European Crisis - 2011
The following was largetly excerpted from: GonzaloLira.blogspot.com
Most people are not aware of the importance of the current financial
crisis in Europe. Please note: The current situation in Europe is
over twice what 2008 was in the U.S.--and might end up being four times
the 2008 price tag. The total sovereign debt of the PIIGS (i.e.
Portugal, Ireland, Italy, Greece, and Spain) is about 3.1 trillion Euros.
That's 20% of the eurozone's GDP-just the PIIGS, just those five, forget
about France, Belgium and the UK, which if added up easily doubles that
amount. Compare that to 2008, when the total toxic assets the Federal
Reserve had to buy was about $1.5 trillion or 11.5% of the U.S.'s 2008
We're structurally at the same place we were in 2008: Unpayable debts
held by a fragile financial sector, with massive indirect exposure by
way of derivatives that no one has bothered to tally up and regulate.
Furthermore, like all good sequels, 2011 is going to have a bigger bang
than 2008. What we've seen over the last couple of weeks is not the
crisis. Rather, these last couple of weeks of market gyrations have
been the forewarnings-the pre-tremors. The little tremors that precede
The Big One, which is likely to happen over the months of September
The Sequel will actually get going once Europe has its Lehman-like
event. In 2008, the bankruptcy of Lehman Brothers triggered the crash
but it was not the cause of the Global Financial Crisis of 2008. The
structural weaknesses were already baked into the situation. The Lehman
bankruptcy was just the shove the global financial system needed to
fall off the proverbial cliff. Today, we are waiting for the Lehman-like
event. More likely than not, the Lehman-like event of 2011 will catch
us all by surprise. But just like the Lehman bankruptcy, it won't matter
intrinsically. It'll only matter insofar as it triggers the cascade
Unfortunately, the U.S. and European governments' and central banks'
responses are severely curtailed and constrained, compared to 2008-we
cannot expect the governments to save the day as they did in 2008.
Traditionally, Europeans have seen gold as their financial refuge,
much like Americans consider U.S. Treasuries their financial refuge.
It's not surprising then to see gold climb to record highs these last
few weeks as Europeans seek their safe haven. When the Lehman-like
event hits, gold should rocket past $2,000 on its way to $2,500 before
the end of the year.