So how far are we going to see the euro decline?

Julian Jessop of Capital Economics expects the euro to fall much further….

The relative strength of the recent economic data from the US is supporting the dollar more generally, and we expect this divergence to persist as the euro-zone slides into a deep and prolonged recession. Above all, doubts about the very survival of the euro itself are likely to remain a drag on the currency. We therefore continue to expect the euro to fall to around $1.10 by the end of the year.

Others are even more pessimistic.

As I have written about previously, the head of global bond portfolio management at PIMCO believes that the euro is going to go even lower than that….

“Parity with the dollar next year is not out of the question”

Can you imagine that?

1 dollar = 1 euro?

Don’t think that it can’t happen.

But the decline of the euro is just part of the story.  The truth is that Europe is on the verge of a financial collapse that could end up dwarfing the financial crisis of 2008.

Sadly, most Americans have no idea what has been going on in Europe the past few days….

-The stock of the biggest bank in Italy, UniCredit, is absolutely collapsing.  Shares of UniCredit fell 14 percent on Wednesday and 17 percent on Thursday.

-Shares of another major Italian bank, Intesa Sanpaolo, fell 7.3 percent on Thursday.

-Shares of three major French banks all fell by at least 5 percent on Thursday.

-Even shares of German banks are falling like a rock.  Shares of Commerzbank fell 4.5 percent on Thursday and shares of Deutsche Bank fell 5.6 percent on Thursday.

-The yield on 5 years Italian bonds is back over 6 percent and the yield on 10 year Italian bonds is back over 7 percent.  Analysts all over Europe insist that that the Italian debt situation is not sustainable if rates stay this high.

-Italy’s youth unemployment rate has hit the highest level ever.

This is mind blowing news.

But what is the top headline on USA Today right now?

“Employers Impose Bans On Smokers”

These are some of the other top headlines on USA Today right now….

“Automakers Rush To Offer Apps In Your Car”

“Bargain Season At Taco Bell, Pizza Hut, Wendy’s”

“Does Your Dog Understand You? Study Says Maybe”

Is that what passes as news in this country?

A financial meltdown of historic proportions is happening in Europe and you cannot even find anything about it on the front page of USA Today.

Amazing.

All of us need to snap out of our television-induced comas and start waking up.

Things are about to get really bad for the global financial system.

At this point so much confidence has been lost in the euro that even the Council on Foreign Relations is admitting that the euro is a failure….

The euro should now be recognized as an experiment that failed. This failure, which has come after just over a dozen years since the euro was introduced, in 1999, was not an accident or the result of bureaucratic mismanagement but rather the inevitable consequence of imposing a single currency on a very heterogeneous group of countries. The adverse economic consequences of the euro include the sovereign debt crises in several European countries, the fragile condition of major European banks, high levels of unemployment across the eurozone, and the large trade deficits that now plague most eurozone countries.

If even the CFR is throwing in the towel, that should tell you something about what is about to happen to the euro.

There is a very real possibility that we could see the euro break up at some point during the next couple of years.

It now seems that a report produced a while back by Credit Suisse’s Fixed Income Research unit was right on target….

“We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks.”

The European debt crisis just continues to get worse and worse.  None of the solutions that European leaders have tried have worked.  We are rapidly approaching the meltdown phase of this crisis.

As I have written about previously, it doesn’t take a genius to figure out what is happening in Europe.  The equation is simple….

Brutal austerity + toxic levels of government debt + rising bond yields + a lack of confidence in the financial system + banks that are massively overleveraged + a massive credit crunch = A financial implosion of historic proportions

Unfortunately, what is happening right now in Europe is eventually going to happen in the United States as well.

As I wrote about yesterday, U.S. debt is a ticking time bomb that is going to devastate the entire global economy at some point.  Nobody knows when the implosion will happen, but everyone knows that it is inevitable.

When Europe falls apart financially, that is going to make our own financial system much less stable.  What is happening in Europe could turn our “limited recovery” into a “major recession” almost overnight.

So keep your eye on the euro.

