About a year ago we wrote an article questioning if the USD was going to have its first major crisis in 2012. Back then, we were trying to take a guess on when this would happen, and it turned out it will happen in 2012 according to our calculations. This estimate had nothing to do with the 2012 hysteria. It was what we thought would happen based on the US debt growth.
The US Debt ceiling debate is merely part of that story. I am sure at some point that ceiling will be raised. But going into the next several years is going to be tough on the USD. We have $2 trillion dollar deficits as far as the eye can see.
So, with gold in the $1600 ranges, $1700s look likely, the US will at least initially default, if not already. There will be a compromise, and Obama will make sure the US gets the most debt he can spend in the shortest time. But what happens in a year?
In another year, (if we survive without a stock crash) the US will have to go through this whole process again. The US is trying to get a deal where the US debt ceiling will be raised $2.4 trillion to cover our deficits through the end of the 2012 election.
The USD aint some tiny currency
Now, let's be clear here. The USD is struggling and the US is having a sovereign debt crisis. Even though our interest rates are just about the lowest in the world, any negative deterioration should the US actually default can lead to rapid contagion because this is the USD which is the world's reserve currency (that means that the big central banks in the world hold the USD as cash reserves, as well as their own currency, the USD is presently about 60% of all central bank reserves).
2012 financial panic?
Man, it sure looks like we are headed for one. If not, then as soon as Fall 2011. The markets are so spooked it's not funny. Right now all they are doing is a holding pattern until something evolves with the USD debt ceiling. The entire world is looking to see how the US deals with its budget deficits (the major problem) of $2 trillion a year. The clock is definitely ticking and it's just about two minutes to midnight. Midnight looks like 2012 at the furthest to me...
If we have to get another $2.4 trillion to cover the US budget deficit till after the November 2012 elections, that will leave the US with little money to intervene in another bank panic. This is why the entire world is asking the US to raise its debt ceiling before a default. They all know the Fed was the source of the multi trillion dollar cash infusions during the two bank crises of Fall 2007 (Bear Stearns) and Fall 2008 (Lehman). That Fed money was pushed to the EU banks for one thing, a lot of that money...
Now we have EU Bank crisis 3
Now, the Euro is in trouble again, at the same time as the USD problems today. The USD is not near in the trouble of the Euro, but the point is we have two gigantic sick world currencies; one is the world reserve currency in crisis!
Since Greece still is not resolved, and that crisis is spreading to other banks in Spain and Italy and the other weaker banks in the EU and French banks are now being troubled, Germany is not going to just bail everyone out...
So the EU looks destined to break up or have insurrections all along the South. France might get dragged in too. The EU might be called a paralyzed political institution right now. No one is agreeing on any hard choices. The Euro is being left to rise or fall on its own. Not good. I always thought the Euro was flawed. There is no consensus to save it in the EU.
Financial Armageddon 2012?
We have been struck by the correlation of the diverse prophetic dates around 2012 coinciding with the USD crisis that is building. We also note this year that the Euro too is in big big trouble- again conveniently just before the fateful (according to many major religions) 2012 date. This really emerged after Greece started to reveal how intractable those EU bank problems are. IE there will be some kind of Greek default and Spanish default, or the EU will have to issue bonds through the ECB itself for all of them.
In any case, over the next year, we don't see these sovereign debt crises getting better, they will only get worse. Start the countdown to Dec 2012, because that is right after the November 2012 elections in the US. 2013 will be wild.
Our newsletter focuses on financial security as well as the gold and currency markets. We also have been focusing some on the end times prophecies relating to 2012 because they affect the Middle East and the oil markets and the stability there. We suspect that prophecies will play a major role in all markets in the next decade. It is turning out to be a very interesting study. We cover markets and prophecy as a topic.
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Disclaimer: Chris Laird is not an investment advisor/professional. This article, and the PrudentSquirrel newsletter and alerts, are general market commentary only. They are not intended as specific advice. You should talk to your own investment professionals for specific advice. Information here is deemed reliable but should be verified by you if you think it's important.