Preparing for the Euro collapse (1 Viewer)

[Rohn Jambo]

It is a matter of time before the demise of the Euro.

I need some advice on how to prepare for this event from the FBG financial experts.

 

[SofaKings]

It was a good run.

 

[zed2283]

I can see this being a problem short-term with market collapse, financial ruin, etc.

But in the long run, isn't this very good for the ol' US dollar???

 

[cstu]

Can this happen before I go to Europe next year? TIA.

 

[Rohn Jambo]

I can see this being a problem short-term with market collapse, financial ruin, etc.But in the long run, isn't this very good for the ol' US dollar???

What is happening to Greece is basically what happens when a guy cannot pay off a loan shark.So far, the guy is getting help by borrowing more money from his buddies, but the problem is that the guy simply cannot pay back the $$$$ he had borrowed.This is a bad because a lot of guys in are in the same boat and they all own each other money. I don't think the US will be immuned from the domino effect when the #### hits the fan.I am sure this is very very bad for the US banks who are in the loan sharking business.

 

[jonessed]

I can see this being a problem short-term with market collapse, financial ruin, etc.But in the long run, isn't this very good for the ol' US dollar???

What kind of timeline are we looking at here? If the EU unravels it will be over the course of several years as countries drop out and the rest reform, then you have the rebuilding of the economies, the government, the monetary systems. We're looking at 5+ years of chaos in the European markets.This has been a long time coming and I think it will help Europe over the long-term, but by long-term I'm thinking decades.The affect on us could be pretty dramatic. Unlike in the US, the European banks and the European governments are propping each other up. If one falls the other falls. If the European banks fail then our banks are going to be seriously stressed. I don't know if they will fail given the new capital requirements, but I suspect they might. If we can weather the economic storm it will open up a window for us to fix our problems while our debt is still in demand. I'm not convinced we would have the political will to actually do that though given the immediate economic concerns a changing Europe would create.I think Europe has reached a point where they recognize their fiscal malfeasance and monetary dilemma and are sincere in trying to fix them (well, maybe everybody but France). I think it would be preferable to all parties if they can sort it out in a controlled manner.

 

[Rohn Jambo]

I can see this being a problem short-term with market collapse, financial ruin, etc.But in the long run, isn't this very good for the ol' US dollar???

What kind of timeline are we looking at here? If the EU unravels it will be over the course of several years as countries drop out and the rest reform, then you have the rebuilding of the economies, the government, the monetary systems. We're looking at 5+ years of controlled (or uncontrolled) chaos in the European markets.This has been a long time coming and I think it will help Europe over the long-term, but by long-term I'm thinking decades.

It is a time bomb that will blow up any minute. I would guess June or July for Greece.A ecomonic crisis is not when more middle income people become poor, it is when the rich guys become poor.

 

[LHUCKS]

CNBC analysts and several articles I have read have stated that most of the major banks have distanced themselves from European institutions enough to the point that in the even that if the dominoes did start to fall, our banks would be somewhat insulated. Take that for what it's worth. Analyst don't know everything.

An interesting benefit is the collapse of oil prices which is actually helping our economy.

If I'm making a risk averse play, I would have a mixture of foreign currencies and Index ETFs. Chilean, Australian and Japanese currencies are my favorite.

That being said, the best play has been and continues to be American real estate in growth, warm climate areas with rent positive opportunities. Houses not condos and consider 20 year mortgages with rates so low.

 

[Rohn Jambo]

CNBC analysts and several articles I have read have said that most of the major banks have distanced themselves from European institutions enough to the point that in the even the dominoes did start to fall, our banks would be somewhat insultated.An interesting benefit is the collapse of oil prices which is actually helping our economy.If I'm making a risk averse play, I would have a mixture of foreign currencies and Index ETFs. Chilean, Australian and Japanese currencies are my favorite.That being said, the best play has been and continues to be American real estate in growth, warm climate areas with rent positive opportunities.

Time will tell how insulated the US banks are. They don't necessary have to be right next to the first few tiles.Yes, I'd agree that real estate is the shark play if one pulled out money from the Euro zone. The only draw back is the US government has been propping up housing prices so it is still overpriced.

