Europe is in trouble for two reasons:
First, many European countries have accumulated staggering levels of sovereign debt due to decades of consistently rising budget deficits. Further borrowing to finance those deficits and service the existing
debt is becoming more difficult, and therefore more expensive.
Second, many European banks have become overleveraged because their governments have forced them to buy this government
debt. To make matters worse, plenty of Spanish, Irish, and Portuguese banks are also carrying bad debt from
the collapse of Europe’s real estate bubble.
two factors amount to a deflationary
pressure, since there is less money flowing in Europe’s economies for the expansion of productive facilities for domestic or
export uses and less demand
for goods and services. Deflation
can in some cases morph into a depressionary spiral for an economy
— a vicious circle
of contracting economic activity, unemployment, reduced tax revenue, and higher debt burdens,
often accompanied by
radical budget cuts.
The European Central Bank (ECB) has attempted
to counterbalance this deflationary pressure by introducing
inflationary tendencies through expanding its balance sheet via
quantitative easing (QE). The most
recent example was their plan called the Long-Term Refinancing Operation (LTRO).
Under this program, the ECB made loans available to European banks at rock-bottom interest rates, so that those banks
in turn can use the borrowed money to buy government bonds issued by their home countries…
The U.S. Also Faced with
a Combination of:
1. Bank deleveraging as a result of the
real-estate bubble and speculation on real estate
bonds and derivatives.
2. Recurring annual budget deficits in excess of $1
trillion, and having to finance and service and
roll over the existing government
debt ($15.7 trillion as of this
North America has used
different methods than Europe has to address its debt and economic stagnation…but both
amount to QE, nonetheless.
Europe: Problems Ahead For a Decade or More
Strategies to Optimize European
Emerging Asia: Good Long-Term Growth & a Healthy Banking System
The big boom of the decade between 2000 and 2011 is over
for emerging Asia. However, we expect
we will probably see very good growth in China
— about 6-7 percent per annum — for the
next few years. In India, we expect
around 4 percent or maybe
5 percent growth, and in much
of Southeast Asia, an average of 3 percent GDP growth.
Asia’s projected slower growth in the next few years will be a function
of the Europe’s decreased
demand for Asian imports,
combined with European efforts to devalue the
Euro. Europe, which has been emerging
import customer, wants a lower Euro to stimulate European exports and diminish
The lower growth rates in emerging Asia will not be a problem for the region, nor for the rest of the world. They aren’t red-hot, but they’re real
The Best News
For China and Emerging Asia…
Wake Up, Brazil!
from an insatiable China and good leadership. Now What?...
Global Deflationary & Inflationary
Crosscurrents — Yes
— But in the U.S. Inflation is Stronger
In our opinion, a necessary step for navigating in this environment is to be aware of what
is happening underneath
the surface. Rather than rely solely on the official
data about the state of the economy (which in the developed world may sound bleak
at times), we prefer to dig a little deeper. There is more going on than one can glean from official reports. A
case in point is inflation in the U.S. The most recent April data from the U.S. Bureau of Labor Statistics
said that U.S. consumer prices rose 2.3 percent during
the previous 12 months, which is lower
than March’s 2.7
percent 12-month increase. Recent
rumblings from Federal Reserve members suggest that this subdued inflation leaves the door open to more
stimulus (QE). We know that
Chairman Bernanke has said
that he wants to see higher asset prices. Many economists believe that housing prices are one key to the U.S. economic
recovery. April’s housing data showed some life in the U.S. housing market. The average price of existing homes rose
about 10 percent — the biggest monthly increase in years.
In our quest to understand what is really happening, where the opportunities are,
and identify which trends
are likely to last, we
have created the Guild
Basic Needs IndexTM
(GBNITM). Each month, the
GBNITM tracks the price movements of basic, essential needs
in the food, clothing, shelter and energy areas. The price movements of these items will trickle through the economy, eventually reaching all Americans’ pocketbooks. If you are following these commentaries, it won’t be a surprise to you when periodic
squeezes start to affect people’s
consumption, saving, and voting behavior.
Summary & Synopsis of How to Invest
on Europe, The United States, Emerging Asia, Brazil, Global Inflation,
and how to invest learn
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