Tag Archives: Finance

Beware the Coming Bailouts of Europe

european union stars

The economic establishment in this country has come to the conclusion that it is not a matter of “if” the United States must intervene in the bailout of the euro, but simply a question of “when” and “how”. Newspaper articles and editorials are full of assertions that the breakup of the euro would result in a worldwide depression, and that economic assistance to Europe is the only way to stave off this calamity. These assertions are yet again more scare-mongering, just as we witnessed during the depths of the 2008 financial crisis. After just a decade of the euro, people have forgotten that Europe functioned for centuries without a common currency.

The real cause of economic depression is loose monetary policy: the creation of money and credit out of thin air and the monetization of government debt by a central bank. This inflationary monetary policy is the cause of every boom and bust, yet it is precisely what political and economic elites both in Europe and the United States are prescribing as a resolution for the present crisis. The drastic next step being discussed is a multi-trillion dollar bailout of Europe by the European Central Bank, aided by the IMF and the Federal Reserve.

The euro was built on an unstable foundation. Its creators attempted to establish a dollar-like currency for Europe, while forgetting that it took nearly two centuries for the dollar to devolve from a defined unit of silver to a completely unbacked fiat currency note. The euro had no such history and from the outset was a purely fiat system, thus it is not surprising to followers of Austrian economics that it barely survived a decade and is now completely collapsing. Europe’s economic depression is the result of the euro’s very structure, a fiat money system that allowed member governments to spend themselves into oblivion and expect that someone else would pick up the tab.

A bailout of European banks by the European Central Bank and the Federal Reserve will exacerbate the crisis rather than alleviate it. What is needed is for bad debts to be liquidated. Banks that invested in sovereign debt need to take their losses rather than socializing those losses and prolonging the process of adjusting their balance sheets to reflect reality. If this was done, the correction would be painful, but quick, like tearing off a large band-aid, but this is necessary to get back on solid economic footing.  Until the correction takes place there can be no recovery. Bailing out profligate European governments will only ensure that no correction will take place.

A multi-trillion dollar European aid package cannot be undertaken by Europe alone, and will require IMF and Federal Reserve involvement. The Federal Reserve already has pumped trillions of dollars into the US economy with nothing to show for it. Just considering Fed involvement in Europe is ludicrous. The US economy is in horrible shape precisely because of too much government debt and too much money creation and the European economy is destined to flounder for the same reasons. We have an unsustainable amount of debt here at home; it is hardly fair to US taxpayers to take on Europe’s debt as well. That will only ensure an accelerated erosion of the dollar and a lower standard of living for all Americans.

Ron Paul – US Congressman

What Is Backing Your Deposits in the Bank?

By Elliott Wave International

Is the bank really the safest place to keep your money? Robert Prechter joins the Mind of Money host Douglass Lodmell to discuss what backs bank deposits and how you can keep your hard-earned money safe.

We invite you to watch the interview below. Then read Robert Prechter’s free report, Discover the Top 100 Safest U.S. Banks.

What is the best course of action to safeguard your money?

Read our free 10-page report, Discover the Top 100 Safest U.S. Banks, to learn:

  • The 5 major conditions at many banks that pose a danger to your money.
  • The top two safest banks in your state.
  • Bob Prechter’s recommendations for finding a safe bank.
  • And more!

Download your free report, Discover the Top 100 Safest U.S. Banks, now.

This article was syndicated by Elliott Wave International and was originally published under the headline What Is Backing Your Deposits in the Bank?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

European Bank Stress Test: “It’s not that 8 failed…but that 82 passed!!”

By Elliott Wave International

The European Banking Authority announced Friday that 8 banks had failed their stress tests and 16 more had narrowly passed. But the results drew much criticism from analysts, who said that the stress test is not strict enough.

Indeed, this is something that European Financial Forecast readers have known since the first stress test last summer.

For a unique perspective on Europe’s sovereign debt crisis, we invite you to read a free 6-page report by Elliott Wave International’s European Financial Forecast editor Brian Whitmer, “Credit Crisis in Europe.” Brian has been anticipating and tracking the credit contagion across Greece, Ireland, Spain, Portugal and other EU nations for months.

Below is a quick excerpt from this report, written just after the first stress test. For details on how to read it in full now, look below.
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Credit Crisis in Europe: How the Stability of an Entire Region is Teetering on the Edge of a Major Collapse

By EWI’s European Financial Forecast editor Brian Whitmer (excerpt)

Panic Now and Avoid the Rush — July 30, 2010
The market’s collective sigh of relief is also reflected in authorities’ stress testing of 91 European banks. In case you missed last Friday’s results, their message is clear: relax. The Committee of European Banking Supervisors (CEBS) gave passing grades to nearly every bank on its list. The group, for example, passed both Irish banks and all four UK banks that it evaluated. The CEBS gave clean bills of health to all four Portuguese banks, all five Italian banks, and five out of six Greek banks that it analyzed. Even with share prices that sit 29%-66% beneath their 2009 countertrend highs, the CEBS says that the Bank of Ireland, Piraeus Bank, Banco Popolare, and Banco Santander are all in good shape. In fact, just seven of the 91 banks failed to make the grade. Five were in Spain, one in Greece, and one, Germany’s Hypo Real Estate, is entirely owned by the German government anyway. Everyone else — 84 institutions in all — are supposed to be strong enough to withstand another economic shock.