 

[Slapdash]

It is a matter of time before the demise of the Euro.I need some advice on how to prepare for this event from the FBG financial experts.

Do what worked so well last year, buy USTs and Agency MBS.

 

[timschochet]

I don't think it's going to happen. I think they will find a way to fix it. I think, in the end, despite the rhetoric, Germany and the other stronger economies will bail Greece out. They are resisting this and waiting until they have to, but at the final moment they will. Or it may be an international effort with us involved as well. One way or another, I don't think the powers that be will allow a total collapse.

I could be wrong about this, but that's what I believe. We'll see.

 

[LHUCKS]

More and more ammo for the GOP.

 

[Fennis]

If the EU falls apart, I predict a major Eurpean war in the next decade.

 

[cstu]

CNBC analysts and several articles I have read have said that most of the major banks have distanced themselves from European institutions enough to the point that in the even the dominoes did start to fall, our banks would be somewhat insultated.An interesting benefit is the collapse of oil prices which is actually helping our economy.If I'm making a risk averse play, I would have a mixture of foreign currencies and Index ETFs. Chilean, Australian and Japanese currencies are my favorite.That being said, the best play has been and continues to be American real estate in growth, warm climate areas with rent positive opportunities.

Time will tell how insulated the US banks are. They don't necessary have to be right next to the first few tiles.Yes, I'd agree that real estate is the shark play if one pulled out money from the Euro zone. The only draw back is the US government has been propping up housing prices so it is still overpriced.

Banks are also manipulating the market by keeping foreclosed properties off the market. Inventory in the LA area is down 70% from last year.

 

[chet]

Euro is going up. The deleveraging of European banks will create a shortage of Euro denominated products. Demand will bid up the price.

ETA: timeframe for above is short to medium term. No one can predict what will happen in the next month or two.

 

[Slapdash]

More and more ammo for the GOP.

Probably right, but the EU's problems are with it's common currency much more so than the welfare state.

 

[jonessed]

CNBC analysts and several articles I have read have said that most of the major banks have distanced themselves from European institutions enough to the point that in the even the dominoes did start to fall, our banks would be somewhat insultated.An interesting benefit is the collapse of oil prices which is actually helping our economy.If I'm making a risk averse play, I would have a mixture of foreign currencies and Index ETFs. Chilean, Australian and Japanese currencies are my favorite.That being said, the best play has been and continues to be American real estate in growth, warm climate areas with rent positive opportunities.

Time will tell how insulated the US banks are. They don't necessary have to be right next to the first few tiles.Yes, I'd agree that real estate is the shark play if one pulled out money from the Euro zone. The only draw back is the US government has been propping up housing prices so it is still overpriced.

Banks are also manipulating the market by keeping foreclosed properties off the market. Inventory in the LA area is down 70% from last year.

Manipulating the market or trying to get the paperwork sorted out? Given a lot of the new laws and rulings with regard to proving ownership banks are still scrambling trying to prove they have the rights to take over and sell homes. A lot of houses are still sitting in legal limbo.

 

[timschochet]

More and more ammo for the GOP.

Probably right, but the EU's problems are with it's common currency much more so than the welfare state.

I think this is part of what George Soros was getting at in his speech. Our politicians, and especially the GOP, tend to react to international economic issues through a very rigid ideological lens. For the past several decades, American conservatives have been denouncing the European-model welfare state as a direction that the United States should NOT follow. So now that the European economy is in trouble, it's quite natural for these same conservatives to attempt to blame said welfare state- and it's a mistake to do so.

 

[Rohn Jambo]

I don't think it's going to happen. I think they will find a way to fix it. I think, in the end, despite the rhetoric, Germany and the other stronger economies will bail Greece out. They are resisting this and waiting until they have to, but at the final moment they will. Or it may be an international effort with us involved as well. One way or another, I don't think the powers that be will allow a total collapse. I could be wrong about this, but that's what I believe. We'll see.

You're dead wrong.

