Market Analysis
publication date: Oct 27, 2011
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author/source: Brad Hamill
Good evening,
More About the European Union
I sent an Economic Update yesterday that outlined steps the European Union could take to avert the banking storm that awaits them. These steps detailed nationalization of all EU banks, debt to equity transfers, and government backstopping of any additional capital that might still be needed.
This plan sounds draconian. After all, it would entail all equity investors in all EU banks losing their entire investment. Isn’t it wrong to take people’s money that way? Yes and no. Investing involves risk – including the risk of an investment being reduced to zero. However, governments shouldn’t normally be able to come in and dictate that a group of investors lose all of their money.
The plan I outlined in my last Update is not one I personally recommend or agree with. Yet it is the only type of plan that will work in the current debt-based money system that the developed world operates under.
A better plan would be for each sovereign nation to renounce debt-based money and begin to issue their own money through their Treasury.
The speculators are out in force right now, running up the equities markets. It’s a good thing that we have other indicators to look at to see if things are truly getting better or investors are just getting greedy. The bond and currency markets are telling more of the real story.
Japan Sinks
I saw a great headline on the Bloomberg news service today. It stated: “Dollar Drops to Post WWII Low Against Yen”. That sure makes it sound like the US Dollar is toast and America is ready to disintegrate!
Let me rephrase the title to see if we can make more sense out of it: “Yen Rises to Post WWII High Against US Dollar”. There, that’s better.
You see, Japan continues to slip away in their deflationary spiral. Their money supply is shrinking at an alarming rate, which causes each unit of their money to gain in strength against a relative set of goods and services.
Japan survives on exports. A stronger yen has the disastrous effect of making Japanese products more expensive for other countries to buy.
The Japanese government has been creating new debt as fast as they can in a losing effort to cover defaulting debt. They’re building new infrastructure in the hope that all of that spending will eventually cause their economy to correct itself. It won’t work.
The editors at Bloomberg didn’t tell you any of this with their extremely misleading title. It always helps to analyze financial headlines from all directions.
Please visit my web site for more informative teaching and analysis:
www.newfamilyeconomics.com
Send comments, or requests to be added / removed to this newsletter to:
brad@newfamilyeconomics.com
There is no charge, and your email address will never be shared.
More About the European Union
I sent an Economic Update yesterday that outlined steps the European Union could take to avert the banking storm that awaits them. These steps detailed nationalization of all EU banks, debt to equity transfers, and government backstopping of any additional capital that might still be needed.
This plan sounds draconian. After all, it would entail all equity investors in all EU banks losing their entire investment. Isn’t it wrong to take people’s money that way? Yes and no. Investing involves risk – including the risk of an investment being reduced to zero. However, governments shouldn’t normally be able to come in and dictate that a group of investors lose all of their money.
The plan I outlined in my last Update is not one I personally recommend or agree with. Yet it is the only type of plan that will work in the current debt-based money system that the developed world operates under.
A better plan would be for each sovereign nation to renounce debt-based money and begin to issue their own money through their Treasury.
The speculators are out in force right now, running up the equities markets. It’s a good thing that we have other indicators to look at to see if things are truly getting better or investors are just getting greedy. The bond and currency markets are telling more of the real story.
Japan Sinks
I saw a great headline on the Bloomberg news service today. It stated: “Dollar Drops to Post WWII Low Against Yen”. That sure makes it sound like the US Dollar is toast and America is ready to disintegrate!
Let me rephrase the title to see if we can make more sense out of it: “Yen Rises to Post WWII High Against US Dollar”. There, that’s better.
You see, Japan continues to slip away in their deflationary spiral. Their money supply is shrinking at an alarming rate, which causes each unit of their money to gain in strength against a relative set of goods and services.
Japan survives on exports. A stronger yen has the disastrous effect of making Japanese products more expensive for other countries to buy.
The Japanese government has been creating new debt as fast as they can in a losing effort to cover defaulting debt. They’re building new infrastructure in the hope that all of that spending will eventually cause their economy to correct itself. It won’t work.
The editors at Bloomberg didn’t tell you any of this with their extremely misleading title. It always helps to analyze financial headlines from all directions.
Please visit my web site for more informative teaching and analysis:
www.newfamilyeconomics.com
Send comments, or requests to be added / removed to this newsletter to:
brad@newfamilyeconomics.com
There is no charge, and your email address will never be shared.
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