Contagion Risk Increases – Euro Falls As Moody’s May Cut Rating On 3 Large French Banks Exposed To Greece

Tyler Durden's picture

From Gold Core

Contagion Risk Increases – Euro Falls As Moody’s May Cut Rating On 3 Large French Banks Exposed To Greece

The euro has fallen on international markets as the European sovereign debt crisis is deepening and appears to be reaching a dangerous denouement. European stock markets are also weaker due to serious divisions in Greece and in the EU as to how to resolve the Eurozone debt crisis and prevent contagion.

Moody's has placed three large French banks on negative review based on their exposure to Greece. The problem looks increasingly intractable meaning that contagion appears more likely every day.

Cross Currency Rates

Gold is higher against the euro, pound and Swiss franc and lower against the U.S. dollar, the yen, Kiwi and Aussie dollar. Demand continues to be very strong especially from China and India where the World Gold Council said that there is a “tidal wave” of “gold demand coming”.

The dollar is firmer despite yesterday’s stern warning from Bernanke that America’s credit rating is at risk. Bernanke urged policy makers to again increase the debt ceiling – this time to over $14.3 trillion – in the hope that this will prevent a U.S. downgrade.

U.S. Worse than Greece Due to $14.3 Trillion National Debt and $61.6 Trillion in Unfunded Liabilities

The humungous size of the real U.S. national debt including unfunded liabilities is now some $75.9 trillion ($14.3 trillion and $61.6 trillion) which means that the finances of the U.S. are not much better than that of insolvent Greece.

The $61.6 trillion in unfunded obligations (money guaranteed for Medicare, Medicaid and Social Security) amounts to $534,000  per household, more than five times what Americans borrowed for expenditures such as mortgages, car loans and other debt.

The U.S. is also confronted with the significant debts incurred in the programs related to the bailout of Wall Street banks following the crisis of 2008 and 2009.

U.S. Dollar Index – 30 Years (Monthly)

Thus, the U.S. is in a worse financial position than Greece and is inching closer towards default every day.

This has obvious ramifications for financial markets and especially currency markets. It could see further sharp falls in the value of the dollar and would likely result in selling of U.S. dollar denominated assets which will likely see U.S. equities and bonds come under pressure which would likely result in an increase in interest rates.

US Generic Govt 10 Year Yield - 45 Years (Quarterly)

Rising interest rates will bullish for gold as they were in the 1970’s (see above) and it is only towards the end of the interest rate tightening cycle when positive real interest rates are achieved that gold will become vulnerable to a bear market.

Gold remains below its inflation adjusted high from 1980 and the conditions today are as favourable if not more so than those of the 1970’s when gold rose 24 times in 9 years.

The U.S. was the largest creditor nation in the world in 1980 today it is the largest debtor nation. In the late 1970’s there was stagflation and geopolitical risk but there were no developing world sovereign nations on the verge of bankruptcy.

Nor were there major “too big to fail” western banks that were seriously exposed to sovereign debt risk and a shadow banking system with over $600 trillion in derivatives and all the risk attendant with that.

Today there is significant geopolitical risk in the world, more than even in the late 1970’s and governments internationally are debasing their currencies in a manner not seen in modern history.

Bloomberg Composite Gold Inflation Adjusted Spot Price – 1970 to June 2011

The deepening sovereign debt crisis in the EU and potentially soon in the U.S. is a fundamental reason that the majority of retail investors and savers should have an allocation to gold bullion.

Gold bullion will protect, preserve and grow wealth in the coming years as it has done in uncertain times throughout history.


‘Tidal Wave’ of Gold Demand Coming From China, India as Economies Expand

(Reuters) -- Gold extends gains as economy worries linger

(Wall Street Journal) - PRECIOUS METALS: Gold, Silver Up In Asia, Rangebound

(Bloomberg) -- Gold May Gain for Second Day on Greek Debt Crisis, Faster Global Inflation

(Bloomberg) -- Gold to Extend Gains as Buyers Seek ‘Safety’ Against Inflation, Fund Says


(Wall Street Journal) -- Thomas Frank’s Gold Dis Misses the Mark

(ZeroHedge) -- Standard Chartered: "Three Factors Will Drive Gold To $5,000"

(ZeroHedge) -- The First Great Depression: Blow By Blow, From The BIS, And How It Mirrors Our Ongoing Second Great Depression

(ZeroHedge) -- For First Time Total Comex Silver Drops Below 100 Million Ounces; Physical Deliverable Silver Under 28 Million Oz

(CNBC) -- Is Gold in Fort Knox Real? Ron Paul Wants to Know

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Al Gorerhythm's picture

Cross pond Tit for Tat. Here it goes.

Highrev's picture

... the U.S. is in a worse financial position than Greece and is inching closer towards default every day.

The headline within the headline.


hamurobby's picture

May this be the mother of all dollah rallies, could this be a perfect storm brewing with the end of pomo? (for a few weeks/months)

youngman's picture

silence about california.....stronger dollar my bunda....stronger yen...stronger euro.....yeah right.....greece striking...good for their gdp..and ipo´s going bezerk..what a crazy screwed up world we live in

ziggy59's picture

doesnt many us banks, like GSux have major exposure to greek banks? dshould be good for a 200 point rally, no?

All is chosen's picture

Yawn. This theatre production is so tedious.

Is gold €4,000/oz yet?

May I have a gentle wake-up call when it is please?

Highrev's picture

$534,000 per household

To be able to pay that down, a lot more printing is going to be necessary.

Cost cutting won't make a dent, I'm afraid. And growth? Well, we all need a good laugh, right?

Stealth default? The Chinese are right (again)?

The world is certainly turned upside-down.

It's hard to argue numbers like that - I think I've got to give this round to the gold bugs.


Greeny's picture

"The $61.6 trillion in unfunded obligations (money guaranteed for Medicare, Medicaid and Social Security) amounts to $534,000 per household"

Freaking Doctors eating this Country a live, Medical mafia

How that's possibly that less than 50% of population can

afford to pay for Medical insurance.. Is that joke?

Why they rising cost everyday. Is there any way to stop

those criminals? How come simple blood test

could cost $300-500 WTF? Unfunded liabilities?

F*ck them, don't pay them anything, they should be happy

not to be behind bars for such price hikes.

What kind of Service is that if it's not affordable

for most of the population? Absurd.

StychoKiller's picture

How much is one more day of life worth to you?

Like just about every other distorted market, medical devices/services costs are being driven by Govt subsidies.

gwar5's picture

This is a perfect opening for Timnanke.

As the Euro crashes because of the sovereign debt worries in Eurotopia, Bennie and the Inkjets can debase the USD some more to make the Euro look better. Sorry, America, cheap BMWs will not be forthcoming. 

MrTrader's picture

SKYNET TO ZEORHEDGE : do we have enough "risk free money shorts on board?". Answer: yes. Skynet prepares short seller destruction. Skynet out. zzzzz.........

trav7777's picture

strong dollar LOL...weaker others.

POG strong in all currencies, as it has been.