Tuesday, November 15, 2011

Worst Hour Since World War Two?

This from Angela Merkel today, "Europe is in one of its toughest, perhaps the toughest hour since World War Two," Merkel told her conservative party in Leipzig, saying she feared Europe would fail if the euro failed and vowing to do anything to stop this from happening.

This sort of language portends a not too bright future. When leaders of large economies make statements like this, something is up.

This from Eric DeGroot:

"Confidence in the exist leaders and the system they represent and support is crumbling. Large European banks are rushing to announce their reduced exposure to Italy, because they know confidence is failing. Revolving leadership is not helping confidence.

Depositors have a tendency to withdrawal their money as confidence declines. Banks simply do not have enough reserves to handle concentrated withdrawals. Bank runs despite today's centralized insurance are not a relic of the past."

Confidence is the biggest building block of our political and economic system.  We rely on confidence and trust in each other to trade and to go about our lives in peace. When confidence goes and fear overtakes us, we resort to 'looking after ourselves'.

If countries go back to mis-trusting each other and looking to their own interests for survival, then the world will a volatile and unsafe place. Just like World War Two.

Note that, on all this volatility, gold is at record highs in most currencies other than the US dollar. It is hitting record prices in NZ dollars today.

Gold in New Zealand dollars: $2284.45 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $43.94 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

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