Euro fan
The Euro is eventually set to appreciate and benefit from the collapse of the Anglo-Saxon and Swiss banking system. Massive bank runs have started in the UK, Ireland and some further had been reported in the US.
In Ireland, which is a part of the Euro zone, people withdrew reportedly more than 10 billion Euro in the last 10 days. Billions of pounds have been withdrawn from UK banks and investors are fleeing the currency. The official statement says that there is no need to worry and people most likely are changing the composition of their portfolios. In reality, investors have realized that the Pound Sterling, the Swiss Franc, the Irish banks, and eventually, the US Dollar do not promise the stability, which they promised in the past.
Besides Ireland, most parts of the Euro zone have not experienced such negative talk, yet. It appears that during the last week politicians and investors from all over t he world tried to talk as bad as they could about the Euro zone´s future, and especially about Ireland. Obviously there are issues, but they are manageable and much smaller than the issues in the UK and the US. The housing crisis did not start in Europe, and it will not end there! From what politicians and CNBC said, one could get the impression that this is not true. European Banks might be affected, but the economy is less vulnerable. The easiest way to find out why the European economy is more healthy than any other western economy, is to look at who is producing and who is consuming. A culture in which debt based growth of consumption is called growth is definitely a silly idea. This idea becomes especially important in the context of currency devaluation.
The European economy benefits from devaluation of its currency, others like UK, Switzerland and the US, do not. As a result world leaders try to talk down the Euro and the future of the Euro zone. Nobody mentions that the bankruptcy of California, as a state in the US should have parallel currency implications to the bankruptcy of Ireland! My personal expectation is that it should not have any, or only very limited implications. Ireland would start to have stop spending more money than it earns, that´s it! But what happens Is that currently German taxpayers and people who have been paid unemployment insurance over years, now pay for the standard of living in Ireland by giving "illegal support" to the Irish economy.
At this moment, European politicians are concerned about two things, currency appreciation or devaluation. They try the impossible, which is to keep the currency fixed at where it is! "Just don´t move!", might be their motto. This is important as an appreciation in the Euro could trigger the worldwide financial system collapse by triggering a flight to quality. Therefore, we have to anticipate that this is the last stand of talking up the Dollar and other currencies, before currency markets implode. Any sudden change would trigger a run in one or the other direction and could trigger an implosion of the financial system. That means that the next bubble to burst is not in real-estate or mortgages, or industries etc.. It means the next one is the foreign exchange market.
We might recall that during the great depression large capital outflows in form of Gold outflows took place from the US, as the Dollar was undervalued and the Gold price was fixed. Now, the picture has turned. The Dollar is overvalued, so is the British pound. According to my studies, the Euro is undervalued in terms of Gold, so we could anticipate that the Gold price is manipulated as well. Since 1998, this did not happen, so the latest move in Gold price and the peak-out is important to keep currency stability. However, saying so, no currency can be called a safe harbor, not even the Euro.
Europeans just have not started to realize that their Central bank has allowed money creation to exceed the production of Europe by additional 170% in 10 years. In this deflationary environment this doesn´t matter, anyway. Investors in the UK have already realized that the British GDP will slump and the money supply will increase. Mervin King already lowered interest rates to unprecedented levels and so the time for the British pound runs out. The game which is on is the game of "the one who moves first, loses all". That is the reason why we keep zombie banks and zombie currencies alive. Let´s see how long this will work.....
