Rapidly Escalating Euro Crisis Threatens Financial Armageddon III

Financial Armageddon I was in 2007. Financial Armageddon II was in 2008. Is Financial Armageddon III in 2010 or early 2011 because of the EU bond crisis?

While financial markets try to digest whether inflation can be rekindled along with stock markets, the escalating EU debt crisis is spiraling out of control. The USD rallies along with gold although gold is also reacting to market sell off pressures and is not as high as it might be.

The fact is, with Germany and France resisting investor bailouts, investors are selling all manner of EU bonds, and Spain, Italy, Ireland bond rates are rising daily, even the day after the latest bailout of Ireland, which caused a brief respite that lasted all of half a day Monday.

This shows that the roughly 1.2 trillion Euro rescue package created during the Greek crisis months ago is not working. The EU pledging another $110 billion worth of aid for Ireland has little if any effect.

We hear brave statements from Spain (I commend the bravery) that they will not be forced into more trouble by the bond markets who don’t believe the EU is solvent as a whole.

Yeah but France and Germany wanted a weaker Euro?

Funny thing about France is that a year ago, we used to complain about the strong Euro, but now with the Euro breaking down, France and Germany is in a quandary of what to do. If they agree to more bailouts, investors barely yawn. Then the selling begins anew.

If the EU decision makers, including Germany especially, don’t do more bailouts, and try to get investors (laugh) to take losses, then the bond markets dump the troubled countries’ bonds. Germany and France and the EU proponents are in an impossible situation.

What is that situation and how bad is it for the Euro?

We need to remember that in Fall and Winter 2007, then a year later in Fall 2008, the general bank crisis spreading first in the US banks with the Bear and Lehman failures led to two almost total world bank collapses. We are facing round 3 of that challenge now. I am wondering about the similarity in timing comparing the evolution of the Bear debacle over 6 months that led to Financial Armageddon I in 2007.

Was Greece like a little Bear Stearns, and maybe 6 months later another massive crisis that Bear revealed growing, Greece in this case months ago? (IE did the Greek crisis presage the much larger and same crisis breaking now in the EU with Spain perhaps?)

So … after a brief recovery after March 2009, markets are now facing their worst sovereign debt crisis, centered in the EU, since WW2 ended. In fact, the IMF and other authorities are saying they are facing many of the same bank and credit collapse situations they faced in the 1930s. IE a banking and solvency crisis.

The EU is in a broad sovereign debt crisis now which is escalating.

Also, in spite of new US QE of $600 billion coming online, the USD is rallying and rallying stronger than even gold was.

And, gold and the USD are rallying together, and this combination accompanied the buildup to the last two bank crises of 2007 and 2008, and also during the Greek crisis of 2010, thought initially to have been brought under control…

Is this flight to safety in the USD and gold warning of another imminent EU bank crisis where banks are threatened with flight withdrawals?

That combined with rising bond spreads in the EU will force the EU to the wall. It is at the wall now and facing a day of reckoning.

In any case, Prudent Squirrel subscribers were warned of the latest turn on the USD and commodity markets when we told subscribers we thought the USD had bottomed several weeks ago. That turned out to be a prescient call.

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