Euro Crisis: Still Going, Still a Problem for America

Easy money solutions will mean trouble down the road...

GEORGE SOROS knows a thing or two about making money from big bets, writes George Leong of Investment Contrarians.

In 1992, Soros made a $10.00 short wager on the British Pound and walked away with a billion Dollars in profits.

Soros is now convinced Germany needs to rethink its strategy toward the sustainability of the Eurozone and, in a draconian manner, believes the country should leave the Euro. Of course, should this happen, the 17-country Eurozone would collapse, triggering a massive economic Armageddon and financial crisis in Europe that would ultimately generate chaos for the global economy.

Now, I doubt Germany or France—the two pillars integral to the Eurozone—will exit the Euro, but the reality is that the situation in the economic zone remains in a financial crisis with little hope of revival. The problem is that the Eurozone is firmly in a financial crisis and recession, trying to find its way out.

Greece, Portugal, Spain, and Italy are a drag on the ability of the Eurozone to get out of its financial crisis. The unemployment rate in Greece and Spain is over 25% and worsening.

Italy just formed a new government, but there's tons of work left for that debt-ridden country before it can exit its own financial crisis that has been building for years.

With all of this bad news, it's not surprising to see people in the Eurozone feeling the despair. According to the European Commission, economic morale in the Eurozone remains weak after declining in March and April. (Source: Emmot, R., "Economic mood in Euro zone sours again in April," Reuters, April 29, 2013.)

And it appears that the solution will again be to continue the pumping of liquidity into the Eurozone to avoid a worsening of the financial crisis; the European Central Bank is expected to cut interest rates tomorrow.

In my view, it's the same strategy that is being used across the globe and here in the US: just print money and hope the economy will recover and avert a worse financial crisis.

This has been the case for years, and while it has helped in the US, the Eurozone is a special situation due to the reality that there are 17 independent countries with their own governments. Mistakes have been made along the way that have resulted in a weak Eurozone.

The problem is that the easy monetary policy is successful in keeping the Eurozone from collapsing now, but remove the support and, as I said, the region will collapse into a financial abyss.

This dependency on easy money will pose problems down the road when interest rates begin to ratchet higher and there are massive debt loads to pay off.

Moreover, a weak Eurozone will continue to impact the global economy and the US economy.

US exports to the European Union declined to $20.06 billion in February, down from $25.11 billion in March 2012, according to the United States Census Bureau.

So, while US stocks continue to move higher toward record territory, you really need to pause and think about whether the advance is sustainable, given the significant financial crisis that persists across the Atlantic.

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Investment Contrarians is a free financial e-letter whose editors believe the US stock market and the economy have been propped up since 2009 by artificially low interest rates, never-ending government borrowing and an unprecedented expansion in the money supply. They question 'official' unemployment and inflation numbers and argue that rapid inflation caused by huge government debt and money printing will see interest rates, which have seen a quarter-of-a-century of falls, begin a new upwards cycle.

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