Read Here What Comes Next in the Eurozone Crisis

Tuesday, December 06, 2011

Parsing the multitude of ruminations about rating agency Standard & Poor's threat to downgrade all Eurozone members I am left wondering how this announcement comes as a surprise to many market observers while failing to see the bigger picture that was drawn so far in 2011.
Ring-fenced by exploding deficits, rocketing yields, stubbornly rising unemployment especially among the youth and a true inflation closer to 10% than official figures of three percent, the long term negative outlook for the Eurozone has not changed in the past 11 months.
This action was overdue but again serves more to highlight the deficiencies of an opaque rating process than act as a reliable guideline. After all, most of these Eurozone countries have smaller debt/GDP ratios than the USA, which passed the 100% mark this week and rises faster than EU deficits.

After the announcement of future unlimited money printing through dollar swap lines from the major central banks on November 30, that propped up markets and the Euro, the downgrade announcement is the next step in keeping a volatile equilibrium during the demise of Euros and Federal Reserve banknotes against the ultimate currency of all times; gold.
Rating agencies have been most timely to paint the chart with pivot points, smoothing out spiking markets that wait desperately for the impossible: A silver bullet solution to the Eurozone's woes that stem from a decade of easy credit and the lowest interest rates in history, that produced Spanish hairdressers as second home owners/debtors on annual salaries of €12,000.
This is not going to happen. The Euro was initiated as a political goal for deeper EU integration and lacks a Treasury as guarantor like in the US monetary system.

The Coming Crisis Meetings in 2012
Its destruction will begin to follow a shock and awe script as the "no more Euro core" members have yet to come to terms with the unpleasant reality that a slowdown of debt growth will not be enough to get their houses inoder again. Greece may be soon everywhere as Eurozone nations will get squeezed between  the need to refinance €800 billion in government issues and the resulting higher interest rates.
Here are some expected headlines from the coming 12 months that will keep EURUSD in a rough balance while both will continue to decline against gold.

  • Rating agencies will downgrade Eurozone banks after downgrading Eurozone sovereigns
  • EU in crisis meeting about banks downgrades 
  • Big league banks will issue more recession warnings for both Europe and the USA
  • EU holds only a limited emergency meeting
  • Fearful investors demand dramatically higher yields for government bond issues, deepening the coming credit crunch, resulting in cancelled bond auctions
  • EU announces another crisis meeting about the credit crunch
  • Merkel and Sarkozy will push for European Stability Mechanism (ESM) as a last saviour of the Eurozone
  • Merkel and Sarkozy announce the next crisis meeting
  • EU wants to find way for a fiscal union without triggering referendums in member states
  • EU announces crisis summit because people voice widesprent dissent
  • EU will try to fast track a treaty change
  • EU needs another crisis meeting
  • EU member states will demand referenda for any treaty changes
  • EU hosts next crisis meeting
  • Deadlock in EU weakens Euro further, will result in
  • More crisis meetings which lead again to
  • More and renewed calls for a EU Treasury and the ESM by those EU forces envisioning a United States of Europe (that is actually only a UDE)
  • The EU goes into the next crisis meeting.
Before you now reactivate Solitaire on your screen, please keep in mind that those are only EU headlines. Global geopolitical tensions will keep markets lightfooted while new upheaval in Russia and the Middle East are destined to keep the bloated forex market running on high leverage. As in most cases of collapsing currencies it may well be an exogenous shock that brings the Euro closer to its true intrinsic value.


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5 comments

Anonymous said...

Hi! From where do you have the figure of the "real inflation" of 10%?

06 December, 2011 20:09

from people's slimming wallets

06 December, 2011 23:50
Neo @NWP said...

So you think bond yields are going to increase, prices drop. Inflation jumps or I should say continues jumping and global interest rates increase further eroding fixed income investment values.

Is this a case for increasing my exposure to commodities and also stocks since bonds will become unattractive and in general asset values will rise? Shouldn't we invest in these assets so we can at least keep up with inflation?

08 December, 2011 01:36

I must follow these tips. Thanks for sharing these to us.

28 December, 2011 08:48
stock said...

Really a very good information that will be so helpful. Now most are interested like this.

06 January, 2012 07:47

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