Tuesday, May 11, 2010

Europe Debt Crisis

For the past few weeks, the media has been focusing on Greece and its sovereign debt problems. It seems like the mainstream media has finally caught up with the trouble in Europe.  

As expected, the politicians succumbed to printing money and borrowing and bailing Greece out. It would have been a wise option to let Greece go bankrupt, because this will give a signal to investors that the EU is serious about building a strong Euro currency. But of course, politicians always don't like this option.

Now that the EU (the US is gonna join in the bailing too) is bailing Greece out, there will be more countries asking for assistance - Portugal, Spain, Italy and Ireland. 

Investors have been getting out of Euro into the perceived safe haven of USD, but they will soon realise that the US is in worse shape than Greece. The USD has been strengthening against the Euro, but people are mistaking this for a real strength in USD. If the USD is fundamentally strengthening, gold price would have been dropping. Gold price has held steady around the $1100 level for the past few months, and it breaks $1,200 a few days ago.

The entire world is in debt, and it will never be able to repay all its debt. NEVER. It is just mathematically impossible. Our debt-based monetary system has eventually shown its fatal flaws. The weakest link falls first, and then there will be a cascading domino effect on the other nations. 

This whole system will implode on itself spectacularly. The question is whether we can position ourselves to profit from this. In a few years' time, there will be a huge transfer of wealth from currency holders to those holding real assets such as precious metals, especially silver. So, be prepared for it!
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