 

[Rohn Jambo]

Euro is going up. The deleveraging of European banks will create a shortage of Euro denominated products. Demand will bid up the price.ETA: timeframe for above is short to medium term. No one can predict what will happen in the next month or two.

Can you explain this again as if you're talking to a five year old?

 

[timschochet]

I don't think it's going to happen. I think they will find a way to fix it. I think, in the end, despite the rhetoric, Germany and the other stronger economies will bail Greece out. They are resisting this and waiting until they have to, but at the final moment they will. Or it may be an international effort with us involved as well. One way or another, I don't think the powers that be will allow a total collapse. I could be wrong about this, but that's what I believe. We'll see.

You're dead wrong.

Could be. I hope not.

 

[JaxBill]

Spain could be a bigger problem than Greece. Spain has already seen Bankia go belly up and receive a 19 Billion Euro bailout. The rest of Spain's banks have received 300 Billion Euros in drawdowns from the ECB.

At some point Germany is going to stop propping up these weak sisters.

At yesterday's presser Obama refused to answer the question as to what the US role in the Europe crisis is. Has the Fed tried to prop up the European banks?

 

[Rohn Jambo]

Spain could be a bigger problem than Greece. Spain has already seen Bankia go belly up and receive a 19 Billion Euro bailout. The rest of Spain's banks have received 300 Billion Euros in drawdowns from the ECB.At some point Germany is going to stop propping up these weak sisters.At yesterday's presser Obama refused to answer the question as to what the US role in the Europe crisis is. Has the Fed tried to prop up the European banks?

They're talking about a much bigger bail out for the Spanish banks this weekend. The Fed has been focusing on the US banks.

 

[jonessed]

Spain could be a bigger problem than Greece. Spain has already seen Bankia go belly up and receive a 19 Billion Euro bailout. The rest of Spain's banks have received 300 Billion Euros in drawdowns from the ECB.At some point Germany is going to stop propping up these weak sisters.At yesterday's presser Obama refused to answer the question as to what the US role in the Europe crisis is. Has the Fed tried to prop up the European banks?

I highly doubt it.Germany can't take on all of Europe's problems. Even countries like Netherland and England are back in recession. I think Northern Europe is going to cut Southern Europe loose, fix the monetary mistakes and move forward. Greece is dead man walking and Spain isn't far behind.

 

[Rattle and Hum]

Buy Gold; Sell EUR

Doing this on margin is risky, of course. If it is important enough, there are ways to hold gold while being short the same amount of EUR. Could also do this through ETFs I suppose.

GL

 

[The Ref]

Buy gold - sleep well.

My own personal take is everyone in the USA should be happy about Euro trouble because it makes the dollar the lepper with the most fingers. Once the Euro crisis gets resolved the dollar will be next.

 

[zed2283]

More and more ammo for the GOP.

Probably right, but the EU's problems are with it's common currency much more so than the welfare state.

I think this is part of what George Soros was getting at in his speech. Our politicians, and especially the GOP, tend to react to international economic issues through a very rigid ideological lens. For the past several decades, American conservatives have been denouncing the European-model welfare state as a direction that the United States should NOT follow. So now that the European economy is in trouble, it's quite natural for these same conservatives to attempt to blame said welfare state- and it's a mistake to do so.

So they've been predicting the model will fail. And when it does, they're wrong?

 

[Fennis]

Buy gold - sleep well.My own personal take is everyone in the USA should be happy about Euro trouble because it makes the dollar the lepper with the most fingers. Once the Euro crisis gets resolved the dollar will be next.

the dollar is the safest currency in the world.... by far.

 

[joetrow]

The Euro isn't going to collapse. Greece might get the boot but that is better than the other EU countries having to support them for the next mellennia. The trouble banks are having in the EU is that they have to many bonds on their books which doesn't leave enough room for the reserves they are required to have, with only a few countries having housing bubble problems like the US. They will continue to be recapitalized, purchase more bonds, be recapitalized, buy more bonds, rinse and repeat until the countries get their debt problems under control. Once this happens the banks will have loads of high yielding bonds and be made in the shade. If you look at PPS of many of the Spanish banks (which are the ones getting most negative attention right now) they are at higher levels than '08 and they are profitable. The path is pretty well laid out, its all about politics now.

