The Europeans Are Right, And the Americans Are Asleep

Includes: ERO, EU, PHYS
by: SW Richmond

Are you all watching the reaction of the Europeans to their own EuroTARP measure? They have reacted correctly; they immediately panicked. While the Americans reacted with glee to their own TARP bill, counting it as continuation of the investment paradigm of the 80's and beyond ("Don't bet against the Fed!"), the Europeans immediately saw through the measure and recognized it for what it was: the likely harbinger of an irreversible downtrend in the purchasing power of their currency, the Euro.

They fled like scalded cats, and rightly so. Billions of Euro flowed into CHF and gold, and apparently continue to do so. So much so that Zerohedge has pondered whether that is the reason why UBS has 3mo Euro Libor so comparably cheap, as a means of getting rid of the damned surplus of Euros.

Gold seems to have decoupled from USD; is this European buying pressure? Why are the Europeans so immediately anxious to dump their home currency and flee to something more historically stable?

I think the reason is simple. The Europeans have had their fill of collapsing currencies. Their cultural history contains plenty of currency debacles in recent memory. They know what printing money means.

In America, though, the scary stories that are told in hushed tones are of a deflation, the Great Depression. It's only in America, where we are more scared of deflation than inflation, that we welcome central bank printing and bailouts, and imagine that we are making money when our stocks go up, even when the currency is going down more.

Silly, isn't it?

Disclosure: Long precious metals and miners, guarded by a substantial cash position.