Penn Wealth Publishing

2015.01.25 Journal of Wealth & Success Vol 3 Issue 4

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12 wealth & success volume 3 issue 4 January 25, 2015 wealth & success Copyright 2015. All Rights Reserved. weekly business rePort Weekly Business Report Visit the EU Debt Clock for yourself at euroPean central bank to flood market with €60 billion each month until sePtember 2016 In the midst of some future generation, America may actually be able to bring its $18 trillion debt down to a more "manageable" level, but that will be after politicians are term-limited out of office, and a bal- anced budget amendment gets added to the US Constitution. The only element the US has going for it, from a fiscal responsibility standpoint, is the certainty that Europe is more government-centric than we are. Evidence Mario Draghi's announcement Thursday that the European Central Bank will begin flooding €60 billion euros per month into the bowels of Europe for at least the next year and a half. That equates to $69 billion dol- lars per month, or nearly $1.2 TRILLION of new debt for the continent. Have no fear, Europeans, Draghi is keeping open the option of extending the deadline if necessary. What is "necessary" to a politician with someone else's checkbook? Is enough ever really enough? All in a misguided effort to devalue the euro and stave off deflation. The ghost of John Maynard Keynes still haunts Europe, and will for the foreseeable future, but America finally seems ready to shake off the specter. We have the benefit of fifty state governments all (relatively) working for the same goals. In the European Union you have twenty-eight different countries with dramatically different back- grounds, twenty-four different languages, and a few countries calling the shots. For example, the ECB will buy sovereign bonds, ranging from two to thirty years, from the EU governments, including Greece (after July, when enough of the previously-purchased securities mature). But the Greeks are about to elect a self-proclaimed communist as their leader; someone who has vowed to end the Central Bank's "tyranny" over the country and rearrange the payback schedule on money already given to the economically decrepit state. Or try this one—the original plan was for the misery, in case of default by any one state on the payback provisions, to be spread equally among all members. This provision, at least, was shot down to assure the plan's passage. Not surprisingly, the euro fell to an 11-year low against the dollar after the move, settling in at $1.14: €1. In aggregate, the eurozone has a $13 trillion economy, second only to the US's $17 trillion. They will need that big GDP to service their €12 trillion of government debt. the dollar is getting its moJo on We like to go to Walt Disney World every year. When you visit some- place on a regular basis, you begin to notice trends. For example, I was amazed at how many Europeans were at the park the last time we went. Then it dawned on me: the anemic dollar and strong euro meant that everything from their airfare to the hotel room to the park admission was on sale, com- pliments of a frenetic US treasury department trying to make our dol- lar worthless. No thanks to the US govern- ment, the worm has turned. Over the past six months or so, a graph of the value of the euro versus the dollar looks a lot like a graph of oil prices over the same time frame. As the ECB printing presses take over where our treasury left off, King Dollar is reclaiming its lost glory. The last time one euro traded for one dollar was in November of 2002. It actually dropped below the parity mark back in 2000, when it would purchase just $0.84. At that time, the currency was still shiny— it came into existence in 1999. Of course, the doomsday press must point out that this is bad news for our big exporters, as it costs more for Europe to buy our goods, but file that along with their report- ing of how low oil hurts the US. Europe is facing a cold winter, and not just on the climatic front. Recession is more likely than not for the continent, even affecting the more affluent northern countries, and they still (thanks a lot, US) must grovel to Putin for a large percent- age of their natural gas. Suddenly the United States is looking like 2015's Shining City on a Hill. The ghost of John Maynard Keynes still haunts Europe. One euro would buy you $1.40 about seven months ago; now it will buy you $1.19, and we believe it is heading for parity. Data source: St. Louis Federal Reserve.

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