 

[Ursa M]

Buy gold - sleep well.My own personal take is everyone in the USA should be happy about Euro trouble because it makes the dollar the lepper with the most fingers. Once the Euro crisis gets resolved the dollar will be next.

the dollar is the safest currency in the world.... by far.

Lowest yield of any bond and investors can't buy enough of them. Kinda makes you wonder why so much noise is being made about the debt, especially when overall debt is actually declining, once private debt is included.

 

[The Ref]

Buy gold - sleep well.

My own personal take is everyone in the USA should be happy about Euro trouble because it makes the dollar the lepper with the most fingers. Once the Euro crisis gets resolved the dollar will be next.

the dollar is the safest currency in the world.... by far.

Lowest yield of any bond and investors can't buy enough of them. Kinda makes you wonder why so much noise is being made about the debt, especially when overall debt is actually declining, once private debt is included.

By investors do you mean the Fed?And as far as the safest currency in the world we will have to agree to disagree. It has lost 98% of it's value since inception and it settled with real debt of >$15T, accruing >$1T of debt a year, and has countless Trillions of future unfunded liabilities.

 

[Bankerguy]

They have terrible systems and infrastructure within the banking system. Major changes are needed however, imminent demise is overblown.

 

[Andrew74]

Buy gold - sleep well.My own personal take is everyone in the USA should be happy about Euro trouble because it makes the dollar the lepper with the most fingers. Once the Euro crisis gets resolved the dollar will be next.

the dollar is the safest currency in the world.... by far.

Lowest yield of any bond and investors can't buy enough of them. Kinda makes you wonder why so much noise is being made about the debt, especially when overall debt is actually declining, once private debt is included.

Actually there are many countries whose bonds yield much less than ours. Japan and Germany...also Switzerland, I believe.

 

[Andrew74]

CNBC analysts and several articles I have read have stated that most of the major banks have distanced themselves from European institutions enough to the point that in the even that if the dominoes did start to fall, our banks would be somewhat insulated. Take that for what it's worth. Analyst don't know everything.An interesting benefit is the collapse of oil prices which is actually helping our economy.If I'm making a risk averse play, I would have a mixture of foreign currencies and Index ETFs. Chilean, Australian and Japanese currencies are my favorite.That being said, the best play has been and continues to be American real estate in growth, warm climate areas with rent positive opportunities. Houses not condos and consider 20 year mortgages with rates so low.

I can see JPY, but why AUD? Really, why any currency other than USD and JPY if one is risk averse? AUD has yield, but if the EMU blows up, I don't want to own any currency but USD and JPY.

 

[Fennis]

Buy gold - sleep well.

My own personal take is everyone in the USA should be happy about Euro trouble because it makes the dollar the lepper with the most fingers. Once the Euro crisis gets resolved the dollar will be next.

the dollar is the safest currency in the world.... by far.

Lowest yield of any bond and investors can't buy enough of them. Kinda makes you wonder why so much noise is being made about the debt, especially when overall debt is actually declining, once private debt is included.

Actually there are many countries whose bonds yield much less than ours. Japan and Germany...also Switzerland, I believe.

Mizuho Sees 0.8% U.S. Yield as Gross Sings ‘Turning Japanese’[

 

[Ursa M]

Buy gold - sleep well.My own personal take is everyone in the USA should be happy about Euro trouble because it makes the dollar the lepper with the most fingers. Once the Euro crisis gets resolved the dollar will be next.

the dollar is the safest currency in the world.... by far.

Lowest yield of any bond and investors can't buy enough of them. Kinda makes you wonder why so much noise is being made about the debt, especially when overall debt is actually declining, once private debt is included.

Actually there are many countries whose bonds yield much less than ours. Japan and Germany...also Switzerland, I believe.

You are right in all three cases - I was looking at our 2 year bond. Still, we aren't having any trouble selling bonds.

 

[Ursa M]

Buy gold - sleep well.

My own personal take is everyone in the USA should be happy about Euro trouble because it makes the dollar the lepper with the most fingers. Once the Euro crisis gets resolved the dollar will be next.

the dollar is the safest currency in the world.... by far.

