| By October 11, 2011 |
“This is the most serious financial crisis we’ve seen, at least since the 1930s, if not ever. We’re having to deal with very unusual circumstances, but to act calmly to this and to do the right thing.”
No, that isn’t me speaking with hyperbole. That is a quote last week from Sir Mervyn King, the governor of the Bank of England. He made this statement after the decision by the Bank’s Monetary Policy Committee to put £75 billion (more than U.S. $115 billion) of newly created money into the British economy. The purpose for inflating the money supply is to stave off another credit crisis and recession in that country.
Analysts forecast that this decision to resume quantitative easing is a major signal of the risk of an economic downturn and that this decision could be followed by even more QE programs after the expiration of this one.
The worsening problems are affecting more than nations in Europe. Last week, Dow Jones cited “recent research papers written for Congress” as stating “given that U.S. banks have an estimated loan exposure to German and French banks in excess of $1.2 trillion and direct exposure to the PIIGS (Portugal, Ireland, Italy, Greece and Spain) valued at $641 billion, a collapse of a major European bank could produce similar problems in U.S. institutions.”
It doesn’t matter whether this debt is owed directly by the shaky governments or is owed by European banks that hold huge amounts of the shaky government debt, the potential losses have not yet been recorded on the books of U.S. banks.
European Commission President Jose Manuel Barroso said he will soon present his own plan for Europe-wide bank recapitalizations. But Reuters cited other diplomats who contend that Germany and France are split on the issue of how to strengthen European banks.
In the midst of all this turmoil, Moody’s Investor Services late last week downgraded the credit ratings of nine Portuguese banks and the Royal Bank of Scotland. This goes along with the recent credit downgrades for major French banks and the sovereign debt of Spain and Italy.
There were conflicting reports last Thursday on the state of the latest Greek government bailout talks. Greek officials told Reuters that they had concluded talks with the International Monetary Fund while IMF inspectors stated that negotiations were continuing with no final conclusion with any party.
Robert Shapiro, a former undersecretary of Commerce for President Clinton and now an advisor to the IMF, told the British Broadcasting Corporation that if eurozone leaders do not address the sovereign debt crisis in a credible manner, he believes that within two to three weeks there could be a meltdown in sovereign debt that will produce a collapse of the European banking system. He further stated that this would be a crisis more serious than the one in 2008.
It’s one thing for hard-money advocates to shout that the sky is falling. It is entirely different when people like the governor of the Bank of England, the president of the European Commission and an advisor to the IMF state that problems are dire and that immediate action is needed to avoid disaster.
Politicians are loath to admit that there are extreme financial problems. You can almost guarantee that if they can no longer pretend that everything is rosy, that the truth is much worse than even they are admitting.
It is not outrageous speculation that the euro may fail within the next few weeks. If it does, the U.S. dollar is likely to suffer more by the interconnectedness with the euro than it will benefit from people fleeing that currency.
The time to acquire your gold and silver is now. No matter what happens to the value of currencies, an ounce of physical gold or silver sill continue to be worth one ounce. Don’t take my word for it. Instead, listen to the experts I listed above.
Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at CoinUpdate (http://www.coinupdate.com). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly” (http://www.lansingbusinessmonthly.com/articles/department-columns). His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).
