Will USD and Euro Go Down Together?
Western world bankrupt
We know eventually the US will have its own sovereign debt crisis (we are only debating the US debt ceiling now) and see its own bonds interest rate skyrocket. But the US Budget debate coming at this time might prevent the US from stepping in again in another huge bank crisis that is now developing with speed in the EU.
First, as we speak the EU banks and central banks are desperately trying to stave off default by Greece, Italy, Spain, Portugal, and Ireland. The next weak dominoes are seeing their bonds fall in value with higher interest rates spiking. Soon, there will be no way to finance Sovereign bonds and corporate bonds in the EU.
This happened before! European Bank crisis in 1930s
And don’t forget that a wider default in the EU region will cause some form of a bank crisis in Europe. And as I recall, before the huge bank closures in the US in the 1930s, there was a bank crisis in Austria (Germany related) in the early 1930s that spread rapidly over to the US…so let’s get over to our next half of this piece.
The Demise of the USD at the same time period as the Euro chaos?
The USD is in trouble because the US has this increasingly acrimonious debate on extending the US Debt ceiling. If the US does not extend there will be many more unpredictable problems, for one thing, something I don’t know if anyone thought about this, but since the US Fed is the primary form of financial emergency aid to the world’s banks, how would the Fed step in to help another spreading EU bank crisis if the US Treasury is paralyzed for a period of time…?
Nor what effects of a US technical default would have on its own to the bank systems around the world and the stock exchanges… now that is a mouthful.
So, right when we are facing an escalating bank crisis in the EU with the Euro itself under threat, at the same time the US is going to become unable to put up that massive financial support we had in 2007 and 2008 with the Bear and Lehman crises, come Aug 2. That deadline may be met but we are at a high vulnerability right now of both the Euro and the USD having a simultaneous sovereign debt crisis.
We predicted a USD bottom on April 25 and even so gold has held up and silver stabilized at $35 at that time. We have predictions on the USD and the Euro and the Yen. But Gold is holding even though the USD rose from 73 recently on the USDX and now gold rising again on the latest Euro worries. Gold says this crisis threatens both the USD and the Euro. Gold is rising even though the USD is flat right now over this budget debate.
Of course, should the US get an agreement, the USD would probably rally again.
In any case, the Euro and the USD are facing a simultaneous crisis.
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