Lowest yield of any bond and investors can't buy enough of them. Kinda makes you wonder why so much noise is being made about the debt, especially when overall debt is actually declining, once private debt is included.

By investors do you mean the Fed?And as far as the safest currency in the world we will have to agree to disagree. It has lost 98% of it's value since inception and it settled with real debt of >$15T, accruing >$1T of debt a year, and has countless Trillions of future unfunded liabilities.

Everything I read says "investors". Plural. And are you really complaining about it's value loss since 17whateveritwas?

 

[humpback]

Lowest yield of any bond and investors can't buy enough of them. Kinda makes you wonder why so much noise is being made about the debt, especially when overall debt is actually declining, once private debt is included.

Did you just pull this out of your ###?

 

[Slapdash]

Buy gold - sleep well.

My own personal take is everyone in the USA should be happy about Euro trouble because it makes the dollar the lepper with the most fingers. Once the Euro crisis gets resolved the dollar will be next.

the dollar is the safest currency in the world.... by far.

Lowest yield of any bond and investors can't buy enough of them. Kinda makes you wonder why so much noise is being made about the debt, especially when overall debt is actually declining, once private debt is included.

By investors do you mean the Fed?And as far as the safest currency in the world we will have to agree to disagree. It has lost 98% of it's value since inception and it settled with real debt of >$15T, accruing >$1T of debt a year, and has countless Trillions of future unfunded liabilities.

Everything I read says "investors". Plural. And are you really complaining about it's value loss since 17whateveritwas?

Record Treasury Demand Keeps Yields Low As Supply Shrinks

Investors are plowing into Treasuries (USB2YBC) at a record pace as the supply of the world’s safest securities dwindles, ensuring yields will stay low regardless of whether the Federal Reserve undertakes more stimulus to fight unemployment.

Buyers bid $3.19 for each dollar of the $538 billion in notes and bonds sold this year, the most since the government began releasing the data in 1992 and on pace to beat the high of $3.04 in 2011. The net amount of Treasuries available will decline by 30 percent once proceeds from maturing securities are reinvested, according to data from CRT Capital Group LLC.

http://www.bloomberg.com/news/2012-04-09/record-treasury-demand-keeps-yields-low-as-supply-shrinks.html

 

[LHUCKS]

CNBC analysts and several articles I have read have stated that most of the major banks have distanced themselves from European institutions enough to the point that in the even that if the dominoes did start to fall, our banks would be somewhat insulated. Take that for what it's worth. Analyst don't know everything.An interesting benefit is the collapse of oil prices which is actually helping our economy.If I'm making a risk averse play, I would have a mixture of foreign currencies and Index ETFs. Chilean, Australian and Japanese currencies are my favorite.That being said, the best play has been and continues to be American real estate in growth, warm climate areas with rent positive opportunities. Houses not condos and consider 20 year mortgages with rates so low.

I can see JPY, but why AUD? Really, why any currency other than USD and JPY if one is risk averse? AUD has yield, but if the EMU blows up, I don't want to own any currency but USD and JPY.

The fundamentals of the Australian economy and financial banking system are incredibly strong.

 

[Charlie Frown]

Start hiding bacon.

 

[Ursa M]

Lowest yield of any bond and investors can't buy enough of them. Kinda makes you wonder why so much noise is being made about the debt, especially when overall debt is actually declining, once private debt is included.

Did you just pull this out of your ###?

No. It's from a MarketWatch article I read yesterday. It has a lot to do with the reasons the recovery is so slow. Here are a few quotes.

Little by little, our economy is reducing its debt burden, slowly repairing the damage caused by 10, 20 or 30 years of excess.

If you want to know why economic growth has been so tepid, here’s your answer. Four years after the storm hit, the economy is still deleveraging. And it’s very hard for any economy to grow when everyone is focused on increasing their savings.

Total domestic — public and private — debt as a share of the economy has declined for 12 quarters in a row after surging over the previous decade.

