Wow! I really never thought the American economy would recover so quickly.
According to the latest U.S. economic data, there has been a rather reserved
decline in the unemployment rate as well as a vast increase of consumer credit.
Interesting. Meanwhile, in Europe things have gotten worse which supports the
dollar's multi-year high against the euro. Actually it is the dollar's
security which is frequently upheld as one of key arguments that the U.S.
economy is recuperating. The truth is that the economy is barely surviving and
the dollar is climbing due to a rationale that is not akin to its economic
strength. It is true that the Eurozone and its problems are influencing the
global economy. It has been very demanding for them to make decisions across
borders and national preoccupations while their negotiations are in disarray.
And the international media has been with them every step of the way. Because of
this, the troubles in America have taken second stage despite our being probably
worse than across the seas. The facility with which we solve our problems (via
the printing press) have aided in not being forced to encounter face to face the
concerns that Europe has had to contend with. This composure has been
misunderstood as a strong point and the dollar has enjoyed safe haven status as
a result. This is very self-fulfilling in nature because investors run from the
euro to the dollar which then rises to mirror the demand. The expansion
justifies the choice to initially buy and, subsequently, induces more buyers who
seek benefit from its appreciation…until it ends. It is the U.S. Treasuries
which receive these safe haven dollar investments. Consequently, U.S. interest
rates are much lower than they would be alternatively. To be fair, the United
States and Italy bear corresponding national debt configuration. In spite of
this, interest rates in Washington are presently 600 basis points less than in
Rome. This indicates that Americans can borrow and spend more freely.
Ultimately, this extra debt financed consumption is equivalent to a rise in
employment and GDP which, in turn, signifies that the positive economic response
upholds the dollar to a more prestigious status, thus supporting the vicious
cycle. Italy would not be undergoing the troubles they have today if the rates
were as low now as they were two years ago. Their budgets would still be tamable
and their borrowing costs would never have increased. Likewise, if the United
States would have higher rates, then our picture would not look so sunny.
Conceptualize for a second if rates were just 200 basis points higher…that
would affect consumers, homeowners, corporations, and governments alike who rely
upon low-priced financing. Things would be exponentially poorer for us as
compared to Europe. Strictly speaking, and as horrible as it may sound, the
problems in Europe are good for us. No, not us, the economy, to be precise. And
only for the short-term. Past the horizon, borrowing and spending more money to
finance expenditure and government red ink will not facilitate the U.S. economy
attain economic harmony. If, by some miracle, the winds were to blow the other
way, the dollar would collapse, interest rates and consumer prices would go up,
and the U.S. economy would stumble back in recession. However, Europe isn't
that strong at this moment so we don't have to worry about that for now.
But…when reality sets in and the truth is upheld, the crash will be ten-fold.
We have lived it with dot com stocks and real estate and the time is coming for
the dollar and U.S. Treasuries. Notwithstanding that Europe gets it together, we
are still awaiting a disaster. But it will only be worse because we will have
much more debt to deal with. And the price of gold bullion will be that much
higher… Tags: Current Gold Price, current gold price news, Gold Prices, Price
Of Gold Bullion This entry was posted on Thursday, January 26th, 2012 at 2:55 pm
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