It’s not so much the stellar results that expose the optimism of a Primary degree rally, but rather the Banking Committee’s stress tests themselves. They are notable primarily because they failed to test for any real stress in the first place. As the chart shows, the Committee’s “adverse scenario” regarding economic performance assumed a mere 3% deviation from the European Commission’s GDP forecast. Another test looked at banks’ resilience to a sovereign risk shock, yet the analysis merely used conditions similar to those of May 2010. In other words, just like the UK budget office, the CEBS is utilizing a woefully diluted version of the economic deterioration that is about to grip the continent.
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FREE REPORT: Discover what Europe’s debt crisis means for the future of the continent and your investments. Get your FREE 6-page report filled with unique analysis on Europe, the PIIGS and the sovereign debt crisis.EWI’s European Financial Forecast editor Brian Whitmer gives you the context for what’s happening in Europe and gets you up to speed on the reality of the situation. Download your free report now.

This article was syndicated by Elliott Wave International and was originally published under the headline European Bank Stress Test: “It’s not that 8 failed…but that 82 passed!!”. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

What’s Your Dollar Really Worth?

green dollar sign

By Sean Hyman, editor, Currency Cross Trader

As you guys know, I’m a trader. I eat, sleep and breathe the $4 trillion Forex market on any given day.

But that’s just my day job.

The other half of my life is spent at home. I live in Texas. I’m married, I have four kids and I’m paid in U.S. dollars like 300 million or so other Americans.

That means my wife and I have to pay for our groceries, gas, kids’ school supplies, DVD rentals, etc. with dollars just like everyone else here in the U.S.

So like you, I have a vested interest when the U.S. dollar buys me less. In economic terms, that’s known as purchasing power.

Now as a trader, I can tell you the dollar has lost against nearly all major currencies in the Forex market since the late ‘90s. (See the sidebar below for more.)

But I’d like to step outside of the Forex world for just a moment and discuss just how the dollar has sunk beyond of the realm of currency trading, for all of you, who like me have to pay for your items with dollars…

1998 Dollars and 2011 Dollars Are NOT the Same Thing

Just to show you how weak the dollar is for consumers, let’s look at how many “extra dollars” it now takes to buy things nowadays.

To illustrate this, let’s review the common goods you would have purchased roughly 10 years ago (1998 actually).

Back in 1998…

How Currencies Have Jumped vs. the Dollar in the Forex Market

(From 1998 – Present Day)

Japanese yen: Up 57%
Aussie dollar: Up 51.9%
Swiss franc: Up 51.4%
Canadian dollar: Up 44%
New Zealand dollar: Up 31%
Norwegian krone: Up 26%
Euro: Up 22%
Swedish krona: Up 19%

An average house cost $129,000. Now it’s $172,000 (33% increase)…and that’s after the real estate market crashed.

A gallon of gas was $1.15 and now it’s almost three times that at $3.15 (actually 274% higher)!

A loaf of bread was $1.26. It’s now $2.79 (121% higher).

A dozen eggs cost 88 cents, now $2.89 (228% higher).

A postage stamp was 32 cents.
Fast forward to 2011, and its 44 cents (38% higher).

What can we thank for the higher prices?

Well, as strange as it sounds in this current post-recession, still deflationary environment, inflation stole your dollar’s value over the last decade.

Why Most Americans Don’t See the Dollar is Dropping

Inflation – especially over the years – is so subtle that most people don’t notice.

It’s a lot like boiling a lobster in a pot.

If you drop a lobster into boiling water, your lobster will try to escape. But if you drop a lobster into warm water, and slowly turn up the heat, lobsters won’t realize it and before they know it…they are boiling.

Guess who’s the lobster now? The American consumer.

The U.S. government and its close cousin, the Federal Reserve is pretty slick. They turn up the inflation heat by eroding your dollars slowly. But it’s consistent enough to where your dollar is worth much less just 10 short years later.

Think about it. If I’d told you that tomorrow morning you will pay 274% higher for gas and 121% higher for a loaf of bread…you would freak out. There would be rioting in the streets. (A lot like what’s happening in Tunisia today.)

Of course, the U.S. government knows that too.

So the Federal Reserve ratchets up inflation just fast enough to help their causes (like paying back their debts with cheaper dollars)…but they do it slow enough to where most Americans won’t notice.

The Dollar’s Purchasing Power Has Dropped 27% Since 1998

Now sure you can look at gas prices, and see inflation creeping back into the market. But the reality is the costs of EVERYTHING you need are going up astronomically and the dollars in your pocket buy less and less all the time.

What’s even worse is that while the costs of goods are on the rise again…unemployment is hitting its highest levels in 26 years. So that means that companies won’t raise salaries to keep up with the ever-rising cost of living.

And unfortunately prices are only going higher from here. In fact, in the next decade, prices could be another 50-100% higher than they are now.

Three Ways to Protect You and Your
Family Against the Falling Dollar

You don’t have to be a Forex trader to be affected by the falling dollar. No, just make a trip to the grocery store or try to fill up your tank, and you also have a vested interest in how the dollar performs.

Now of course, none of us can stop inflation. But there is a way to hedge against it, and the falling dollar. Here are a few ideas how…

• Diversify at least 15% of your portfolio into stronger foreign currencies including the Canadian dollar and Aussie dollar. You can do this easily with currency ETFs if you’re not ready to jump into FX trading.• Calculate how much you have to spend on stocks and bonds for the next year, and then drop 5-10% of that into gold or silver. Again, you can easily do this with gold or silver ETFs.

• Look at your retirement plan. If your entire IRA is in dollars, consider upgrading with a long-term foreign currency CD.

Bottom line: The dollar is losing on all counts. As a trader, I can see the dollar’s overall decline happening on a day-to-day basis. But as a consumer, you can feel the dollar dropping where it really hurts – your wallet. Take action now to protect yourself.

Thanks for reading!
Sean Hyman, Editor Currency Cross Trader
Blog: http://wcw.worldcurrencywatch.com/