If the euro keeps going down, that is going to be really bad news for the global economy.

Unfortunately, the truth is that the decline of the euro is just getting started.

Hold on to your hats.

***UPDATE***

The euro continues to drop like a rock.  Right now it is at 1.2721.

Michael

The post Look Out Below – The Nightmarish Decline Of The Euro Has Begun appeared first on The Economic Collapse.

It is not just Angela Merkel that is warning that 2012 is going to be a difficult year.  The following are several more very prominent individuals that are warning that bad times are on the way….

*Citigroup’s chief equity strategist, Tobias Levkovich, recently made the following statement….

“Europe is likely to have a meaningful recession in 2012”

*Christine Lagarde, the head of the IMF, recently said that we could soon see conditions “reminiscent of the 1930s depression” and that no country on earth “will be immune to the crisis”.

* Willem Buiter, the chief economist at Citigroup, recently said the following….

“Time is running out fast.  I think we have maybe a few months — it could be weeks, it could be days — before there is a material risk of a fundamentally unnecessary default by a country like Spain or Italy which would be a financial catastrophe dragging the European banking system and North America with it.”

* Even Paul Krugman of the New York Times is sounding quite apocalyptic….

“At this point I’d guess soaring rates on Italian debt leading to a gigantic bank run, both because of solvency fears about Italian banks given a default and because of fear that Italy will end up leaving the euro. This then leads to emergency bank closing, and once that happens, a decision to drop the euro and install the new lira. Next stop, France.”

I have written quite a bit recently about all of the signs that parts of Europe have already entered a recession.

Well, in just the past few days even more numbers have been released that indicate that a recession has now begun in Europe…..

-Manufacturing activity in the euro zone has fallen for five months in a row.

-Bad loans in Spain recently hit a 17-year high and the unemployment rate is at a 15-year high.

-Government revenues in Spain have not been up to the level that was expected.  The Spanish government just announced that the budget deficit for 2011 is going to end up being much larger than anticipated.

-Unfortunately, it appears that virtually all sectors of the Spanish economy seem to be slowing down….

The central bank said early indicators show that Spanish tourism, exports, spending and investment have been hit, which is likely to have led to a contraction in GDP in the fourth quarter.

Of course one of the most alarming things happening in Europe is the rapid contraction of the money supply.  It is almost impossible to avoid a recession when the money supply shrinks substantially.  The following comes from an article a few days ago in the Telegraph….

Simon Ward from Henderson Global Investors said the ECB’s “narrow” M1 money figures – tracked for clues on shorter-term spending patterns – show a drastic divergence between the North and South of the eurozone. “Parts of the core may avoid recession but there is no light at the end of the tunnel for the periphery. Real M1 deposits in Greece and Portugal have been falling at an annual rate of roughly 20pc over the last six months,” he said.

Right now, the rest of Europe is heading down the same road that Greece has been traveling on for several years.

Today, Greece is essentially bankrupt and is experiencing a full-blown depression.  At this point, nobody in Europe is even pretending that Greece is going to be okay.  The following comes from a recent Der Spiegel article….

“With debts amounting to 150 percent of GNP, Greece is de facto bankrupt. Over the course of 2011, even the leading representatives of the euro zone finally accepted this fact — after having claimed its opposite a year previously.”

Greece desperately needs relief from all of this debt, but the other nations in the eurozone do not want to provide that relief.  Instead, it looks like Germany is going to ask private creditors to take an even bigger “haircut” on Greek debt than previously proposed.  The following comes from a recent Bloomberg article….

“Germany’s government declined to comment on a report that it may push for creditors to accept bigger losses on Greek debt than previously agreed upon, saying only that talks on lowering Greece’s debt level may end soon.

Germany is studying a proposal to write down 75 percent of Greek government bonds held by private creditors as part of a planned debt swap to ensure greater debt sustainability”

If Germany ends up publicly proposing this, it will shatter what confidence is left in European sovereign bonds.

