— reporting from Rome, Italy
Does America want members of the 17 eurozone countries to go bankrupt one by one? If only a few went under, the American currency would win the currency wars and reaffirm itself as the reserve currency of the world.
If you were someone living outside the U.S., wouldn’t this sound like a “secret” strategy that could work? After all, are not all the major credit reporting agencies (that grant credit ratings to European countries) subsidiaries of major American corporations?
These are the suspicions I’m hearing from people here in Rome.
Let’s give the theory some further attention and you’ll be surprised at what we find…
When we look at the rising national debt of America, by the end of this decade, the debt-to-GDP ratio of the United States will surpass that of a number of European countries. Why, despite a never-ending rise in our total debt, are U.S. bonds not referred to as “junk” when so many other European countries, with better debt-to-GDP ratios than America, have their bonds considered junk?
On July 25, 2011, Moody’s Investors Services downgraded Greece’s sovereign credit rating by three notches to what is referred to as “Ca,” very risky.
In an ideal situation, here is what happens…
The American dollar is devalued over the next three to five years, so the U.S. is paying back its trillions of debt owed to foreigners with cheaper money.
The euro totally collapses over the next three to five years. With no euro, the greenback, although devalued, survives, as Europeans want American dollars, not Japanese yen or Chinese yuan.
Great idea, if you can pull off.
Under the scenario above, the snowball job of convincing two-thirds of world central banks that the U.S. dollar should be the reserve currency of those central banks continues.
But two problems arise…
Firstly, about 21% of the revenue generated by S&P 500 companies comes from Europe (according to Bloomberg). If the euro currency is devastated, the earnings of the major American companies will be as well, pushing stock prices lower.
Secondly, the rise in the price of gold bullion from $300.00 an ounce in 2002 to approximately $1,600 today is telling us a different story. There could be a new currency in town. Or, at the very least, there could be a new currency permanently tied to the price of gold.
Euro or no euro, American dollars partially backed by gold again…I easily see this in the cards. That’s the best advice on investing in gold or gold advice I can give.
What He Said:
“Any way you look at it; the U.S. housing market is in for a real beating. As I have written before, in the late 1920s, the real estate market crashed first, the stock market second and the economy third. This is the exact sequence of events I believe we are witnessing 80 years later.” Michael Lombardi in PROFIT CONFIDENTIAL, August 27, 2007. “As for the stock market, it continues along its merry way oblivious to what is happening to homebuyers’ wealth. (Since 2005 I have been writing about how the real estate bust would be bigger than the boom.) In 1927, the real estate market crashed and the stock market, even back then, carried along its merry way for two more years until it eventually crashed. History has a way of repeating itself.” Michael Lombardi in PROFIT CONFIDENTIAL, November 21, 2007. Dire predictions that came true.