Looming Defaults and the Effect on Currencies, US$ vs Euro

The race to the bottom is on! The only question remaining: Who will blink first?

I am referring to the race to default.  As you will see when reading the stories below, the USA and the EU have major cracks in the foundation.  Should Greece and/or Portugal default on debt the Euro would suffer accordingly. However, if and when California (or any number of other states in trouble) defaults, the US$ will suffer.  Witnessing this Greek tragedy of a race unfold (pun intended) may be interesting if not entertaining,  but the winner is in fact inconsequential.  

The big picture take away offers the most value for those looking to invest.  I can say with abundant clarity, both the USA and EU will need to create prodigious amounts of fiat currency to deal with the ongoing financial chaos.  This dramatic increase in the already bloated supply of fiat currencies will lead to an ever increasing demand for a constant and ancient store of value.  The store I refer to is of course that ‘barbarous relic’ known as Gold.  

Allow me a moment of clarification in regards to the word ‘default’.  Sources tell me Webster’s is changing the definition of the word default.  You know the word to mean: 

De-Fault (di-fawlt) -Noun 1. failure to meet financial obligations.

However, in light of the current political environment both in the USA and abroad, the new definition for the word default will be:

De-Fault (di-fawlt) -Noun 1. An instance of coming to the rescue, esp. financially: a government default of a large company.

Because of this change, the word ‘bailout’ will no longer be required and shall be stricken from the lexicon.

Greece and Portugal face ’slow death’ over debt crisis – Telegraph.co.uk

Greece and Portugal are likely to suffer a “slow death”, as higher debt costs cause the economy to “bleed” economic potential, Moody’s credit ratings agency has warned.  Moody’s Investors Service said unless the two countries reverse their large current account deficits, wealth generated would increasingly have to be used to pay off rising debt costs as investors demand more to hold Greek and Portuguese bonds. To compensate, the governments would have to keep raising taxes, which in turn could smother investment and drive out wealth creators, Moody’s said. “The risk of a ’sudden death’ is negligible, but the likelihood of a ’slow death’…is high,” the report said.  Moody’s warned that the window of time the countries have in which to act “will not be open indefinitely”, adding that Greece would have “significantly less time” than Portugal.

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California Creditors Dread IOUs With Aid Plea Failing – Bloomberg

Jan. 13 (Bloomberg) — California’s hopes are fading for federal help in closing a projected $19.9 billion deficit that has caused the lowest-rated state’s borrowing costs to rise 24 percent since September. “We recognize they have enormous problems,” David Axelrod, senior adviser to President Barack Obama, said in an interview. “But we can’t solve all of those problems from Washington.” Investors are growing more concerned that California, whose debt rating was cut today by Standard & Poor’s, will repeat last year’s fiscal crisis that forced it to use IOUs to pay bills. With Governor Arnold Schwarzenegger seeking $6.9 billion in federal assistance to narrow the deficit, the extra yield paid on the state’s 10-year bonds over AAA-rated municipal securities rose to 1.31 percentage points yesterday from 1.06 points on Sept. 11, according to Bloomberg fair market value index data.

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Rosenthal Capital Management runs the Fortune’s Favorite Family of Funds, including Fortune’s Favor I, Fortune’s Favor Precious Metals and Fortune’s Favor Offshore. For more information visitwww.rosenthalcapital.com

About Bret Rosenthal

Interpreting the news that moves markets. Principal of RCM, LLC, and founding partner of the Fortune's Favor Family of Funds
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