What the Eventual Dismantling of the Eurozone Will Cost the U.S.

EurozoneThere is no doubt now: the U.S. economy is being highly affected by the global economic slowdown. If you have been listening to financial gurus and the mainstream media saying, “We’ll be alright, we can weather the storm,” take their word at your own risk.

To put things into perspective, we need to know how critical the collapse of the eurozone will be to the U.S. economy, or even just the exit of one country that shares the euro from the eurozone. A recent study by Bertelsmann Stiftung showed that if Greece exits the eurozone, 42 of the top economies in the global economy will have to absorb a loss of 674 billion euros (close to US$1.0 trillion) until 2020. (Source: “Greece’s Withdrawal from the Eurozone Could Cause Global Economic Analysis,” Bertelsmann Stiftung, October 17, 2012.)

If more countries like Spain, Portugal, and Italy exit the eurozone, the losses will be in the trillions (in U.S. dollars) and will create havoc in the global economy. According to this study, if these three countries do exit the eurozone, the U.S. economy will be exposed to a loss of 2.8 trillion euros through to 2020.

This study should be an eye-opener to governments and central banks in the eurozone and the U.S. economy. Scrambling to print more money can only go so far. Maybe it’s about time those in charge come up with a different plan to help the troubled eurozone.


Nothing seems to be changing in the eurozone: Spain continues to play the same game that Ireland played when it needed its bailout; Greece has failed to implement more austerity measures; and Italy says it has no problem.

The U.S. economy had a chance at economic growth after the worst recession since the Great Depression. That chance has gone down the drain now because of the eurozone crisis.

Eventually, I believe we will see the crisis in the eurozone spread from one country to another in rotation. This news should not shock my readers, as I started warning about recessions happening in the eurozone back in January of 2012, well ahead of most economists.

The path of the European Central Bank (ECB) for the eurozone crisis will be like this:

1) Bail out a eurozone country in economic trouble; 2) demand that country implement austerity measures to first get the bailout money; 3) move to the next eurozone country in trouble and repeat first two steps; 4) go back to the first bailed-out country after seeing that austerity measures do not work and give them more money; 5) repeat the process for each troubled country; 6) stop the process once Germany says that’s enough or a country leaves the euro membership.

The U.S. economy cannot escape the economic catastrophe that this sequence of events will cause…and I wouldn’t be surprised to see the Federal Reserve jump in to help!

Michael’s Personal Notes:

Over the past three years, the central bank of India has significantly increased its gold bullion holdings. India became one of the most aggressive buyers of gold bullion in the world in 2009 when it bought 200 tons of gold bullion from the International Monetary Fund (IMF). India’s central bank is expected to continue buying gold bullion into 2013, as only 10% of its reserves are in gold bullion. (Source: Market Watch, The Wall Street Journal, last accessed October 20, 2012.)

Similarly, China’s central bank is trying to quickly and quietly accumulate gold bullion. Sales of gold bullion from Australia to China increased 900% in the first eight months of this year. (Source: Bullion Street, October 18, 2012.)

China only holds 1.7% of its reserves in gold bullion. With the U.S. dollar falling in value against other world currencies and with other central banks around the world working on devaluing their currencies, gold bullion seems to be a viable option for the Chinese central bank to resort to.

China’s holdings of its reserves in gold bullion lag those of the remainder of the world’s leading economies; hence the country needs to play catch-up. While China holds only 1.7% of its reserves in gold bullion, the U.S. holds 75.0% of its reserves in gold bullion, Germany holds 72.0%, and France holds 71.0%.

Just a doubling of China’s percentage of reserves in gold bullion, from 1.7% to 3.4%, would result in the price of gold skyrocketing, as there simply isn’t enough gold bullion to satisfy that demand.

The 17 eurozone nations in total have more than 10,000 metric tons of gold bullion and are just sitting on it. (Source: “How Gold Can Solve Europe’s Debt Crisis,” The Wall Street Journal, October 18, 2012). It won’t be surprising that the central banks in Europe did not sell any gold this year.

I’m just trying to share this specific message with you today: gold bullion is getting a lot of attention from world central banks as the same institutions race to devalue their respective currencies. Demand for gold bullion is real. The fundamentals behind the price increase in gold bullion are real.

My personal plan, the same plan I have been following for years, is to continue accumulating gold investments as gold bullion prices weaken.

Where the Market Stands; Where It’s Headed:

Is it just me, or are people starting to catch on to the fact that there has been no structural improvement in the economy since 2009, only rising government debt and money printing? The stock market sure looks like it has caught on.

Just look at these financial headlines: “Google Reports Profit, Sales That Miss Analysts’ Estimates;” “McDonald’s Profit Falls 3.5% as U.S. Growth Slows;” “GE Revenue Trails Estimates as Health Unit Sales Weaken;” and “U.S. Posts Fourth-Largest Budget Deficit Since WWII.” I’ve been warning my readers about these kinds of headlines weeks before they happened.

Only a couple of times a year do I dare bask in the glory…and I can’t resist today:

On August 11, 2012, August 14, 2012, August 16, 2012, August 18, 2012, and August 30, 2012, I warned my readers that the stock market would start to come down specifically on September 30, 2012—I was right on the money!

What He Said:

The year “2000 was a turning point of consumer confidence in high tech stocks. 2006 will be remembered as the turning point of consumer confidence in the housing market. That means more for-sale signs going up, longer time periods to sell homes, bloated for-sale inventory, and eventually lower prices for homes. But this time, the turnaround in consumer confidence will have a bigger impact on the economy. Hold onto your seats, this is going to be a nail biter.” Michael Lombardi in Profit Confidential, August 24, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.