Posts Tagged ‘european union’
In the End, Why Going Back to the Gold Standard May Be the Only Alternative
By Michael Lombardi, MBA for Profit Confidential
What no politician has the guts to do:
Step 1: stop printing more fiat currency; Step 2: have all fiat currencies backed by gold.
It wasn’t too long ago that the global economy had the gold standard—only a certain amount of money was printed and that printing was based on the holdings of gold bullion a country had.
Now, after a few decades of running away from the gold standard and flooding global economy with paper fiat currency that can be created out of thin air, countries are regretting what they’ve done.
We are starting to see countries in the global economy turning their attention towards gold as a source of safety—something that has stored value for much longer.
Since the inception of paper money, the amount of economic risk in the global economy has simply increased. The biggest concerns are inflation and the constant debasement of money. A dollar U.S. in 1970 is now worth $5.96 in the U.S. economy. (Source: Bureau of Labor Statistics, November 14, 2012.) For American citizens, their currency value has declined almost five-fold since we stepped away from the gold standard. It’s the same situation elsewhere in the global economy. Fiat paper simply has less purchasing power as the year passes.
All this leads to a simple question: to stop the erosion of the purchasing power of paper money, what do we do? Go back to the gold standard?
The Prime Minister of Turkey thinks we should do just that. He is urging the International Monetary Fund (IMF) to consider gold as its base currency. He suggested that the IMF has heavily relied on … Read More
America’s Only Choices Left: Raising Taxes, Introducing Austerity Measures
By Michael Lombardi, MBA for Profit Confidential
While debt-infested countries in the eurozone are struggling to decrease their budget deficits, the U.S. government is reporting an increase in its deficit. For the fiscal year of 2012, the federal government budget deficit was $1.09 trillion, slightly below 2011’s deficit of $1.29 trillion. (Source: U.S. Department of the Treasury, October 12, 2012.) As a percentage of gross domestic product (GDP), the U.S. government’s budget deficit for the year 2012 stands at seven percent.
Yes, some might jump on the “decline” in the federal budget deficit in 2012 over 2011, but there is more to it. For the first month in the current fiscal year of 2013, which ended October 31, the deficit increased by $120 billion. This is an increase of almost 22% from the same month last year—$98.0 billion in October 2011. (Source: Department of the Treasury, November 13, 2012.
In the month of October, U.S. government spending was much higher than the previous month. In September, the U.S. government spending was $186.3 billion, in October 2011, it was $261.5 billion. In October of this year, government spending reached a staggering $304.3 billion—an increase of 63.3% from a month earlier and 16.4% from October last year.
So all this talk of lowering the government’s annual budget deficit seems to be just that; talk. Increasing budget deficits is not good for any country; every economist would agree with me on this one. So, where do we go from here?
The issues in the U.S. economy are becoming similar to the ones in the eurozone countries. For example, in those countries, government spending simply was greater than tax revenue, … Read More
Why You Shouldn’t Be Fooled by the Market
By George Leong, B.Comm. for Profit Confidential
Following a weak second quarter, the Dow Jones Industrial and S&P 500 indices are now in positive territory for the first time since the end of the first quarter on the backs of a positive July and August.
So far, August has proven strong for technology, growth, and small-cap stocks, with the NASDAQ and Russell 2000 up 4.2% and 3.4%, respectively, as of the close of Thursday. The S&P 500 is holding at 1,400, a level that I believe will be tough to hold. Every time I look at the long-term technical picture of the S&P 500, I’m concerned about the vulnerability. Since 2000, there have been two major tops at above 1,400, and the current bull market rally from March 2009 appears to be heading for a third top.
What I continue to see is an expectation-driven buying based on a best case scenario that includes a third round of quantitative easing (QE3) from the Federal Reserve, the saving of the eurozone, and strengthening in the U.S. economy. And then you have the uncertainty of the upcoming presidential election.
Yet the reality is that Europe remains in a financial mess, with six eurozone countries in a recession and straddled with major debt and growth issues. Britain is also in a recession. Germany, the largest and strongest economy in the eurozone, is showing positive signs, but the problem will be the country’s focus and distraction in helping to save the eurozone. German Chancellor Merkel appears to be backing the desire of European Central Bank (ECB) to keep the eurozone together, but so far, we have yet to see any concrete … Read More
Countries in the European Union with “AAA”
Credit Rating Starting to Crack
By Michael Lombardi, MBA for Profit Confidential
Italy’s economic contraction deepened, as its GDP fell 0.7% in the second quarter of this year. What is more disconcerting is that, year-over-year, in the first quarter of 2012, GDP contracted 1.4%; while, in the second quarter, the economic contraction worsened, as GDP shrunk by 2.5%.
Italy’s Retail Confederation predicted last week that consumer spending would fall by the most in 2012 since WWII!
In Spain, the economic contraction continues unabated as well. What this means, dear reader, is that these countries will require help from the stronger nations of the European Union.
The problem is that the AAA countries of the European Union—Germany, Austria, and the Netherlands—are starting to show evidence of economic contraction within their countries and could follow their weaker counterparts into recession!
Austria’s manufacturing contracted in July and the country’s new orders—a gauge of future demand—fell at the fastest pace in eight months. (Source: Markit Economics.) Manufacturers cut jobs for the second straight month in Austria and the economic contraction is worsening, as the number of jobs being lost has accelerated to levels not seen since 2010!
The Netherlands experienced a continued decline in manufacturing, with new orders falling for five straight months. The economic contraction continued to worsen, as job cuts took place for the fourth consecutive month.
Finally, there is Germany. With 60% of its exports making their way to the European Union, the most important AAA country of the European Union is showing signs of renewed economic contraction, which has German leaders talking about a possible recession in the second half of this year. (Source: Reuters, Aug. 10, 2012.)
It is not only … Read More
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