Budget talks: This is getting nasty

This is where you have to remember that America is not the only place in the world.

European debt problem are the news of the day. Stocks are tumbling all over the world, not just in the U.S. Italy is going to default, with about 90 percent certainty. Italy is a relatively large economy. The ability to bail that out, along with the will, is not going to be there. There are odds that Spain is going to default, too, although they are less than Italy. And the band-aids they have been putting on with bailouts of Greece, Portugal and Ireland were just band-aids and they still haven't dealt with the problems. At the pace those economies are growing, their debt problems aren't going away.

There isn't a big bank in the world right now that isn't trading way down because of their exposure to all of that bad debt. And if this thing daisy chains, the effects on the world's markets will be as bad, or worse, as the effect we saw in 2008.

This is why gold has been trading way up and I keep reviving that thread.

The world is a mess. The U.S. is in relatively good shape, but we are effected by Europe. And even without this, our economy is at a standstill.

This didn't just happen. It's been easy to see coming for a few years. I've kept posting about it.

This is the danger of running crazy amounts of debt under the assumption that you can tinker and make your economy grow hand over fist indefinitely. It was fairy tale land, and there is a price to pay eventually.

 

A month ago, Gold was trading at $1485 an ounce. Right now it is trading above $1650 an ounce. It has seen a tremendous run up the last four days, alone. At an entirely unsustainable pace without it being too much of a speculative bubble. It's trading down today because it climbed too far too fast. It hasn't even given back what it made yesterday, when I thought it was getting way ahead of itself. It started to bubble. It's pulling back a little.

If you think gold is down today for the same reason BNP Paribas is, you are wrong.

EDIT: By the way, I think it does have the potential to bubble right now, because it is the natural play and money begets more money. So I wouldn't be surprised if it runs up over $1700 an ounce in relatively short order, and then maybe when the fear factor passes through, it pulls back a little. But fundamentally, look at the world. The U.S. has created a tremendous amount of debt and has a central bank monetizing that debt by shitting all over its currency. Europe has amassed so much debt, various Euro countries can't meet their obligations, and the solution so far has been to create more debt. Is there any doubt they will be monetizing that debt?

That all spells inflation, by the way, not deflation. And in that environment, precious metals are a great store of wealth, which is what a lot of people are thinking apparently.

 

Sorry. Didn't mean for it to come off the way it did.

 

1) The US hasn't been pushed over a cliff or defaulted on its debt.
2) Wall street didn't take a shit. All of the world's equities markets did. And it has nothing to do with the U.S., which is why you are missing the point.

I missed your post about Italy's debt woes and the fact that everyone is freaking about the prospect of the Euro's third biggest economy defaulting on its debt, at which point they won't be able to put off the day of reckoning, the way they did with Greece. And that doesn't mention Spain, which could be a problem too.

This month, Italy has to repay 36 billion euros of government debt. That is about what Greece will owe for the entire year. This is big.

None of this is fresh news, which is what makes the reactions curious to me sometimes. Why today? We aren't learning anything anybody hasn't known for quite some time. What the made up debt ceiling drama here did was take over the headlines. But as I pointed out often on here, the reason the U.S. has been buoyed is that investors have known all along that there were good odds of a European meltdown, and the fact that the U.S. still has the ability to meet its obligations unlike these house of cards waiting to fall in Europe. I can't remember where, but I remember posting on here a while back that Greece defaulting on its debt would trigger a chain of reactions with consequences worse than what we saw in 2008. Someone didn't believe me. Trust me. If Italy defaults -- and it is a much larger economy that Greece -- the exposure to that debt around Europe (and in the U.S.) will set off a chain of reactions that will create a whole new worldwide financial meltdown. And the problem is that the ECB doesn't have much ammo left. Their solution to these crises so far has been to issue more debt and make loans. That ain't going to hack it now, and Germany, which largely has to put its neck on the line for these loans to happen probably doesn't have the political will to keep spitting into the wind. Not with Spain sitting there as the next in line.