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Monday, February 22, 2010

More European Financial Concerns

 It seems as though our government isn't the only one that gets creative with its finances.  It seems to be "all the rage" in Europe, as well.

When the Euro was being introduced in Europe in the late 1990's-early 2000's, the member countries had to meet certain fiscal benchmarks to join the club.

For instance, they can't have a budget deficit of more than 3% of their GDP (boy, that would be nice, huh?), a debt ratio of no more than 60% of GDP and a number of other statistical measurements. 

All of these standards were meant to ensure that one member-country wouldn't be a burden on the other members - an important consideration when you're all sharing the same currency.
Concerns that Greece and other struggling European nations may not be able to repay their debts are focusing investor attention on another big worry: Economies across the Continent have used complex financial transactions—sometimes in secret—to hide the true size of their debts and deficits.
Oops.  Imagine that:  The financial arm of a government hiding what it's doing.  Hmmmm.  Where have I heard about that before?
Investors long turned a blind eye to European governments' aggressive bookkeeping, aimed at meeting the euro zone's fiscal ceilings.
Wow, European investors also looked the other way, as long as they were making some bucks, err, Euros.

To try to meet the targets, which were aimed at building trust in the stability of the euro, governments over the years have sold state assets, bundled expected future payments into securities to hawk and even, in the case of Greece, insisted to the Eurostat statistics authority that large portions of its military spending were "confidential" and thus excluded from deficit calculations.
So, they falsified public statistics to prop up their currency.  Really - I know I've heard of this same thing happening elsewhere...

Accept The Challenge

All light-heartedness aside, this has the real potential to be very ugly.  Once again, in the short-term it might cause a "move to quality" and result in a rise in the dollar.  That would produce a corresponding drop in precious metals.

The spot price of both gold and silver dropped by the end of today's trading, but only slightly.  Who knows what tomorrow will bring?  There may be further drops, maybe not.  The broader markets might have already accounted for a weak Euro AND the skyrocketing US debt.

News like this - systemic sovereign statistical manipulations - would normally have put the markets into a tizzy.  They reacted more like it was a slight bit of indigestion.  Trying to predict short-term trends is nearly impossible!

So, unless you're a market-player looking to gamble on which way the market will move, stay on a course of fiscal conservatism.  Buy tangible goods, reduce debt and reduce your taxable profile.

Then buckle up, and watch from the sidelines as it all unravels!

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Ryan said...

I don't think we are anywhere near done with the Eurozone trouble. We are hearing about it now and will see it in awhile. The Euro may well go down some and quite possibly stay there for awhile.

Chief Instructor said...

TOR, it's pretty unsettling watching all of this happen. Individually, we can't influence what's happening - we can only take steps to lessen the impact.

Do they have preppers in Europe? ;-)

Ryan said...

Chief, I think they do. Personally I will stay hunkered down with lots of guns behind barbed wire if things get crazy.

Chief Instructor said...

Yeah, I think "the balloon" is going to go up first in Europe. If things got ugly, I'd get on base ASAP. Strength in numbers!