Europe’s financial contagion

Greece sneezed, and now most of Europe has a cold. The European debt crisis has already spread like a virus from Greece to Ireland, and other countries are now at risk: Portugal, Spain, and Italy are probable candidates for financial problems. Economists call this the “contagion effect.” How does this spread? Some of it has to do with confidence. When investors see one country encounter financial problems, they may doubt the health of other countries that seem to share economic or even political characteristics.

Contagion also has much to do with actual economic links among countries. Researchers have identified financial ties in particular as responsible for the “fast and furious” spread of crisis from one country to another. Trading activity between countries, however, can propagate economic sickness more slowly.

http://www.washingtonpost.com/wp-srv/special/business/financial-crisis-in-europe/

Food Riots 2011

The stunningly violent food riots in Tunisia and Algeria show just how quickly things can change.  Just a few months ago, these two northern Africa nations were considered to be very stable, very peaceful and without any major problems.  But now protesters are openly squaring off with police in the streets.  Many of the protesters are throwing "fire bombs" or are shooting fireworks at the authorities, and the police are responding with a tremendous amount of violence themselves.  In Algeria, several protesters have been killed by police and several others have actually set themselves on fire to protest the economic conditions.  In Tunisia, more than 100 people have been killed and the president of that country actually had to flee for his life.  But on a global scale, food shortages have not even gotten that bad yet.  Yes, food prices are starting to go up and food supplies are a little bit tighter right now, but much worse times than these are coming.  So what in the world are the cities of the world going to look like when we have a very serious food shortage?

Source: http://theeconomiccollapseblog.com/archives/food-riots-2011

Not Only Commodities are Signaling Hyperinflation

The rise in commodity prices over the past several months has been unrelenting.  Equally unrelenting has been the stream of central bank apologists aiming to re-direct the blame for soaring prices to almost everything imaginable except the real cause, which of course is unrestrained money printing.

The S&P Index and other stock indices like the Dow Jones Industrial Average are not rising because of better economic conditions or an improved outlook for economic activity.  Stock prices are rising because of money printing, just like they did in the early days of the hyperinflations in Weimar Germany, Argentina, Zimbabwe and every other country ravaged by misguided government and central bank policies.

Here is a chart that shows rising prices that cannot be blamed on bad weather, failed crops, global warming, a new ice age or sunspots.  This chart of the S&P 500 Index shows a near perfect correlation to the Federal Reserve’s money printing, a/k/a “quantitative easing”.

Source: http://www.fgmr.com/not-only-commodities-are-signaling-hyperinflation.html

Fort Knox is EMPTY

Bill Murphy, of GATA: The scams that the central banks have been perpetrating to rig gold markets and make the USD seem more valuable than it really is. The FED refuses to be audited, if they were....the game would probably be up. Large Central Banks and investment banks have held VERY large SHORT positions in gold keeping the prices down and manipulating them whenever it gets to high.

9 US States already working to Return to Gold and Silver Currency

To date Virginia, Utah, Georgia, Indiana, South Carolina, Washington, Missouri, Colorado & Idaho are working to return to the Constitutional Gold and Silver Currency. Holding silver when this happens throughout the world will cause an explosion in the price and a huge short squeeze on the physical silver market. 

Don't Buy Government Bonds

Chapter 17, Out of Step (1967) (Must listen/ or read)
Audio MP3 Link:
http://media.mises.org/mp3/audioarticles/4922_Chodorov.mp3
Web Link:
http://mises.org/daily/4922

Nigel Farage: Euro Empire Collapsing, Bailout River Dry

As we have been highlighting for quite a while, the 5th member of the PIIGS, Italy, has emerged very much unscathed so far from the European sovereign debt fiasco. Is that merited? Not according to famous euroskeptic Nigel Farage, who gives another unvarnished, and uncensored interview with RT, in which he lays out his reasons for why a plunge in Italy bonds has at best been delayed.

Until recently, Italy had been largely shielded from the sovereign debt turmoil, despite its adverse starting position — it entered the crisis with the highest general government (gross and net) debt-to-GDP ratio in the EA — and its historically poor performance during past episodes of heightened risk aversion.

In our view, relatively tight fiscal policy through the crisis (Italy hardly engaged in any fiscal stimulus) and relatively favourable private sector gross debt, net debt and financial net worth positions make for a much lower degree of overall (public plus private) gross and net indebtedness than in the rest of the EA periphery. Indeed, private plus public gross debt as a percentage of GDP ratios are similar to the levels in France or Germany. A high private saving rate and small general government deficit supported a smaller current account deficit than in the rest of the EA periphery and Italy has a comparatively sound domestic banking system, despite rather low capital ratios. A fairly large domestic investor base, reflecting large levels of private financial wealth, is also likely to make the total investor base somewhat more stable than in countries with high levels of foreign ownership of sovereign debt, such as Portugal and Greece.

However, like Portugal and Greece, Italy suffers from some longstanding structural weaknesses that depress its potential growth. Poor productivity growth and adverse demographic trends will continue to weigh on its trend growth rate, which we estimate to be just below 1% per annum. Moreover, the gross general government debt-to-GDP ratio should remain the second largest in the eurozone (after Greece) for the next few years, and it will most likely continue to edge up in the near term, likely exceeding 120% of GDP in 2011.

Gross refinancing needs should thus stay high and increase the vulnerability of Italy both to funding and liquidity crises and to self-justifying solvency crises should sovereign risk premia rise substantially.

A continuation of the fairly conservative fiscal stance of the Italian government should provide some reassurance to markets about the long-term sustainability of the Italian debt. A major political crisis, however, would constitute a downside risk and could provoke tensions in the market for Italian sovereign debt. In any case, general government debt ratios anywhere near the current Italian level would constitute a source of vulnerability to roll-over crises and ‘sudden stops’.

At this stage, we consider it unlikely that Italy will require access to the EU facilities. Should it do so, it is clear that the current size of the EFSF would be insufficient to satisfy Italy’s funding needs. It would then once again be the ECB that would need to be called upon to stave off sovereign default.