the Dollar won;t hyperinflate. The Oil peg prevents it.

    RE

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  24. While attractive, your cloud background makes the text harder to read.

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  25. While I agree that as long as oil and the rest of the world commodities are priced in dollars you can not really get dollar hyperinflation, it is easy enough to price things in yuan, rubbles, gold, silver, etc. We are already seeing China make lots of deals to not use dollars. If the dollar starts to really fall, people will abandon it and it will be able to have hyperinflation.

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  26. >I wonder who gets all that gold if/when the Euro crashes,...

    If they have 15% backing in gold, then after the price of gold in Euros goes up by a factor of 8 they would have full backing in gold. So we could sort of expect that to limit any Euro hyperinflation, if they hold the gold till the full factor of 8, and they really have physical gold.

    The dollars per gold reserve situation is even worse than the Euro. Also, with a trillion new dollars every year it is deteriorating rapidly.

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  27. GL,
    Puhleeeese ditch the cloud background! My eyes can't take it!

    KS

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  28. So, when letters-of-credit dry-up and no one can buy anything, all world commodities will become impossible to trade and unavailable as prices drop? Fiat currency will become scarce? Real money won't take over and the world will live wonderfully with nothing? Deflation??

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  29. This is merely speculative reasoning from the American point of view with rude language where it concerns the European affairs.
    Keep it intellectual with arguments.

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  30. The more I think about this, the more I think it's ALL about derivatives. These central bankers are not idiots, even though they seem like it to us. That probably means they know something we don't. Namely, if you start letting banks fail, the whole thing comes down in a cloud of 100's of trillions of suddenly monetized notional CDS & IRS derivatives. Talk about hyperinflation!

    Although this may ultimately be a cleansing process, it certainly means the end of the entire managerial class, from shareholders, to bank execs, to the Fed itself, and probably the entire neo-communist Euro trash elite. That's why they appear to be doing something utterly brainless: it's their ass.

    As for gold backing the EURO, I believe that EU countries own their own gold. And it is all lumped together as a pledged asset for the ECB(?), and it IS marked to the market value. However, if countries start leaving the EMU, you can bet they'll take their gold with them.

    Gold will be the de facto new reserve currency, simply because nothing else will be acceptable. Do you really think anybody wants the Chinese Yuan as a reserve? Get a clue! They are not important enough or trustworthy enough.

    After the dollar there will never be a single reserve currency again. It gives too much power to the issuer. We got it by winning WW2, so there was nobody in a position to stop us. And for a long time we were trustworthy enough.

    In the end it all comes down to oil. Whatever oil is priced in IS the world's reserve currency. The Saudi's have been pricing oil in gold for decades.

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  31. choose a different background. hard to read your entry.

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  32. lost more possible scenarios than you describe but bottom line is that ECB needs to engineer a much lower EUR in order to survive which in turn means reappraising the bogus price stability mandate.

    as for your conclusion as to which assets will do best ... well your list is ass backwards ... but that is because you are a hyper-inflationist whereas the processes you describe are actually deflationary for the world ... just think of how aggregate demand works in a leveraged global economy.

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  33. Flightless bird? We know you meant to say "the emu".

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  34. Every time some structured financing gets restructured, the benefit accrues to the entity doing the restructuring. The debtor is left with a temporary feeling of relief and a permanent hangover. With every re-do more and more juice is sucked out of the debtor until all that is left is an empty husk. Who is making the juice on these sovereign restructurings? It is just like all the subprime refi waves that imploded residential. Who says this rotating clusterfuck is the only way? How about some cram-downs, some relief of prncipal that will never get repaid anyway, or the inevitable default, right now? Who has balls enough to say they flat do not have the flow to repay and they do not see it coming this generation or the next? Or do we just play the charade and print enough to pretend to pay long enugh for the wanksters to convert the fees into hard assets until the music finally does stop and we have the new world order of the top .005% owning Eveything and all we have is yesterday's toilet paper? WTF already.

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  35. There will be a European "Stability" Fund created, and it will be backed by USA.

    The USA have to much to lose if the Euro fails.

    This "Stability" Fund is already planned and ready, when the remaining PIIGS start oinking about not being able to pay debts, the "Stability" Fund will be revealed.

    The USA is TBTF, and will back this fund.

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  36. I enjoy Mr. Lira's writings because they contain reasonable conclusions based on the information available. However he may be less than forthright in discussing the U.S. debt problems.

    When considering the obligations of the U.S., some authorities have stated the U.S. debt is in excess of $100 trillion. This would not include the enormous derivative obligations that the U.S. has acquired with AIG and others. It would also not include the trillions in worthless mortgage backed securities (MBS) that is sitting in the ledgers of most of our major banks, pension funds and insurance companies. When these are added, the number is no longer measured in mere "trillions". The next set of numbers begin with "quadrillions".

    Mr. Lira no doubt is aware of this. When will he address the next obvious question, "should the American taxpayers default on the debt"?

    One could say that this would hurt the average American by destroying the value of his savings. Mr. Lira might respond that the savings would be destroyed in any event because the humongous printing of money would make any paper asset worthless.

    So why not start with a clean balance sheet now instead of waiting until financial collapse occurs? Isn't this Mr. Lira's argument concerning Ireland? Greece? Portugal et al?

    Lets get it over with so we can make a fresh start.

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  37. The cloud background represents the "Sunset on the World's Economy" and does not interfere with the comments.

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  38. The national debt of the us is something around $14 trillion, approximately $5 trillion is owed to the SS trust fund. Leaving $9 trillion in treasury debt outstanding. Bernanke fed will end up with $2 trillion of this debt by June 2011. Another $2~$3 trillion is held by China/Japan. This amount of debt is very manageable if we will only balance our budget by cutting back on medicare and military spending. Will it happen? I don't know.

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  39. Andy (2:52PM),

    At what point does this become one huge circle jerk?

    USA backing stability fund is akin to deaf leading the blind.

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  40. its called the IMF ... and what happens if the IMF goes bust because folks in europe decide not to pay? the US fills the whole? invades europe? you must be kiddin ... that would be akin the the french invading germany post WW1 demanding reparations be paid ... oh gee maybe that's not so inflationary for the US after all but bears a whole lot of other connotations.

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  41. While I enjoy most of the logical thinking here as to where the world will be next week and next month, rather than applying logic, many would do well to simply "follow the money". Where the Vanderbilt money goes, so goes the world. Logic has nothing to do with it. I don't pretend to know where the money is going but what I do know is that the flows will always be orchestrated to benefit the top 1%. Try to imagine that you are one of them and ask yourself, who still has money and how can I get it? Bonds will fail when the wealthy are positioned to profit from the failure, gold will rise when they are positioned to profit from the rise. Logic has nothing to do with it.

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  42. The Euro isn't 'backed' by gold in the traditional sense (x ounces per Euro), but rather is a big component (~15% TTBOMK) of the ECB's reserves and is marked to market.

    http://www.ecb.int/stats/external/reserves/html/index.en.html

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  43. I have the same throughs (as You know)- but I'm quite sure that after collapse USA or PIIGS crisis will end for a few years- and only after that survivil will collapse. I wrote it already in my polish blog. BTW- You should consider to write in polish :)- as I see so many comments of polish- speakers.

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  44. please do something about your cloud background. Let the text be in a white box inside or some such thing....it is hard to read

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  45. I believe that Russia will join the Euro once the PIIGS have been expelled from the EU. This move would remove the US dollar as the reserve currency.

