Crisis of Confidence for the Euro
As the can tumbles down the road, we are now hearing that the Euro is showing signs of some deeper issues developing. At first the Euros flowed from the troubled nations to the core now the capital flows are outward, from the Euro to outside currency havens.
The Euro has lost 8% against the dollar just since May. For many that might not seem too large but in the currency game this is huge! Seems that everyone is just losing hope as the European Central Bank and Germany can’t seem to come together on anything.
Ultimately the only weapon that they have is the printing press…buying more bonds with newly printed money to keep rates down in the ‘troubled’ nations. This in turn will eventually lead to inflation. Too much money chasing limited goods and services leads to higher prices for those same goods and services…at least that is the traditional thinking.
In my opinion we have not seen a ton of inflation in typical safe haven assets such as real estate due to the tremendous amount of price inflation that was artificially injected into the system via virtually unlimited cheap credit. Now we are seeing that ‘fluff’ taken out of the market entirely.
Given this logic then we might see a ‘bottom’ in that market and then a huge bounce. Rates will begin to rise and so will prices. We are already seeing food costs soar due to the drought and the drop in worldwide food supplies.
We will see if the making of the perfect storm are here and develop. The system is, in my opinion, severely stretched and it won’t take a lot to just see it disassemble. The rate and timing of this event is a moving target and when it becomes evident it may be too late for those that are not prepared!