There is not that much of a difference between a 75 percent haircut and a full default.  If investors are forced to take a 75 percent haircut on Greek debt, then the financial world will have to start wondering if it is just a matter of time before giant haircuts are proposed for Italian debt, Spanish debt, Portuguese debt and Irish debt as well.

Hopefully Germany will not be this stupid.

But something has to be done about Greece.  Right now the IMF is projecting that Greek debt will reach 200% of GDP at some point in 2012 if changes are not made.

Of course Greece could cut government spending even more, but the cuts that have already been made have pushed that country into a total economic nightmare.

In a recent article, I discussed how the brutal austerity measures that we have seen have plunged the economy of Greece into a full-blown depression….

Just look at what happened to Greece.  Greece was forced to raise taxes and implement brutal austerity measures.  That caused the economy to slow down and tax revenues to decline and so government debt figures did not improve as much as anticipated.  So Greece was forced to implement even more brutal austerity measures.  Well, that caused the economy to slow down even more and tax revenues declined again.  In Greece this cycle has been repeated several times and now Greece is experiencing a full-blown economic depression.  100,000 businesses have closed and a third of the population is living in poverty.  But now Germany and France intend to impose the “Greek solution” on the rest of Europe.

The “solution” that the EU and the IMF have imposed on Greece is not working.

So why are all of the other troubled nations in Europe being pushed down the same path?

Just consider the following statistics out of Greece….

*The unemployment rate for those under the age of 24 is 39 percent.

*The number of suicides has increased by 40 percent in the past year.

*Thefts and burglaries nearly doubled between 2007 and 2009.

Is that what we want to see throughout the rest of Europe?

The financial path that Europe is now on was criticized very harshly recently in the New York Times….

“Every government in Europe with the exception of Germany is bending over backwards to prove to the market that they won’t hesitate to do what it takes,” said Charles Wyplosz, a professor of economics at the Graduate Institute of Geneva. “We’re going straight into a wall with this kind of policy. It’s sheer madness.”

Yes, it is sheer madness.

Right now, authorities in Europe are desperately trying to keep a lid on this crisis.  The European Central Bank has been trying really hard to keep the yield on 10 year Italian bonds from rising above the very important 7 percent level.  But unless the ECB is prepared to spend hundreds and hundreds of billions of euros buying up Italian debt in 2012, the yield on Italian bonds is likely to go much higher eventually.

At this point, it is hard to find any economist that is optimistic about Europe or about the euro in 2012.

One of the leading economic think tanks in Europe, the Centre for Economics and Business Research, is extremely pessimistic about the future of the euro as we enter 2012….

“It now looks as though 2012 will be the year when the euro starts to break up”

In fact, they say that there is a 99 percent chance that the eurozone will break up within the next ten years.

Terry Smith, the chief executive of Tullett Prebon, recently used language that was even more apocalyptic….

“If the eurozone crisis could be solved by confident pronouncements, it would already be saved. I would be shocked if Greece does not leave the eurozone in 2012 and this does not lead the markets to test the resolve to defend the positions of Portugal, Spain, Italy and, ultimately, France.”

Yes, there are a whole lot of people out there saying that 2012 will be more difficult than 2011.

Fortunately, there are a few nations out there that are choosing to try some different things.

We aren’t hearing much about it in the United States, but right now Hungary is actually taking some measures to get their central bank under control.

The following comes from a recent article in the Telegraph….

Hungary passed laws for its central bank in a move that experts warned could jeopardise its chances of securing international bail-out funds if it needs them. Officials from the International Monetary Fund (IMF) have warned about the rules which will undermine the independence of the central bank. Hungarian prime minister Viktor Orban the country would not bow to the “European fashion that the central bank must be in a sacred state of independence”.

Of course the IMF is absolutely furious about this.  The IMF is warning that there will be no bailouts for Hungary if they mess with the “independence” of the central bank.

But hopefully more countries out there will start going after their central banks.  The truth is that it is the central banks and the endless debt spirals that they create that got us into this mess in the first place.

If central banking truly worked, Europe would not be in such a massive amount of trouble.  The euro would not be dropping like a rock and the European financial system would not be paralyzed by panic and fear.

