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The Drag of the Euro

The long Great Recession continues: Europe is a drag on the whole world. Remember that When it is the financial system that is the problem it takes longer to recover.  It also means that those with money look for safety.

It is not illogical for them to send the money where the first major shoe dropped- the US- because that means that it is there that banks and financial institutions are farthest along the path of recovery, reform and innovation.  Europe was always going to be worst for reasons going far beyond sovereign debt and the PIIGS. Eastern and Central Europe plus the traditional secrecy of European banking all combined to make matters potentially much worse.

So Europe is the second shoe to drop- and China will be the third as the world discovers- to its horror- that the ‘advantage’ that a closed dictatorlike oligarchy has of being able to hide its problems {Bad debt owed by State Owned Enterprises in China’s case}  comes with a massive price tag- when it finally reaches the point where it can no longer be sustained it is way too late to do anything about it- as Gorbachev discovered in 1989.

Never forget that saying that 30% of the Chinese economy is State Owned Enterprises is another way of saying that 30% of China is like Chrysler and General Moters- after the bailout.    So what does this mean? The world reacted nervously this week when we saw evidence that the Chinese economy is on the verge of stumbling.  Therefore we will see times when the US Dollar weakens but there will also be times of rapid strengthening of the US dollar as events in Europe and in China send folks running for safety.    And they will now also run to the Canadian Dollar which has acheived a status similar to the Swiss Franc- an important reserve currency prized for its ability to retain value on its own.  Canadians are not always going to like this.

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  1. Nice to see you blogging, Harold!

    Let us know if you need any help!

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