Is the Euro safe? Are we safe? (Advanced)

cash is kingEvery day it would seem we are bombarded with images of war, terror, destruction, chaos and challenged with ideas that the Euro is in danger and that the end of the European project is around the corner. Well – turn off the news – throw out those newspapers, and just give yourself a little reality check. Will anything I see in the media affect me now, today or tomorrow? Will ISIS invade Berlin and bomb my local S-Bahn train on my way to work? Is there anything to really stop me from being really safe and afraid?

I am sure you will come to realise that NO is the most rational answer to the questions above. And no, Russia is not invading either. Why? Well for one, global economies (apart from Germany and China) are mostly insolvent and broke. Not only can they not afford large new wars, they are also short on public support to expand or continue endless wars on terror.

We also have pretty much always had problems in the middle east, the Balkans and the Ukraine. War is never a solution to such problems. War is simply the failure of diplomacy and cooler heads to prevail. I define all war as theft i.e. somebody is trying to steal something from someone else. Unfortunately, it is the local people that suffer through the destruction of their land and property. Rarely are those that make the decision to go to war affected but I do know that history is littered with examples of those that try to control the world, usually end up controlling nothing. Putin and Obama are two sides of the same coin.

Although we should not stand by and do nothing, we should be careful to do too much. We can offer aid, assistance, resources, training, development help and consultation, but at the end of the day, these regions need to speak with their neighbours and develop their own solutions, which after a period of pointless wasteful war – I believe they will. Vietnam was a huge problem just 40 years ago and today it is a thriving socialist economy, and became so once all the foreign powers stopped intervening.

So what then is the future of the Euro in such an environment of economic malaise and global terror?

I have heard many people say that you should buy property, you should buy gold, you should buy this, this and that to protect your Euro wealth. I have to ask myself if any of these people have really thought it through. The idea for example that the dollar is about to collapse is both absurd and rather shortsighted. The problem is not the dollar per se, but worldwide debt levels.The dollar still is and will remain a safe haven, simply by geography alone and despite whatever agreements the BRICS enter into. Money isn’t going away any time soon and neither is the dollar. Purchases of US treasuries by foreign companies actually increased last month, which is the opposite of what we are told by gold bugs and dollar bears alike.

Back to the Euro, ask yourself which is the bigger problem? The 800 trillion dollar global asset market or the 5-10 trillion dollars of money printing the federal reserve, the ECB and other central banks have embarked on in the past five years? The global asset market was valued at around 111 trillion in 2001 and rose to as much as 710-800 trillion in 2013, an almost 530-620% jump, whilst global GDP over the same period rose from 32 trillion to 82 trillion, up 156%.

All money printing or QE does is keep this massive asset bubble afloat, but when it pops, assets such as the USD and Euro will actually rise as debt is defaulted on and interest rates are slowly raised to some level of normalcy. The exit of troubled economies such as Greece would also be bullish for the Euro as debt levels again would be eliminated and asset prices written down. The risk therefore is not with the EU but with bank assets, gold and or other highly debt leveraged products such as real estate. In an environment such as deflation and debt destruction, cash is king.

 

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