The reality is that central banking does not work and it a colossal failure.

For example, in the United States the U.S. dollar has lost well over 95 percent of its value since the Federal Reserve was created, and the U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was created.

It is amazing that there is anyone out there that is still willing to defend central banking.

2012 is going to be one of the most interesting years that we have seen in a long, long time.

Yes, 2012 will be more difficult than 2011 was, but it will also be a great opportunity to wake people up.

Our world is changing faster than ever before, and the Internet has made it possible for average people such as you and I to significantly participate in that change.

Resolve to do what you can to make a difference in this world in 2012, because time is rapidly running out.

The post 2012 Will Be More Difficult Than 2011 appeared first on The Economic Collapse.

In the new survey mentioned above, those contacted were asked to select the top three potential catastrophes that worry them the most.

The following results come directly from the survey….

Economic Collapse: 63%
Natural Disaster: 46%
Terrorist Attack: 44%
Global Disease Outbreak: 33%
Global War: 27%
Nuclear Accident: 25%
Global Warming: 22%
Fuel Shortage: 15%
Cyber War: 8%
Famine: 8%
Oil Spill: 6%
Industrial Accident: 5%

As you can see, “economic collapse” was the winner by a wide margin.

So are there good reasons for the American people to be concerned about an economic collapse?

Of course there are.

Back in 2008, a financial crisis that began on Wall Street was felt in the farthest corners of the globe.

This time, ground zero for the financial crisis is going to be in Europe.  As I have written about previously, the European financial system is rapidly coming apart at the seams.  The euro continues to drop like a rock, and banking stocks continue their long-term decline.

Many people expect a “financial collapse” to happen on a particular day.  But that is not how it happens usually.  Instead, it is often like a snowball that starts rolling downhill very slowly at first but that eventually become a huge avalanche.

Right now, we are seeing the financial world come apart in slow motion.  A recent article posted on Automatic Earth included a list of the year-to-date performance of some of the most prominent global banking stocks.  These numbers are absolutely staggering….

• BofA: -60.38%
• Citi: -44.76%
• Goldman Sachs: -46.41%
• JPMorgan: -23.03%
• Morgan Stanley: -45.24%
• RBS: -50%
• Barclays: -34.32%
• Lloyds: -63.02%
• UBS: -29.33%
• Deutsche Bank: -28,55%
• Crédit Agricole: -56.04%
• BNP Paribas: -37.67%
• Société Générale: -59.57%

But because these numbers happened over the course of a year and not on a single day it doesn’t feel quite as much like a “collapse”.

Unfortunately, things are about to get a whole lot worse.  Global credit markets are really freezing up – especially in Europe.

Considering the fact that the entire global financial system is based on credit and debt, that is a very bad thing.

Our system simply does not work when banks do not want to lend money to each other or to businesses.

Just yesterday there was an article in the Guardian that talked about how it looks like the credit crunch may be getting even worse….

“If European banks are still this concerned, it’s not a good sign,” said Karl Schamotta, senior markets strategist with Western Union Business Solutions. “That underlines the possibility that this liquidity crunch is getting worse and will continue into the new year.”

When banks cut back on lending, that causes the money supply to shrink.  When the money supply shrinks substantially, it is almost impossible to avoid a recession.  A recent article by Ambrose Evans-Pritchard detailed how the money supply in many eurozone nations is shrinking at a very rapid pace right now….

Simon Ward from Henderson Global Investors said “narrow” M1 money – which includes cash and overnight deposits, and signals short-term spending plans – shows an alarming split between North and South.

While real M1 deposits are still holding up in the German bloc, the rate of fall over the last six months (annualised) has been 20.7pc in Greece, 16.3pc in Portugal, 11.8pc in Ireland, and 8.1pc in Spain, and 6.7pc in Italy. The pace of decline in Italy has been accelerating, partly due to capital flight. “This rate of contraction is greater than in early 2008 and implies an even deeper recession, both for Italy and the whole periphery,” said Mr Ward.