As a share of the economy, debt has plunged as a consequence of rapid deleveraging by families, banks, nonfinancial businesses, and state and local governments. The ratio of total debt to gross domestic product has fallen from 3.73 times GDP to 3.36 times.

In the 11 quarters since the recession officially ended, total domestic debt has risen by just $702 billion, or 1.4%. By contrast, in the 11 quarters before the recession began, in those bubble years of 2005, 2006 and 2007, total debt increased by $10.7 trillion, or 28%.

Cecchetti and his co-authors found that growth can be impaired once nonfinancial corporate debt hits about 90% of GDP, or when household debts hit 85% of GDP, or when public debts hit about 85%.

In the U.S., household debt has now fallen to 84% of GDP from a peak of 98%. Nonfinancial corporate debt has fallen to 77% from a peak of 83%. Financial sector debt has plunged from 123% of GDP to 89%. Public debt has risen to 89% from 56%.

The deleveraging process in the private sector still has a ways to run, not based on some economists’ rule of thumb, but based on what real people are actually doing. Banks and households are still slashing their debt, while nonfinancial companies are beginning to borrow again, but only a little, according to the latest data from the Federal Reserve’s flow of funds report. Take a look at the flow of funds.

According to a study by McKinsey published earlier this year, U.S. households may have two more years of deleveraging left before their debts are sustainable again.

If McKinsey is right, the U.S. economy may have to endure a couple more years of slow growth.

 

[jonessed]

Lowest yield of any bond and investors can't buy enough of them. Kinda makes you wonder why so much noise is being made about the debt, especially when overall debt is actually declining, once private debt is included.

Did you just pull this out of your ###?

No. It's from a MarketWatch article I read yesterday. It has a lot to do with the reasons the recovery is so slow. Here are a few quotes.

Little by little, our economy is reducing its debt burden, slowly repairing the damage caused by 10, 20 or 30 years of excess.

If you want to know why economic growth has been so tepid, here’s your answer. Four years after the storm hit, the economy is still deleveraging. And it’s very hard for any economy to grow when everyone is focused on increasing their savings.

Total domestic — public and private — debt as a share of the economy has declined for 12 quarters in a row after surging over the previous decade.

As a share of the economy, debt has plunged as a consequence of rapid deleveraging by families, banks, nonfinancial businesses, and state and local governments. The ratio of total debt to gross domestic product has fallen from 3.73 times GDP to 3.36 times.

In the 11 quarters since the recession officially ended, total domestic debt has risen by just $702 billion, or 1.4%. By contrast, in the 11 quarters before the recession began, in those bubble years of 2005, 2006 and 2007, total debt increased by $10.7 trillion, or 28%.

Cecchetti and his co-authors found that growth can be impaired once nonfinancial corporate debt hits about 90% of GDP, or when household debts hit 85% of GDP, or when public debts hit about 85%.

In the U.S., household debt has now fallen to 84% of GDP from a peak of 98%. Nonfinancial corporate debt has fallen to 77% from a peak of 83%. Financial sector debt has plunged from 123% of GDP to 89%. Public debt has risen to 89% from 56%.

The deleveraging process in the private sector still has a ways to run, not based on some economists’ rule of thumb, but based on what real people are actually doing. Banks and households are still slashing their debt, while nonfinancial companies are beginning to borrow again, but only a little, according to the latest data from the Federal Reserve’s flow of funds report. Take a look at the flow of funds.

According to a study by McKinsey published earlier this year, U.S. households may have two more years of deleveraging left before their debts are sustainable again.

If McKinsey is right, the U.S. economy may have to endure a couple more years of slow growth.

According to your article public debt is already a burden on the economy and is growing rapidly. Seems like something reasonable people might make some noise about.

 

[flapgreen]

Start hiding soap.

 

[Ursa M]

According to your article public debt is already a burden on the economy and is growing rapidly. Seems like something reasonable people might make some noise about.

No-one would argue against public debt being too high but given the siege of investors trying to buy it at very low rates, it might not be quite the cataclysm some would like it to be. Certainly the article helps explain at least some of why the recovery is slow though - people and private forms are deleveraging. IIRC, the level of debt held by individuals used to be a source of anxiety to some.

