Wednesday, July 20, 2011

The Euro And The Dollar Could Blow Up Simultaneously, Game Over

I will admit that almost all of the market pros on television would blow this possibility off by pointing to the recent performance of the US bond market. However, the stars are lining up for the possibility of the most incredible economic implosion in recorded history. Both the United States and the European Union have about two weeks to make difficult political decisions or face the implosion of their currencies. On Thursday, the European Union must agree upon a plan to contain the contagion that is spreading like a wild fire, and this will have to rely of Germany putting up most of the capital on the deal. The United States has to reach an agreement on the debt ceiling debate and Washington appears to be getting more polarized by the day.

Although the outcome at stake will most likely warrant a political solution, the possibility of a simultaneous collapse of the dollar and the euro is incredible to comprehend but not impossible. The global economy would vaporize. Every stock market in the world would collapse.

Just about every bank in the world would have enough exposure to euro zone and US debt that they would implode right away. Even banks that were not exposed would likely get destroyed as bank runs would spread faster than the banks could analyze their exposure. Without banks, businesses cannot finance anything, so they would all collapse soon after. With no banks and no businesses, there is no employment.
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