“Before we experience widespread defaults the authorities will pull out every trick in the book to prevent catastrophe. That’s because there is a general belief that the European Union was a good idea. In order to compete against the United States and Asia, the European countries had to hang together. It was as much a geopolitical decision as an economic one. There needs to be more cooperation among the European leaders. The first step is to create a coordinated banking system to prevent a run on the banks. Deposit insurance won’t do the job. It’s too much to expect the various governments to agree to a political union at this time, but there could be a banking union to prevent the European banking system from collapsing.
“The next step will be for every central bank in the world to keep printing money. Ultimately this will bring on a higher level of inflation, but I think the world is ready to accept that. World leaders will agree that growth should be their objective and inflation will be the price they will have to pay for it. This may result in some instability among currencies. Before this happens there will have to be more suffering. Spain and Greece will default. There won’t be outright financial disaster because by the time the defaults take place the banks will have sold most of the troubled sovereign debt on their balance sheets to the European Central Bank. France’s deficit will get worse as Hollande implements some of the programs he talked about in his campaign. Human beings and governments have an unlimited imagination and they will use it to delay the day of reckoning. In the longer term the crisis may turn out to be a good thing because the pain of what we are about to go through will prevent it from ever happening again.
“So what am I doing with my money? It is hard to hide in stocks. ............. I think gold is going much higher. I am buying energy stocks because I want to own something real. Preserving capital is my focus now, not making money