Monday, June 25, 2012

The Eurozone Has Already Failed

I am not much into reading tea-leaves. I'm a little better at reading economic signs. Now I would not want to ever stake my reputation on reading these signs correctly. After all,  economists are often called modern day soothsayers or prophets akin to the fiery religious ones of antiquity.

So why the sudden bout of confidence in predicting outcomes?

Smart money and not so smart money.

The daily grind of stories coming out of Europe display similar traits. First a crisis, then talks, a few days go by, short relief,  another crisis, more talks, relief. You get the picture. The eurozone problems aren't getting fixed. So what is happening?

Well, in my view, it has already happend. The euro is effectively dead.

Throughout history, when countries monetary systems go through a confidence crisis, people move their wealth and capital to shores that will help protect that wealth and produce returns on that capital.

In Europe, this began many months ago, probably before the first news about the Greek crisis came out in public in May, 2010. You see, we plebs always get the news last. The insiders and the smart money wealth guys see and hear what's coming many months, sometimes years, before the rest of us.

Take a look at what is happening with the euro.

The smart money has already left and the not-so-smart money (so called by me because it belongs to the shady, unscrupulous members of society), that which belongs to the underground economy is moving quietly out. Flows that have already left Europe.

How do we know? Well, when banks are in need of bailouts all over Europe and banks get downgraded because of risk exposure, you know there's been a bank run. Pure and simple. And it is accelerating. Large wealth flows have streamed out of the European banking system to domicile in so-called safe havens like the US bond market and Swiss banks.

The smart money has left and the not-so-smart is in euro cash and moving physically across borders. Just recently, the Italian authorities stopped a wealthy business man from taking a couple of million euros in gold out of Italy. Again, recently, in a newsletter from a large bullion dealer, we hear of an Italian businessman wanting to purchase US$2.5 million worth of gold per euro cash so he can move his, probably, ill-gotten gains out of Italy.

Those in the know, who are wanting to protect their wealth, have already shifted it out of the eurozone. The currency could well be dead already. It's now left to eurozone leaders to manage the fallout in a dignified way to prevent complete panic.

The Eurozone experiment has failed.
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