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Western world bankrupt
We know eventually the US will have its
own sovereign debt crisis (we are only debating the US debt ceiling now) and
see its own bonds interest rate skyrocket. But the US Budget debate coming at
this time might prevent the US from stepping in again in another huge bank
crisis that is now developing with speed in the EU.
First, as we speak the EU banks and
central banks are desperately trying to stave off default by Greece, Italy,
Spain, Portugal, and Ireland. The next weak dominoes are seeing their bonds
fall in value with higher interest rates spiking. Soon, there will be no way
to finance Sovereign bonds and corporate bonds in the EU.
This happened before! European Bank
crisis in 1930s
And don’t forget that a wider
default in the EU region will cause some form of a bank crisis in Europe. And
as I recall, before the huge bank closures in the US in the 1930s, there was
a bank crisis in Austria (Germany related) in the early 1930s that spread
rapidly over to the US…so let’s get over to our next half of this
piece.
The Demise of the USD at the same time
period as the Euro chaos???
Uh oh.
The USD is in trouble because the US has
this increasingly acrimonious debate on extending the US Debt ceiling. If the
US does not extend there will be many more unpredictable problems, for one
thing, something I don’t know if anyone thought about this, but since
the US Fed is the primary form of financial emergency aid to the
world’s banks, how would the Fed step in to help another spreading EU
bank crisis if the US Treasury is paralyzed for a period of time…?
Nor what effects of a US technical
default would have on its own to the bank systems around the world and the stock
exchanges… now that is a mouthful.
Simultaneous vulnerability
So, right when we are facing an
escalating bank crisis in the EU with the Euro itself under threat, at the
same time the US is going to become unable to put up that massive financial
support we had in 2007 and 2008 with the Bear and Lehman crises, come Aug 2.
That deadline may be met but we are at a high vulnerability right now of both
the Euro and the USD having a simultaneous sovereign debt crisis.
Gold’s verdict
We predicted a USD bottom on April 25
and even so gold has held up and silver stabilized at $35 at that time. We
have predictions on the USD and the Euro and the Yen. But Gold is holding
even though the USD rose from 73 recently on the USDX and now gold rising
again on the latest Euro worries. Gold says this crisis threatens both the
USD and the Euro. Gold is rising even though the USD is flat right now over
this budget debate.
Of course, should the US get an
agreement, the USD would probably rally again.
In any case, the Euro and the USD are
facing a simultaneous crisis.
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Chris Laird
Prudent Squirrel
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