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  46. I appreciate your insights very much.
    I do believe America is awakening from its generational drunken stupor and will soon start to act like a sovereign nation again. We are not a tea cup sized nation. We are a hydrocarbon Super Power, an agriculture Super Power, and could be a manufacturing Super Power again any time we choose.
    I think the election of Obama was the high point and blow out of the Reign of the Effete Elite here. Inauguration Night, I turned to my wife and said, "Poor guy, he's not even 50 and yet it is all downhill from here."
    What had been insidious became obvious; what was being done to us quietly started being done openly. The American people went from gnawing suspicions to open alarm.
    Soon, and very soon, the lazy elite won't be able to dismiss us with stupid terms like "protectionism" and "nativist". "Industries for iPhones" will no longer pass for "trade". The gaping employment hole between McDonald's and M.I.T. is going to be plugged once again with real jobs.
    We are not going to put up with the murder of the Middle Class without a fight.

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  47. Dear Gonzalo,

    So I guess anybody can start a blog now and label themselves as economists, including those who graduate from 2nd rate universities in history and philosophy.

    Sorry, but your economic theories are very archaic and completely out of touch with current reality. Others would have no issues with this - however, this is the information age - and with so many uninformed people reading your blog - the risk of your disinformation poisoning unsuspecting viewers is very high.

    Please - let the experts do the talking - and stop spreading disinformation and false doctrines.

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  48. Damon Vrabel Renaissance 2.0- Make it VIRAL

    ReplyDelete
  49. Sockpuppet-You are an IDIOT-- READ and turn OFF MSN

    Damon Vrabel
    Eustace Mullins
    G Edward Griffin

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  50. The idea of launching the euro was to end the domination of the dollar. If the euro collapses, the dollar wins and instead of hyperinflation, we may have dollar deflation, ie an evermore valuable dollar.

    But Germany will not allow the euro to collapse. It will loan more money to the insolvent members and demand fiscal discipline and political obedience. Allowing that this time the Germans dont want to exterminate anyone, a good dose of hard work and German discipline will do good to those lazy Europeans.

    ReplyDelete
  51. One thing I'd like to point out about this gangrenous leg issue and that is this: it takes a surgeon to do the cutting. (Trust me, I know; I'm a surgeon.) In most desperate circumstances (aside from the movie about the guy who cuts off his arm to save his life), the patient, if left to his own devices, prefers to "see how it goes" and then proceeds to die, slowly, of overwhelming sepsis. With the central bankers running the show, I'd say we're looking at sepsis not scalpel salvation. So, if things manage to limp along, what does the scenario look like? Don't know for sure, but this banking guy, he sure looks sick.

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  52. Sockpuppet: Which experts do you suggest I listen to?

    The current Fed Chairman would appear to be an expert on the economy, as he learnt calculus on his own!! A BA in Economics from Harvard is not to be sniffed at.

    However, he has not in my opinion done so well, him and all those so called experts, as you so aptly describe have completely fucked things up fiscally.

    Thus in response to your comment "Let the experts do the talking" seems illogical given the present shit we are in.

    PS: Your name is interesting. Have always wanted to put a sock over my hand and pretend it’s alive and "Let it do the Talking" I guess chicks dig that at parties...

    Bernanke was educated at East Elementary, J. V. Martin Junior High, and Dillon High School, where he was class valedictorian and played saxophone in the marching band. Since his high school did not offer calculus, he learned it on his own. Bernanke achieved a SAT score of 1590 out of 1600. Bernanke attended Harvard University, where he lived in Winthrop House and graduated with a B.A. in economics summa cum laude in 1975. He received his Ph.D. in economics from the Massachusetts Institute of Technology in 1979. His thesis was named "Long-term commitments, dynamic optimization, and the business cycle" and his thesis adviser was Stanley Fischer.

    ReplyDelete
  53. HOLA GONZALO!

    ENJOY BOTH YOUR WRITING AND YOUR CLOUDS. DON'T TAKE THEM OUT! IN FACT THEY HELP ME READ...

    CHEERS AND VALOR Y AL TORO!

