This blog focuses on success and prosperity each day. Now and then it behooves us to drill down a little deeper, and look at some specifics strategies for planning your financial future.
Today is one of those times…
As you know, I have advised you in the past to diversify your portfolio, and never keep all your wealth in one country, or even one currency. There are a number of reasons for this: The recent upheavals in the Arab world demonstrate how transient ruling parties and governments actually are.
And even where governments would seem stable (which most people would have thought of Egypt and Libya), most are really elaborate Ponzi schemes anyway.
So putting all your wealth or retirement options at the mercy of such fraudulent and duplicitous systems is foolish, and not in accord with the laws which govern prosperity. If you ran a business or investment fund with these practices, you would be arrested and go to prison. Yet the same governments that would jail you for these crimes practice them with impunity.
But you can’t cheat the universe…
So even for governments, the day of reckoning must come. And I believe that day is coming sooner, rather than later.
I believe it’s time to ditch the Euro.
Divest yourself of the Euro and Euro-based investments. It’s apparent that the EU crisis is far greater than the flawed Greek program. It will require more than two trillion Euros just to recapitalize the banks and cover interest for the necessary loans for Greece, Portugal, Spain, Ireland and Italy. And that will simply kick the can down the road for two years. Nothing has been done to stop the underlying causes.
This amount is around three percent of the world’s G.D.P. This is a historic and crushing level of debt. The previous Asian and Latin American bailouts weren’t even close to this level. It doubles the one trillion prop up of the International Monetary Fund (IMF) in 2009. (And you saw how well that turned out.)
There are some other very serious factors at play here...
Germany and France, considered the two financial powerhouses on the continent, are both showing cracks. The liability of Europeans banks is currently at 350 percent of G.D.P. To give you an idea, that is five times higher than U.S. banks, who manage their finances about as well as a drunken sailor on shore leave. (Dexia SA, one of the largest banks in Europe is likely to be broken up.) Everyone seems to think German banks will save the day, but they are leveraged at more than 30 times their assets.
Eighty percent of the lending of the IMF already goes to Europe and the cookie jar is getting bare. There is currently less than $400 billion in additional capacity, and that won’t solve anything. It’s highly doubtful the IMF will do another levy to its members just to bailout Europe, and will face some serious resistance if it does. They could borrow from China (and likely will), but borrowing simply exacerbates the Ponzi scheme; it does nothing to solve it.
There is a European financial stability facility of 440 billion Euros, which is scheduled to be voted on Thursday. But the Germans are reluctant to do that because now details are leaking that the situation in Greece is worse than originally thought. Bigger losses for creditors is one of the options being considered, but that will scare the market even more and weaken the Euro even further.
The vision of the European Union as a strong trading partner around the world hasn’t materialized. In fact, only 7 percent of Europe’s exports go to fast-developing growth economies. And the euro zone growth rate is essentially flat, meaning unemployment could stay at or about ten percent for many years to come. (It’s almost 20 in Spain.) So the foundational requirements for recovery are simply not there.
I could write another 50 pages on the market and financial conditions working against the Euro, but it’s already getting tedious. Here’s the bottom line: Member states of the EU lack authority to devalue currency, print money, set interest rates, or increase deficits. There’s nowhere for them to turn.
Greece and their cooked books are just the tip of the iceberg. Other countries like Italy, Spain, Portugal, and others are coming right behind it.
And at the end of the day, you’re not going to get all these conflicting parliaments to agree on plans that are going to be increasingly unpopular in their home countries with voters. Ultimately these bailout plans will begin to look like nine wolves and a sheep voting on what to have for dinner.
Bailout programs don’t work. They are band-aids on a tumor and don’t address the deficit spending which created the crisis to begin with. This is much more than a real estate or tech bubble bursting…
It is the results of decades of currencies being falsely propped up with printing presses, and government leaders who lack the courage to make tough choices and live within their budgets.
When countries receive bailouts, they tend to ease up on budget-balancing austerity programs, because they are very unpopular with voters and threaten re-election efforts by the politicians in power.
And ultimately, everyone must live by the laws of prosperity, even governments with printing presses.
As a result, I expect the Euro to be eliminated within two years. And if and when that does happen, local governments will take the opportunity to devalue it when you are forced to trade in Euros for the new (old) local currencies.
So where do you go from here?
First and foremost, get out of the Euro. Now it’s not like the U.S. dollar is any better financially. It’s also almost worthless printing press money that is being continually devalued. But political factors will cause the American government to keep propping it up. The EU would love to do the same thing with the Euro, but I believe all the conflicting interests, economies, and politics will eventually sabotage that. So bail on the Euro now.
Then keep in mind two things…
Precious metals like gold and silver are still the only real form of payment in the world. Everything else is simply a promissory note. They’ve taken a slight price dip recently, which makes them an even better value to purchase now.
Finally, remember your own personal prosperity need not be affected by the economy, currencies, or governments. You must be a critical thinker and look after your own future. Do not jeopardize your financial security thinking the governments are competent and looking after your best interests. They’re not.
Be a contrarian. Question things. And know that every challenge offers the seeds of an even greater corresponding opportunity!