Fiat currencies are in big trouble. Dominique Strauss-Kahn, the head of the International Monetary Fund, suggested Friday the organization might one day be called on to provide countries with a global reserve currency that would serve as an alternative to the U.S. Dollar.
Currency problems don't end with the Dollar. The Euro is in trouble, too (http://markostake.blogspot.com/2010/02/euro-now-leads-dollar-in-race-to.html).
Next on the currency hit parade is the Pound Sterling. Rumors are swirling that hedge funds, including the carnivorous George Soros, are taking heavy short positions in anticipation of a Pound meltdown. Weakness in the Pound is partially being blamed on gridlock in Parliament.
The Pound hit a nine-month low against the Dollar today as fears over a hung parliament sparked a sterling sell-off. The currency fell sharply to as low as 1.478 against the greenback as well as slumping below 1.10 against the Euro. Pressure on the Pound comes as the Conservatives’ poll lead against Labour narrows – threatening an indecisive general election result when markets want firm action to sort out the UK’s dire public finances.
There are also fears that U.K. sovereign debt is in deep trouble. Joining the fray has been a recent report by Morgan Stanley (http://www.fundmymutualfund.com/2009/12/morgan-stanley-ms-lists-uk-sovereign.html).
Britian risks becoming the first country in the G10 bloc of major economies to risk capital flight and a full blown debt crisis over the coming months.
"In an extreme situation a fiscal crisis could lead to some domestic capital flight, severe Pound weakness and a sell-off in UK government bonds. The Bank of England may feel forced to hike rates to shore up confidence in monetary policy and stabilize the currency, threatening the fragile economic recovery,” the report said.
Morgan Stanley said that such a chain of events could drive up yields on 10-year UK gilts by 150 basis points. This would raise borrowing costs to well over 5% - the sort of level now confronting Greece and far higher than costs for Italy, Mexico or Brazil.
This morning, the Pound dropped almost four cents in a frantic two hour period of trading as the breach of the key $1.50 level triggered a wave of speculative selling in the currency.
Hans Redeker, global head of foreign exchange strategy at BNP Paribas, said relatively high yields on UK government debt were no longer providing the Pound with support because they did not reflect better UK economic prospects but a re-assessment of UK sovereign risk.
Marko's Take? The multi-national death of fiat currency is well on its way to fruition. Ironically, the U.S. Dollar is rallying - not because of its strength, but because of the Pounds' and Euros' weakness!
It's simply a matter of time before some form of hard asset-backed currecy replaces all the increasingly growing worthless paper flying around. This is a key step to stabilizing the world financial system!
Think the Gold Standard is a bad idea? TAKE ME ON!
Marko's Take
Our third You Tube segment "What Is Peak Oil... Part 2" has now been posted on You Tube. You can access our new channel by clicking here (http://www.youtube.com/markostaketv).
Showing posts with label Europe. Show all posts
Showing posts with label Europe. Show all posts
Monday, March 1, 2010
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 (http://markostake.blogspot.com/2010/02/sovereign-debt-crisis-threatens-to-take.html).
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
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 (http://markostake.blogspot.com/2010/02/sovereign-debt-crisis-threatens-to-take.html).
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
Monday, December 7, 2009
Baby Boomer Bust
While it may be poorly understood, a country's demographics are critically important to their fortunes. Most governments, including our own, are built on a series of ponzi schemes, meaning that growth is dependent on having the age structure pyramidically shaped. It's very positive when a small percentage of the population is old while a large percentage of the population is young.
The primary reason for the importance of demographics is what economists refer to as "household creation". Younger people tend to buy houses, buy appliances, buy cars and have children. On the other hand, older folks are savers, sell houses, sell appliances and DON'T have children.
"Household creation" is critical to driving growth via the multiplicative effect of the accumulation of possessions through "household savings" from employment income. While older folks are retired, living off savings and assistance such as medicare and social security, younger people are buying, saving (hopefully) and, in general, contribute to the major forms of assistance to the old, such as social security, medicare, disabiltiy and others.
So, as a country's population "grays", or grows older, it becomes at greater risk for economic problems. For example, Japan, which has, to my knowledge, the "grayest" of demographic structures, began its bust in 1990. And, it has yet to even recover. Europe and the U.S. came next as their demographics were a bit more favorable. In fact, I've long advocated the allowance of "illegal aliens", since they have helped keep the pyramid alive longer than would have been possible without them!!
Countries like India, which have booming populations are quite fine. However, my suspicion is that China, which has taken extreme population control measures, will NOT be fine for very long despite evidence, at the moment, to the contrary. Once these population control measures affect its pyramidal population structure, the pheonomenal growth experienced there will start to ebb and it will be subject to the very forces that are affecting the U.S. and Japan today.
The evidence I've cited is circumstancial, but I maintain it's WAY too coincidental to be false. The fact is, that nearly every country's fortunes are dependent on the relative number of old people to young people. While this may seem counter-intuitive, I assure you that it is indeed, quite true.
I hope you've enjoyed reading this essay as much as I enjoyed writing it. I love your comments, pro or con, and will continue to respond to each and every one of them.
Marko's Take
P.S. Given the wild action today in Gold, I'll be covering it tomorrow.
The primary reason for the importance of demographics is what economists refer to as "household creation". Younger people tend to buy houses, buy appliances, buy cars and have children. On the other hand, older folks are savers, sell houses, sell appliances and DON'T have children.
"Household creation" is critical to driving growth via the multiplicative effect of the accumulation of possessions through "household savings" from employment income. While older folks are retired, living off savings and assistance such as medicare and social security, younger people are buying, saving (hopefully) and, in general, contribute to the major forms of assistance to the old, such as social security, medicare, disabiltiy and others.
So, as a country's population "grays", or grows older, it becomes at greater risk for economic problems. For example, Japan, which has, to my knowledge, the "grayest" of demographic structures, began its bust in 1990. And, it has yet to even recover. Europe and the U.S. came next as their demographics were a bit more favorable. In fact, I've long advocated the allowance of "illegal aliens", since they have helped keep the pyramid alive longer than would have been possible without them!!
Countries like India, which have booming populations are quite fine. However, my suspicion is that China, which has taken extreme population control measures, will NOT be fine for very long despite evidence, at the moment, to the contrary. Once these population control measures affect its pyramidal population structure, the pheonomenal growth experienced there will start to ebb and it will be subject to the very forces that are affecting the U.S. and Japan today.
The evidence I've cited is circumstancial, but I maintain it's WAY too coincidental to be false. The fact is, that nearly every country's fortunes are dependent on the relative number of old people to young people. While this may seem counter-intuitive, I assure you that it is indeed, quite true.
I hope you've enjoyed reading this essay as much as I enjoyed writing it. I love your comments, pro or con, and will continue to respond to each and every one of them.
Marko's Take
P.S. Given the wild action today in Gold, I'll be covering it tomorrow.
Subscribe to:
Posts (Atom)