Those are very, very frightening numbers.

About the only thing propping up European banks right now is the fact that the European Central Bank is loaning them gigantic piles of cheap money.

But there is a big problem.

European banks are running out of collateral for those loans as an article in the Wall Street Journal recently noted….

Even after the European Central Bank doled out nearly half a trillion euros of loans to cash-strapped banks last week, fears about potential financial problems are still stalking the sector. One big reason: concerns about collateral.

The only way European banks can now convince anyone—institutional investors, fellow banks or the ECB—to lend them money is if they pledge high-quality assets as collateral.

Now some regulators and bankers are becoming nervous that some lenders’ supplies of such assets, which include European government bonds and investment-grade non-government debt, are running low.

So what happens when banks all over Europe start running out of collateral and can’t get any more loans?

The answer should be obvious.

As I detailed a few days ago, many prominent voices in the financial world now believe that we could be looking at a financial crisis that will be even worse than 2008.

If you want to see what happens when a collapse happens and a depression begins, just look at what is happening in Greece….

*100,000 businesses have been closed since the beginning of the crisis.

*About a third of the nation is now living in poverty.

*The unemployment rate for those under the age of 24 is 39 percent.

*The number of suicides has increased by 40 percent in the past year.

*Thefts and burglaries nearly doubled between 2007 and 2009.

Things have gotten so bad that hundreds of families in Greece are abandoning their children.

Some are taking their children to charitable institutions and others are handing them directly over to the government.

The following sad story of one Greek family comes from an article in the Guardian….

“Psychologically we were all in a bit of a mess,” said Gasparinatos. “We were sleeping on mattresses on the floor, the rent hadn’t been paid for months, something had to be done.”

And so, with Christmas approaching, the 42-year-old took the decision to put in an official request for three of his boys and one daughter to be taken into care.

“The crisis had killed us. I am ashamed to say but it had got to the point where I couldn’t even afford the €2 needed to buy bread,” he told the Guardian. “We didn’t want to break up the family but we did think it would be easier for them if four of my children were sent to an institution for maybe two or three years.”

Does that seem shocking to you?

Well, all of this is coming to America eventually.

Someday we will see American parents abandoning their children because they cannot take care of them anymore.

Someday we will see suicides absolutely skyrocket in America because people have lost all hope.

Someday we will see thefts and burglaries soar to unprecedented heights as millions of desperate people attempt to try to find some way to survive.

It is all coming.

The federal government cannot pile up a trillion dollars of additional debt every year indefinitely.

We cannot afford to see an average of 23 manufacturing facilities a day in the United States shut down.  Eventually there won’t be anymore factories to shut down.

We cannot afford to keep putting millions more Americans on welfare.  At this point the government is feeding 46 million Americans a month.  Will the government eventually be feeding most of us?

The U.S. economy is getting weaker and weaker and weaker.  All of the long-term trends are absolutely nightmarish.  We are accumulating debt faster than ever, and our ability to produce wealth is diminishing faster than ever.

There is no way that things are going to be okay if we stay on the path that we are currently on.

So the truth is that Americans should be very concerned about an economic collapse.

It is coming and it is going to be very painful.

The post The Number One Catastrophic Event That Americans Worry About: Economic Collapse appeared first on The Economic Collapse.

It is not as if the euro is just having a bad week.  Just check out this chart that shows what the euro has done relative to the U.S. dollar over the past 6 months.

The truth is that a collapse of the euro has already begun.

And a whole lot of investors expect it to continue.  Right now, huge amounts of money are being poured into bets that the euro is going to go even lower.

All over the world, financial professionals are speculating about how far the euro will eventually fall.  Scott Mather, the head of global bond portfolio management at PIMCO, says that he believes that the euro is going to go much, much lower….

“Parity with the dollar next year is not out of the question”

Of course the central banks of the world could step in at some point with coordinated action to help support the value of the euro.  This kind of thing has happened before.  But such support would only be temporary.

Central banks can manipulate the markets for a while, but in the end the long-term trends are going to prevail.  Just look at what is happening with European bond yields.

