Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - 25th Mar 17
Will Washington Risk WW3 to Block an Emerging EU-Russia Superstate - 25th Mar 17
Unaccountable Military Industrial Complex Is Destroying America and the Rest Of The World Too - 25th Mar 17
Silver Mining Stock Fundamentals - 24th Mar 17
A Walk Down the Dark Road of Bad Government - 24th Mar 17
Is Stock Market Flash Crash Postponed Until Monday? - 24th Mar 17
Stock Market Bubble and Gold - 24th Mar 17
Maps Of Past Empires That Can Tell Us About The Future - 24th Mar 17
SNP Independent Scotland's Destiny With Economic Catastrophe, the English Subsidy - IndyRef2 - 24th Mar 17
Stock Market VIX Cycles Set To Explode March/April 2017 – Part II - 23rd Mar 17
Is Now a Good Time to Invest in the US Housing Market? - 23rd Mar 17
The Stock Market Is a Present-Day Version of Pavlov’s Dog - 23rd Mar 17
US Budget - There’s Almost Nothing Left To Cut - 23rd Mar 17
Stock Market Upward Reversal Or Just Quick Rebound Before Another Leg Down? - 23rd Mar 17
Trends to Look Out For as a Modern-day Landlord - 23rd Mar 17
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17
The Only Article You Need to Read to Understand the Trump Phenomenon - 17th Mar 17
Janet Yellen Just Popped the Stock Market Bubble - 17th Mar 17
Financial Crisis, Steve Eisman: Smart, Lucky, Abrasive & Now One Of Them - 17th Mar 17
Gold Cup – Horse Racing’s Greatest Show, Gambling and ‘Going for Gold’ - 17th Mar 17
Trader Education Week - Free Event to Help You Learn to Spot Trading Opportunities - 17th Mar 17
$1.4 Trillion of SPX Notionals Due to Expire - 17th Mar 17
Preserving Order Amid Change in NAFTA, U.S. Sovereignty v. WTO - 17th Mar 17
3 Maps That Explain Why Syria Raqqa Battle Will Drag On - 17th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

The Euro is Doomed, But So is the U.S. Dollar

Currencies / Fiat Currency Jun 02, 2010 - 10:15 AM GMT

By: Claus_Vogt

Currencies

Best Financial Markets Analysis ArticleGreece has made it obvious: The euro is doomed. This fact had been obvious to all the euro critics from the very beginning. All the arguments against the possibility of a common currency for very disparate countries had been raised, but brushed away by overzealous politicians.

They’ll learn their monetary lesson the hard way in the coming years.


Unfortunately the current discussion about Greece, Spain and all the other PIIGS countries is very superficial … Greece is everywhere!

In fact, the whole western world and Japan are over indebted …

You’ve likely read in the press about debt to GDP figures like 200 percent for Japan, 115 percent for Italy, 113 percent for Greece, 85 percent for the U.S., 76 percent for France, 73 percent for Germany, or 70 percent for the UK.

These are dangerous levels, although not outrageous ones. But government officials don’t tell the whole story; they sugarcoat the real dimension of the over indebtedness.

That’s why you need to understand …

Explicit Versus Implicit Debt Levels

Explicit debt leaves out important obligations like pensions and social security. If you add these in, you get what economists call the implicit government debt.

And if you use the implicit government debt to GDP ratio, the picture is much bleaker. Look for yourself:

Germany: 255 percent

France: 255 percent

UK: 530 percent

U.S.: 570 percent

This is frightening, indeed. These obligations are unbearable. Which means governments all over the world will have to break many of the promises their predecessors have made to get elected.

There are ways to get out of too much debt. The first is by …

Default

When you default, you sit down with your creditors, and restructure the debt. Creditors have to take the losses, and rightly so. They consciously took on this risk to earn a profit. Yes, they made bad decisions. But that’s the way capital markets function.

Governments around the world will inflate their way out of debt.
Governments around the world will inflate their way out of debt.

And tinkering with this process leads to bad capital allocation, an inefficient economy and less growth.

Another way out is to …

Crank Up the Printing Press!

Most modern governments have a trump card many ancient governments would have died for. They reign over fiat currencies, which can be created by the stroke of a computer key. As Ben Bernanke once said so famously:

“But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Therefore, modern governments with a printing press can bail themselves out of all debt problems. And I believe they can and probably will inflate their way out of today’s debt problem. They’ll pay back their debts nominally, with money that’s worth less. But they will not have to default.

Unfortunately, at the end of this road, the bond market and the currency will be destroyed. I don’t know how far our politicians will go in the coming years. Although I fear they will go this bitter way to its very end.

They Will Inflate in Lockstep

What I am nearly sure of is that the U.S. with its Fed and the EU with its ECB will inflate more or less in lockstep — like they have in the past.

Now euro bashing is all the rage. A short six months ago dollar bashing was en vogue. Have a look at a long-term dollar/euro chart below.

Euro Index Chart

Source:www.decisionpoint.com

If you take this perspective, it really looks like not much has happened during the last few months. Yes, the euro is down to levels seen in 2004-2006 or 1995-1997 (when the euro was not yet an official currency). But at the same time the euro is much higher than it was in 1999-2003. So it has a long way to fall.

Sure, the euro is doomed. But so is the dollar! Both fiat currencies have lost massively against gold in the last few years. And as long as the bad fiscal and monetary policies prevail, gold will keep rising.

Best wishes,

Claus

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife