Foreign Currency Chaos

24 April 2010

I would strongly advise anyone thinking of buying property speculatively to sit tight for the moment. Things are getting much much worse in our troubled world.

There are several disasters that are growing worse on a daily basis.

1    The UK budget deficit has increased by 40% over the past year, knocking the UK into the sovereign debt disaster club. This was totally avoidable. Unfortunately, we have a sleepwalking government. They are incompetant beyond belief. The others may well be just as bad. I dont hold out much hope for an easy resolution. This can only lead to a problem with debt. To cover it the country either needs to recover spectacularly, or the government has to make up the deficit. That can only be done by either printing money which will debase the currency, and devalue any assets held in that currency, or by borrowing more money. That will push up the cost of borrowing, which will feed through to mortgage interest rates. They will have to rise. That will put a lot of folks into bankruptcy, and will push down property prices.

2    The Eurozone is in deep trouble. The problems with the PIGS are getting worse. The Greek bailout hasn’t yet taken place, but an agreement is in place. That has not improved the Greek debt situation. Whereas before the deal Greek debt was selling at just over 7%, it is now up to 8.5% and rising. As a reference point, German debt sells for 3%.

However you look at it, Greece has gone beyond rescue. Anyone holding Greek assets is likely to start losing money rapidly. For god’s sake dont buy anything in Greece. There has to be a devaluation of some kind in the pipeline. Any rescue package will turn out to be good money thrown after bad.

The other PIGS are also still in trouble.

There is a strong possibility that all these countries will have to exit the eurozone and go back to their former currencies. That will mean instant devaluation, probably by as much as 30%.

There is an alternative, intriguing possibility. The question is, will Germany bail out all these losers? Why should German taxpayers support these countries? What’s another alternative? Germany exiting the eurozone. That would leave a whole heap of losing currencies bundled together, huddling together naked in the cold glare of a crashing world economy. That would be the end of the euro. I dont think Europe looks a good proposition at the moment.

As I have said many times before I am buying Brazil. To hell with the UK. To hell with Europe. And to hell with the USA.