European bond yields are rising once again even though the European Central Bank has already spent over 274 billion dollars buying up European government bonds.

There will be more efforts to try to prevent the death of the euro, but those efforts will be kind of like spitting into the wind.

A recent article posted on Crackerjack Finance talked about some of the fundamental problems that make the euro such a flawed currency….

The problems of the Eurozone’s flawed construct are now completely exposed. A block of 17 sovereign nations have adopted a common currency and outsourced monetary policy to a common central bank. Yet each of the 17 sovereign nations have different comparative advantages, industries, debt levels, interest rates, budget deficits, labor market rules, and tax policies. Reflecting on all the differences, it is amazing that the Eurozone has survived in the current construct for over a decade.

Greece would probably not be going through an economic depression right now if they had not joined the euro.  But now, 100,000 businesses have closed since the beginning of the recent crisis and a third of the country is living in poverty.

As this crisis spreads throughout the rest of Europe, it is going to put an incredible amount of stress on the European financial system.  Many now believe that the euro may not be able to make it through the tough times that are ahead.

The following comes from a report recently produced by Credit Suisse’s Fixed Income Research unit….

“We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks.”

So will we actually see the end of the euro?

Only time will tell.

But one thing is for sure – the situation in Europe is rapidly getting worse.

In Greece, approximately 20 percent of all bank deposits have been withdrawn since the start of 2011.

If you still have money in a Greek bank, you might want to do something about it before the run on the banks gets even worse.

In fact, if you still have money in any European bank, you might want to consider your options.

Today it was revealed that Germany’s second largest bank is going to need a bailout.

The following comes from a Sky News report….

Germany’s second largest bank, Commerzbank, is reportedly in discussions with the German government about a bailout after regulators said it needed to raise more money to cope with a potential default on its loans to governments.

“Intense talks” have been going on for several days, according to sources who spoke to the news agency Reuters.

Let the bailouts begin!

European governments are going to save the banks that they want to save, and the rest they are going to let fail.

So who will live and who will die?

We just don’t know.

But without a doubt, a whole lot of European banks are in trouble.  In fact, Fitch Ratings downgraded the credit ratings of five more major European banks on Wednesday.

The eurozone worked well for a while, but now the flaws in the system are becoming appallingly evident.  To get an idea of just how badly the European financial system is unraveling, just check out this chart.  European bond yields are not supposed to be acting like that.

In the end, someone is going to leave the euro.  There has been a lot of talk about Greece or Italy leaving the euro, but the truth is that it is probably more likely that a strong nation such as Germany will be the first to make a move.

If Germany leaves the euro, will they start printing up new German currency?

No, I believe in that case that Germany would seek to establish an entirely new European currency for an entirely new European financial system.  Germany is very committed to the idea of a “European superstate“, and just because the euro is a failure does not mean that they are ready to give up on the idea.

But time will tell who is right and who is wrong.

For much more on why we are on the verge of a massive financial collapse in Europe, please check out these articles….

*”Mega Fail: 17 Signs That The European Financial System Is Heading For An Implosion Of Historic Proportions”

*”22 Reasons Why We Could See An Economic Collapse In Europe In 2012”

As I have written about previously, it doesn’t take a genius to figure out what is happening in Europe.  The equation is simple….

Brutal austerity + toxic levels of government debt + rising bond yields + a lack of confidence in the financial system + banks that are massively overleveraged + a massive credit crunch = A financial implosion of historic proportions

Unfortunately, the United States is not going to escape all of this chaos unscathed either.

The financial systems of the United States and Europe are more deeply tied together than ever before.  When the financial crisis in Europe fully erupts, we are going to see lots of banks in the United States fail too.

The U.S. economy never recovered from the financial crisis of 2008, and this next financial crisis could send us into a huge tailspin.

2012 is going to be a very interesting year for the financial world.  I hope that you all are ready for what is about to happen.

The post The Collapse Of The Euro, The Death Of The Euro And The End Of The Euro appeared first on The Economic Collapse.