Tag Archive for global markets

Another Sign We’re in Crazy Town Looking Over the Ridge into Depressionville

The markets are shifting back and forth so fast that day traders are foaming at the mouth, and the average person is getting whipsawed like a kid’s head on one of those old, rickety wooden roller coasters.  But if you step back and look at the big picture, it’s a scary sight – especially for Europe.

 

What am I talking about?  Anyone that follows the news has heard of the countries on the euro that haven’t been playing nice.  Here’s a list of the 23 countries that use the euro as currency, and the ones on the verge of default are designated in red.

1) Andorra
2) Austria
3) Belgium
4) Cyprus
5) Estonia
6) Finland
7) France
8 ) Germany
9) Greece
10) Ireland
11) Italy
12) Kosovo
13) Luxembourg
14) Malta
15) Monaco
16) Montenegro
17) Netherlands
18) Portugal
19) San Marino
20) Slovakia
21) Slovenia
22) Spain
23) Vatican City

Interestingly, when the euro was introduced in 1999, the economists that put this idea into action had the sense to require a few stipulations for the countries that wanted to join:

  • A budget deficit of less than three per cent of their GDP
  • A debt ratio of less than sixty per cent of GDP
  • Low inflation
  • Interest rates close to the EU average.

But (not-so-wisely), the economists never wrote into the agreement what would happen if countries moved away from the euro.  Now, with countries as big as Spain and Italy having trouble staying solvent, it’s not unlikely that countries with strong economies (i.e., Germany and France) would have voters that want to avoid getting dragged down with the whole ship.  To read more about the sovereign debt crisis, click here.

The other whacky thing that’s happening in Europe is little Switzerland.  The little Swiss franc has become the strongest currency in the world because investors are scrambling to find a safe place for their money.  Besides gold, the Swiss franc is one of the best options.

Normally, a strong currency is good.  But Switzerland is too small a country to have the world’s investment dollars poured in.  As the value of the franc goes up (because increased demand = increased price), it is impossible to export anything out of the country.  Here’s the 18-minute radio story if you want to hear more about this.

So the funny thing is, the Swiss government is considering tying the Swiss franc to the euro to bring it’s value back into check.  What a huge friggidy-freakin’ mess!

So what does this all mean for the U.S.?  It means that the road to recovery is not likely coming in the next five years.  I can’t wait to listen to the President’s speech tonight to see what he has to say about the forecast.  Watch it tonight, Sept. 8, 2011 at 7pm Eastern.

Okay wise reader, how do you think the Eurozone crisis will affect the U.S.?

 

~Nick, the Self-Taught Economist