It’s almost cognitive dissonance the way the financial markets go about their business. Everyone knows that the United States is bankrupt. Everyone knows that US Treasuries are a bubble. Yet, it’s the first place everyone runs to when things start to get messy.
For now anyway…
Is it decades of Keynesian economic misinformation? The herd mentality? Constant central bank interventions? The search for a market large and liquid enough to absorb an ocean of digital money at the stroke of a key?
Does it even matter why?
Europe is just the opening act. After that Japan and China are all set to perform. But the real show is the United States. The largest economy in the history of the world and the largest debt in the history of the world. Where does that ocean of digital money go when it is running from US Treasuries and the dollar?
The real crash, as Peter Schiff reminds us, is still ahead of us:
Schiff: “We can’t cut spending fast enough in Washington. The more we cut the better…and the sooner.”
Host: “But…I mean…pragmatically that’s not going to happen. You know it’s not going to happen. I know it’s not going to happen.”
Schiff: “I know. That’s why I wrote this book. That’s why we have to brace for the impact. We are going to see a sovereign debt crisis, a currency crisis in the United States that’s going to dwarf the financial crisis of 2008.”
Is another rush to gold imminent?
Just to add to that thought, here are a couple of pearls of wisdom from CNBC’s Steve Liesman in which he argues that the US needs to take charge of the European bailout.
http://www.cnbc.com/id/47691602
“The US should lead the world in creating a large pot of money available to the Europeans to recapitalize their banks. A $2 or $3 trillion fund should get the market’s attention.”
And…
“As the TARP program showed (only when it comes to the banks) if you make enough money available quickly enough, you can stem the tide and it won’t cost you a penny.”
Scared yet?
Since the crises in the economies of Europe are so evident, given their debt that they refuse to reduce, as in Greece, the dollar will continue to be strengthened relative to the Eurodollar. Rather than a crash in the US, a collapse of countries in Europe are more likely. Political pressures to resist economic reform, from European leaders of Greece, Spain, and Italy with their substantial unemployment balances the crises in the U.S. economy.
While the crisis in the EU will certainly strengthen the dollar, it in no way balances the crises. A stronger dollar hurts US exports which are sorely needed to help mitigate the trade deficit. Also, US debt is tied to EU debt so once again there is no relief from EU troubles as relates to the US. To think that the inevitable crash of the Euro is a big factor in the US not crashing one would have to also believe that the US is going to do something constructive about it’s debt. Good luck with that.
Just to add to that thought, here are a couple of pearls of wisdom from CNBC’s Steve Liesman in which he argues that the US needs to take charge of the European bailout.
http://www.cnbc.com/id/47691602
“The US should lead the world in creating a large pot of money available to the Europeans to recapitalize their banks. A $2 or $3 trillion fund should get the market’s attention.”
And…
“As the TARP program showed (only when it comes to the banks) if you make enough money available quickly enough, you can stem the tide and it won’t cost you a penny.”
Scared yet?
If you read my comment I said it is more likely that a crash would occur in Europe, rather than the U.S. More likely does not imply a crash would occur in either Europe, or U.S. To assume there would be a crash is to abandon all hope that Europe or U.S. would reduce their debt. Rather than support Europe through the Federal Reserve, a strict set of guide-lines should be instituted in European countries would huge debts. Politicians would have to convince the people that they would be better off, instead of looking for popularity. This applies to the U.S. as well since reduction of debt is not a popularity contest. Congress must not fall back on automatic debt reduction, but must apply debt reduction beforehand.