    ReplyDelete
  54. This might be the wrong place for this, but I did enjoy the interview with Max Keiser. I suppose $500.00 dollar silver would be nice, but it would have supplanted all currency then. Good blog, I left several others because they hate Sarah Palin, and still can't get over Dick Cheney yet.

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  55. Why doesn't the same logic apply to the U.S. states? If one currency does not fit both greece and germany, why should one currecny fix both Texas and California?

    The sizes are not completely dissimilar to

    German GDP 3.35 T
    Greece GDP 0.329 T

    CA 1.85 T (2008)
    TX 1.224 T (2008)

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  56. It seems to me that there are too many virtual financial creations out there for anyone to be sure of anything. Computers and derivatives have created virtual fiat currency entities that are hidden. Global crisis could come upon us like an earthquake, impossible for even the best scientists to predict. The big financial entities have become too powerful for honest regulation.

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  57. Hang on a sec, the best case scenario is the PIIGS go back to their original currencies?

    Go back and think that through. What rational Spaniard, Irishman or Greek is going to save and invest in their local currency? They may at that point hate the Euro and all that it stands for, but these folks aren't stupid either. Any savings account worth anything in these countries will be in Euros. Local currency interest rates will be sky high. Large ticket items will still be priced in Euros. The only way these countries could actually control this problem is to put currency controls in place or perhaps put an outright ban on commerce denominated in Euro's. The rich will have their loopholes to guard their wealth. The little guy will get screwed again.

    Now, once a ban or currency controls are in place, what are the chances of even more violent protests taking place? Pretty high I'd say. Eventually, these countries would go back to Brussels asking for some sort of representation as defacto Euro countries. The pressure on Germany would be enormous, these are afterall all the folks just next door.

    These countries have all been married to the Euro for over a decade now. You can't just get a quickie divorce and neatly divy things up. It would be extremely messy and painful for all.

    A marriage is between two parties of course and really that's the case here: Germany and every other Euro country. Let's stop with non-sensical subclassifcations of "periphery" "core", etc. Eventually no one but Germany is left in the scheme and we'd finally end the illusion of the Euro being anyting other than the German Mark.

    So what's the real best case scenario? The Euro splits in two. Germany goes back to the Mark and everyone else uses the "new" Euro. The prestige of the Euro would be badly shaken, but I believe it would still have enough heft to make it a respectable option when compared to individual currencies.

    And the Dollar? Well, as horrendiously as it's managed today, there's really no viable competitor for the decades to come.

    ReplyDelete
  58. Gary North has been sparring with this woman and her many lies in the past, and he may yet again.

    It would be interesting to read your take on this article:

    Ellen Brown

    Author, Web of Debt
    Posted: December 1, 2010 04:30 PM

    Is QE2 the Road to Zimbabwe-style Hyperinflation? Not Likely

    http://www.huffingtonpost.com/ellen-brown/another-look-at-the-zimba_b_790074.html

    ReplyDelete
  59. Sorry most of you does not have no idea what is european community.
    the euro it is hold by private banks so do not reflex the real economy of the europeans states.
    We are prisoner of reach bankers that they want this europeans communities so Europe can collapse without a wore.

    This is the biggest crime against Europe. the Parliament is not elected from people a the Lisboa treaty as been sined with out no citizen vote
    Hope we go back to our monetary sovranity like England and start all over and f...ing. pigs and so fort.

    Mr. Gonzales has to explain to all of you what is the structure of the european community and who wanted and way they wanted and wer his the different between United Stat of America and united stat of europe. We are not united at all.
    Thanks Mr Gonzales we are reading you in Italian you are on the first page to the biggest forum, Paolo Barnard had more 20.000 click.

    Ciao
    www.comedonchisciotte.org

    ReplyDelete
  60. Forgot to tell you that Paolo Barnard is the only italian dissident

    Sorry may english

    Regards Mikaela

    ReplyDelete
  61. I forgot tu tall you that I am not the transletor bu we have similar name
    mikaela

    ReplyDelete

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