The crisis in Europe and the Euro is not a surprise to students of economic history. Never in history has there been a sustainable single currency that crossed sovereign boarders. The Euro was intended as a big first step forward on the road to European economic and political union. The reality is that a unified currency cannot survive without political union. The vulnerability of the Euro as a single currency is the same as any fixed rate currency regime or a gold standard for that matter. If sovereign countries, as the term implies, have independent fiscal policies, labor policies, and overall economic policies then those more profligate countries will pressure a currency that they have no control over. This has happened throughout the monetary history. Indeed, it is why there are no fixed rate currencies regimes today, nor a gold standard. For all the insistence by gold bugs that a gold standard will prevent these sorts of crisis’s that occur from fiat money printing, it is precisely the pressures that printing money relieves that make fixed rate regimes unsustainable. Governments have an uncontrollable appetite for money and the theoretical discipline of fixed rate regimes is no match for politics.
Category Archives: Captial Markets
Is Israel telegraphing to the world an imminent move against Iranian nuclear facilities? Oil traders think so!
The ratcheting up of rhetoric by Israeli officials focused on Iranian nuclear ambitions has culminated in recent weeks with an Israeli military official describing the threat to Israel as greater than the threat they faced during the run up to the Six day War, and the Aug 6 op-ed piece in the WSJ by Michael Oren, Israeli Ambassador to the US, stating that the window for effective action against Iran is narrowing quickly. The importance of Amb Oren’s comments is that an Israeli official is placing a time frame for Israeli/Western response.
The Heyday for Gold, Crude Oil, and US Treasuries is Over…..
The rallies in gold, crude oil, and US Treasury notes and bonds are done! These investments represent the greatest risks in the markets today. I’ll leave US Treasuries for a later post.
While both crude oil and gold prices are easily subject to headline risk with the saber rattling of Iran and threats of closing the straits of Hormuz, investors should be viewing additional gains as opportunities to get out fast and look to redeploy elsewhere.
Fed’s policy did not cause gold price rise.