 

[jonessed]

According to your article public debt is already a burden on the economy and is growing rapidly. Seems like something reasonable people might make some noise about.

No-one would argue against public debt being too high but given the siege of investors trying to buy it at very low rates, it might not be quite the cataclysm some would like it to be. Certainly the article helps explain at least some of why the recovery is slow though - people and private forms are deleveraging. IIRC, the level of debt held by individuals used to be a source of anxiety to some.

Seems like in order to be on the rooting side of a debt cataclysm one would have to hope the debt continues to grow not make noise about shrinking it.

 

[humpback]

Lowest yield of any bond and investors can't buy enough of them. Kinda makes you wonder why so much noise is being made about the debt, especially when overall debt is actually declining, once private debt is included.

Did you just pull this out of your ###?

No. It's from a MarketWatch article I read yesterday. It has a lot to do with the reasons the recovery is so slow. Here are a few quotes.

Little by little, our economy is reducing its debt burden, slowly repairing the damage caused by 10, 20 or 30 years of excess.

If you want to know why economic growth has been so tepid, here’s your answer. Four years after the storm hit, the economy is still deleveraging. And it’s very hard for any economy to grow when everyone is focused on increasing their savings.

Total domestic — public and private — debt as a share of the economy has declined for 12 quarters in a row after surging over the previous decade.

As a share of the economy, debt has plunged as a consequence of rapid deleveraging by families, banks, nonfinancial businesses, and state and local governments. The ratio of total debt to gross domestic product has fallen from 3.73 times GDP to 3.36 times.

In the 11 quarters since the recession officially ended, total domestic debt has risen by just $702 billion, or 1.4%. By contrast, in the 11 quarters before the recession began, in those bubble years of 2005, 2006 and 2007, total debt increased by $10.7 trillion, or 28%.

Cecchetti and his co-authors found that growth can be impaired once nonfinancial corporate debt hits about 90% of GDP, or when household debts hit 85% of GDP, or when public debts hit about 85%.

In the U.S., household debt has now fallen to 84% of GDP from a peak of 98%. Nonfinancial corporate debt has fallen to 77% from a peak of 83%. Financial sector debt has plunged from 123% of GDP to 89%. Public debt has risen to 89% from 56%.

The deleveraging process in the private sector still has a ways to run, not based on some economists’ rule of thumb, but based on what real people are actually doing. Banks and households are still slashing their debt, while nonfinancial companies are beginning to borrow again, but only a little, according to the latest data from the Federal Reserve’s flow of funds report. Take a look at the flow of funds.

According to a study by McKinsey published earlier this year, U.S. households may have two more years of deleveraging left before their debts are sustainable again.

If McKinsey is right, the U.S. economy may have to endure a couple more years of slow growth.

Those quotes really aren't backing up your nonsense.

 

[flapgreen]

I hope it takes Soccer with it.

 

[Andrew74]

CNBC analysts and several articles I have read have stated that most of the major banks have distanced themselves from European institutions enough to the point that in the even that if the dominoes did start to fall, our banks would be somewhat insulated. Take that for what it's worth. Analyst don't know everything.An interesting benefit is the collapse of oil prices which is actually helping our economy.If I'm making a risk averse play, I would have a mixture of foreign currencies and Index ETFs. Chilean, Australian and Japanese currencies are my favorite.That being said, the best play has been and continues to be American real estate in growth, warm climate areas with rent positive opportunities. Houses not condos and consider 20 year mortgages with rates so low.

I can see JPY, but why AUD? Really, why any currency other than USD and JPY if one is risk averse? AUD has yield, but if the EMU blows up, I don't want to own any currency but USD and JPY.

The fundamentals of the Australian economy and financial banking system are incredibly strong.

Oh I agree totally. I just don't think it is a great buy if one is risk averse since it is a high beta currency and sells off hard when the poop hits the fan.

 

[Andrew74]

Buy Gold; Sell EUR

Doing this on margin is risky, of course. If it is important enough, there are ways to hold gold while being short the same amount of EUR. Could also do this through ETFs I suppose.

GL

Throw in some long Treasuries, too.