Saturday, February 13, 2010

Euro Now Leads Dollar In Race To Oblivion

On this side of the Atlantic, most thinking people understand that the Dollar is in "Deep Doo Doo", as George H. W. Bush might say.  Yet, the Euro is even worse!

Bringing the deep-rooted problems of the Euro to the surface have been the recent developments in the so-called "PIGS" countries and their imploding sovereign debt (

Germany has paid lip service to a potential bailout of Greece, but as of yet, no deal has been struck.  It appears that a wait-and-see policy has been adopted in the hopes that a combination of public assurances that Greece will NOT be allowed to default, combined with the Greek government's rigid adherence to its austerity program, will be enough to stabilize the markets.

The financial stresses becoming more evident in Europe are being felt by the common denominator of the European Union (EU), the shared currency known as the Euro.

The "Dollar Index", which is a basket of currencies that the greenback is compared to, is heavily weighted by the Euro - nearly 60%.  As a result, the Dollar and Euro tend to trade inversely.  Thus, the recent "strength" in the Dollar is nothing more than the mirror image of the severe weakness in the Euro.  The two currencies are BOTH in trouble, but the exchange rate is relative and at this time, the Euro is making a headlong sprint toward the "Finished" Line!

The Euro is currently worth $1.36 - down 10% since December 1, 2009.  During the same period, the Dollar Index has gained roughly 8%.  (In 2000, as the Euro was launched, it traded as low as about $.85 and then steadily climbed to its all-time high of $1.60 in July 2008).

Given the current trajectories of both the European and American economies, the final destruction of western currencies may be entering its terminal phase.  Only a return to an asset-backed status, preferably Gold, can stop what appears to be inevitable.  The only question is whether the Dollar or Euro reach "toilet paper" equivalency first!

History has shown just how dangerous even a single currency meltdown can become:  The Russian Ruble, not a major currency in the least, triggered the 1998 financial panic which brought down the large hedge fund known as "Long-Term Capital Management", putting world stock markets into free-fall and requiring emergency action by the Federal Reserve. 

Can you imagine what would happen if BOTH the Dollar AND Euro imploded?

If you either think I'm missing something or want to put your 2 cents in, while your 2 cents are still worth 2 cents, you know what to do.  TAKE ME ON!

Marko's Take

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