San Diego Housing Bubble News and Analysis

So here's a interesting question for precious metal experts... If other world currencies start to tank relative to the USD because (again they themselves aren't immune to the financial crisis), what happens to the price of gold?

Peter Schiff thinks this is exactly what is going to happen. Gold becomes the new defacto reserve currency and it's value (relative to fiat currencies) soars. He envisions a future where the private industry supplies a 'gold' ATM; that credits/debits your gold holdings with a private company.

I think this is a real possibility.

However, I disagree with Peter Schiff that the US is going to collapse and the rest of the world take off like a skyrocket. I personally think our problems (credit/housing bubble) are really global in nature and we are better prepared to handle the correction/collapse than other countries.

We have a tremendous amount of natural and human resources and the capacity for progressive government. Our open immigration policies and world-class universities will continue to attract the worlds best.

And speaking of gold, we have more gold bullion reserves than any other country. So if the world decides to return to hard money; we'll have more of it than anyone else, regardless.

The poop is absolutely going to hit the fan in Europe and other countries too. I just read where the government's of Greece, Ireland & Germany have decided to guarantee all deposits in private bank accounts (CD's, checking & savings accounts...... and other accounts too) because they are expecting bank failures and are trying to prevent a run on the banks by the public.
As bad it is going to get in the good ole' USA...........(and it's going to get really nasty).............it's going to get as bad or worse in Europe and some Asian countries too.
As they say in the science fiction books and movies: "We are not alone". :)

Europe is in Big Trouble.

Lots of USA economists have been warning about this now for over a year, specifically that European central banks not only failed to follow the lead of our FOMC in cutting rates aggressively (as they should have), initially they even turned up their noses and critized the FOMC's rate cuts. There have been several great articles on this topic in the WSJ.

So European central banks were VERY LATE (relative to USA) in implementing fiscal stimulus in response to the global recession, and the financial meltdown.

stockstrader,

I don't think a lack of domestic consumption is the reason for Europe's recent bank problems. So cutting their interest rates a year ago probably would not have helped much.

In the US, there was a major reliance on increasing asset prices, and almost the entire population built its economic plans around that. Lots of real economic resources were allocated inefficiently as a result.

In Europe, there was also some reliance on increasing asset prices, but it was less pervasive and less extreme. It certainly occurred in Ireland, Spain, the UK, and to a lesser extent in several other countries. It didn't happen much in Germany. Note that the Hypo Bank problems are caused by non-German assets. So they will certainly have problems, but they will be a little less severe than the US.

STOCKHOLM, Sweden - Germany became the latest country to move to allay fears about the financial meltdown, enhancing a rescue plan for Hypo Real Estate AG and guaranteeing private bank accounts as European governments scrambled on their own Sunday to save failing banks.

Chancellor Angela Merkel said that no citizen should fear for the safety of their investments. Hours later, her government announced a new bailout package totaling 50 billion euros ($69 billion) for Hypo Real Estate, Germany’s second-biggest commercial property lender.

Hypo said an original euro35 billion ($48 billion) rescue plan fell apart after private lenders withdrew support, a key element to the proposal that had already been approved by the EU.

The deal was on top of the guarantees of private accounts. German Finance Ministry spokesman Torsten Albig said the unlimited guarantee covered some 568 billion euros ($785 billion) in savings and checking accounts as well as time deposits, or CDs.

At the same time, Belgian Prime Minister Yves Leterme said that France’s BNP Paribas SA had committed to taking a 75-percent stake in Fortis NV.

Leterme said the Belgian and Luxembourg governments would, in turn, take a blocking minority share in BNP Paribas.

The deal came after two days of closed-door talks between the Paris-based bank, Fortis and government authorities in an effort to restore confidence in the company before markets open Monday.

In Iceland — particularly hard-hit by the credit crunch — government officials and banking chiefs were discussing a possible rescue plan for the country’s overstretched commercial banks.

British treasury chief Alistair Darling said he was ready to take “pretty big steps that we wouldn’t take in ordinary times” to help the country weather the credit crunch.

In the past year the government has nationalized struggling mortgage lenders Northern Rock and Bradford & Bingley.

“The European banking industry is feeling the wind of default blowing from the other side of the Atlantic,” said Axel Pierron, senior vice president at Celent, a Boston, Massachusetts-based financial research and consulting firm.

The erosion has also injured overall confidence and caused concern among investors, politicians and the European public.

The leaders of Germany, France, Britain and Italy met Saturday to discuss the meltdown that has leapfrogged across the Atlantic from the U.S. to Europe, but shied away from action on the scale of the massive $700 billion bailout passed by the U.S. Congress on Friday and later signed into law by President Bush.

Their failure to agree to an EU-wide plan showcased the divisions in Europe on how to deal with the crisis.

France had suggested a multibillion-euro (multibillion-dollar) EU-wide government bailout plan, but backed off after Germany said banks must find their own way out.

French President Nicolas Sarkozy’s top adviser, Claude Gueant, insisted that a “common European plan” had come out of the summit.

“What is certain and what the citizens of France and Europe must know is that their (banking) establishments won’t be left in difficulty,” he told Europe-1 radio on Sunday.

Icelandic banks expanded rapidly after deregulation of the domestic financial market in the 1990s and now have combined foreign liabilities in excess of 100 billion euros ($138 billion) — dwarfing the tiny country’s gross domestic product of 14 billion euros ($19 billion euros).

The government last week took over Iceland’s third-largest bank, Glitnir, a decision that prompted major credit ratings agencies to downgrade both Iceland’s four major banks and its government credit rating.

Looming large was a growing sense that the Federal Reserve and Europe’s major central banks — which have been flooding euros and dollars to banks that have grown increasingly unwilling to lend money even to themselves — were ready to institute emergency cuts to their benchmark interest rates this week.

None of the banks, including the European Central Bank and Bank of England, have commented on potential rate hikes or cuts. But analysts believe the Bank of England, which meets this Thursday, will likely lower its rate below 5 percent. The ECB left its rate unchanged at 4.25 percent on Thursday, but opened the door to a rate cut.

Robert Brusca, chief economist at the New York-based Fact and Opinion Economics, said that the ECB does issue such a cut it would a be a sign “that they’re really, really scared.

Are these international financial issues caused largely by investment in shakey US MBS?

Or are they largeley internal issues within those countries?

On one of the news shows this morning, I believe there was mention made of this being largely due to trust in the exotic investment intruments that originated in the US....