There is an old saying in financial markets that they can stay irrational longer than you can stay liquid.
My long-term view is quite simple.
I still believe that the real debt crisis and problems are in the United States.
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Everything that is going on in Europe at the moment pertains to the United States: an overexpanded welfare state that is too expensive to maintain and a shaky and corrupt banking system.
The only difference?
The United States was smart enough to bail out its banks early in the crisis back in 2008. And with the U.S. dollar being the reserve currency of the world (run by one government, not 17), U.S. officials can print their own money to buy debt.
Therefore, it makes sense that the last piece of the global debt puzzle to unravel will be the U.S. debt crisis. We are probably at least 2-3 years away from this.
However, right now, we are just seeing how foolish and short-sighted most in the investment world are. To flee Europe and then turn around and throw that money into the United States is just stupid.
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If you look at the pure numbers, you will see that the United States is just as indebted as Spain, Italy, and France — and in many cases, the numbers are worse! The United States continues to print and spend at a record rate.
However, perception is reality. And because the United States doesn’t have a currency union (with 17 countries bickering with each other), it is seen as stable.
However, at some point, the crisis in Europe will pass. The Europeans will do the right thing and kick Greece out, and issue some sort of euro bonds. This will then add competition to the global bond market. And since Europeans will at least be attempting to cut spending, it will attract capital.
At that point, you will see money leave the U.S. dollar, especially when 2013-2014 roll around and there is still no credible debt plan.
So right now, don't be short-sighted. The dollar is still a basket case. In the short term, it might be a little less of a basket case than Europe. However, it will return to its role as basket-case supreme in a few years.
About the Author: David Skarica David Skarica is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes the Gold Stock Adviser. Discover more by Clicking Here Now.
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