allen, just to put some hard figures on it: over the past 12 months, Euro denominated borrowing by US entities has amounted to well over $300 billion. i know, chump change in the mania, but set to dramatically expand now that the GSE's are looking to Europe as well in order to further bloat their balance sheets. over time, the interest payments on these borrowings will reverse the flow of funds to some extent and could tip the balance in favor of the Euro.
just to make this clear, i also reside in Europe, and i agree with Earnie that there is a tendency to restructure and reform the up until recently sclerotic economic systems of the Euro zone members. to wit, Germany's recent tax reform, which France is set to emulate asap. deregulation is proceeding apace in all sorts of industries, state controlled industries have largely been privatized, and red tape is being struck down in several regions (not as fast as one would like admittedly...but progress is still progress).
the single currency actually forces reform. much remains to be done of course, especially regarding the EU administrative and budgetary nightmare that has its home in Brussels.
the Euro is indeed 15% gold backed. anyone claiming otherwise doesn't know what he/she speaks of. i notice also the claim that the DM never had gold backing, which is also untrue. the BuBa continues to hold over 3,000 tons of gold. of course the US dollar is also partially backed by the gold reputedly still at Fort Knox, and the Euro is not on a gold standard by any stretch of the imagination. however, the former national CB's all still hold large amounts of gold...France also has 3,300 tons, and no plans to sell any. so if push came to shove, the gold backing of the Euro could be increased anytime. note, the 15% are not set in stone, as the gold is marked to market on a regular basis.
finally, private sector debt in the US (corporate and household) is at a world and historic record in every possible dimension, both in absolute numbers as well as relative to GDP/equity/disposable income. it is an immense ponzi pyramid, that grows approximately 5 times faster than GDP...and that is using the hedonically inflated bogus GDP numbers. last year over $10 trillion in short term US denominated debt was outstanding and needs to be rolled over every six months or less (presumably the figure has grown in the meantime).there has been an unfortunate tendency to shift much debt on corporate balance sheets towards shorter durations -potentially deadly in a credit crunch.
GE Capital has enough leverage to wipe out its entire equity base of $9,5 billion if only 4% of its assets (loans,securities)became impaired to the point of unrecoverability to cite an example.
as a side effect of this burgeoning credit bubble, $ 35 trillion in notional value of derivatives is now outstanding at US financial institutions. these derivatives are designed to hedge individual risk, but have vastly increased systemic risk in case of a series of counterparty failures.
this is the Achilles heel of the boom - already this year more junk bonds have gone into default than were issued, and default rates in junk bond land are at levels normally associated with recessions. imagine a recession were to actually occur at this point in time - it could lead to a deflationary collapse a la Japan.
good night!
hb |
