The Eurozone certainly has it’s problems, the less than 1 week old finance minister for Greece has resigned and they are requesting a “re re bailout”. Spain has now asked formally for a bailout that when all is said and done will reach over 1/2 Trillion Euros and now Italy comes next. This week as you know, the European finance ministers will meet which is probably a good thing since Italy will more than likely “go begging” by this Friday. Equity markets are being slammed in Europe and in particular the finance and banking sectors down well better than 5% for the day. On a side note, whether it is a “technical glitch” or not, RBS and Natwest customers have gone 5 days without full access to funds or electronic payments being made. I can’t think of a better way yo get a system wide bank run started, can you? It truly is beginning to “look” out of control and as we all know, “appearances are EVERYTHING!
But I must ask the question, is it any different in the United States? Really? Yes, we can “print” and make payments which the individual sovereign countries in the Eurozone cannot but it really is the same when you consider how many states and municipalities are upside down. It will turn out that Meredith Whitney was 100% correct, only early in her call for a massive default cascade in the muni market. The ultimate answer to my above question by the way is “there is no difference”, period. Their banks are counterparties to our banks, their banks own U.S. paper just as our banks have sovereign Euro paper. Derivatives with cross, multi, ’round the globe ownership are stuffed full in “any and all institutions who are anyone”. The point that I am trying to make is that no one can go down without everyone going down together.
As far as the real global economy is concerned, we are already in recession again. Europe is contracting, the U.S. is again contracting and these are with numbers that are highly massaged and fudged. China is also probably in contraction though they cling to the misnomer of growth. China blew a real estate bubble AFTER the 2008 Lehman fiasco and now it is popping. There will be no “soft landing” (remember this one?) in the cards and they will not “save the world” as was hoped for as little as a month ago. Many have been speculating that the Yuan will become the new reserve currency as the Chinese accumulate Gold under the radar.
If I had to guess, we will ultimately see an “Asian bloc” of currencies as we will see “blocs” around the globe. These “blocs” will be formed as PART of the coming monetary reset and be valued accordingly. The tip off? Banks on a global basis are now being allowed to hold Gold as a tier 1 asset. Gold is now “considered” as good as cash (hard to imagine) on a bank’s balance sheet and may be lent against and/or borrowed against!
Which leads me to my last thought for today. Can you guess where the final and by far largest bubble in all of history will be? Yes, you guessed it, Gold and Silver. THE ONLY way that sovereign governments and the banking system as a whole can “re liquefy” is to mark Gold up to some ridiculous number. You cannot “mark up” Dollars or Euros or Yuan and you cannot mark up (they have them on the books already at par) the various debt pieces of crap that will not even fetch .30 cents on the Dollar. No, this will not work because it won’t pass the “smell test”, you can ONLY mark up Gold because this is THE only action that will be aided by Mother Nature. SOMETHING has to be marked up because balance sheets everywhere in the West are disastrous and the debt needs to be “marked down” to make it payable. It must be “marked down” against something and that “something” as always has been in history, is Gold.
As I started off with at the beginning, Europe is no different than the U.S. when it comes to being “broke”, they are also no different when it comes to their financial system needing to be replenished by “something” that doesn’t also go on the books as a liability. Soon, very soon, the lightbulbs will go off all over the world, “if we make Gold worth $10,000, $50,000 $100,000 or whatever, we can reliquefy without taking on more unsustainable debt”. What a stroke of BRILLIANCE! No, not really, this has happened before, in fact THIS is exactly what has ALWAYS happened throughout history when fiat currencies collapse. No rocket science here, just history.