The euro zone is facing major changes in 2012, and one very real threat is the possibility that one or more nations will exit the monetary union.
But before you say “good riddance,” the ripple effects will reach far and wide … and your money could be in danger — even if you think you don’t have any exposure to the euro.
Find out how to protect yourself — and the investment that could double in value from today’s levels — by watching today’s video.
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Hi, this is Kevin Kerr for Uncommon Wisdom Daily.
Almost exactly a year ago, Estonia adopted the euro as its primary currency. And as we approach 2012, most people in this country regret that decision. The euro zone is plagued with various problems, and faces huge hurdles in trying to stay together and grow the single currency.
In my opinion, the dream of a united Europe — with one currency and borderless trade and commerce — was noble but unrealistic. Amid today’s instability, fear, poverty, high borrowing costs, weak currency and talk of a break-up, that is now painfully obvious.
The primary problem is that the cultures and history of the various EU members are vastly different. The idea that many of those barriers could or even should be broken down was misguided. What works in Greece, clearly doesn’t work in Milan or on Fleet Street.
The biggest losers are the small responsible countries, like Estonia, where I live. Our debt-to-GDP ratio is just 6.6%, but we’re tied to the fate of France, which has an 85% debt-to-GDP ratio.
I do not think the euro or the euro zone is going to disappear entirely. But it will face some drastic changes. Today I want to predict what those changes will be, and tell you how to protect yourself and profit from them.
First of all, I think the chance of some countries leaving the euro zone in early 2012 is about 70% to 75%, in line with many other analysts. The exit of one or more nations could cause an immediate run on the banks. Savers would rush to put their money into a core euro country, which would bring down the financial system of the departing country overnight. Companies and private households would not have access to loans. ATMs would dry up.
Fear and panic would cause social unrest and even riots. And don’t expect the government to come to the rescue, because it’ll be bankrupt.
This is not just a hypothetical situation. There is a growing consensus that Greece will have to exit the euro zone. And even some in France are discussing pulling out of the monetary union and returning to the franc. If that happened, the franc would depreciate by between 30% and 50% once it was reintroduced, which would cause the French government’s debts to explode even higher. This, in turn, would set off a hyperinflationary spiral.
Next, bankruptcies will multiply in the banks of Southern and Eastern Europe. And that would almost certainly bring about the downfall of the core northern EU countries, because they have lent their struggling neighbors huge sums of money over the years.
Ultimately, we’ll see exploding unemployment, surging prices and declining currency values, combined with widespread government defaults and isolation from international creditors and markets. I don’t think it’s a stretch to envision a socioeconomic nightmare, including rioting and martial law.
In this type of environment, the best safe harbor is gold. As investors rush into the precious metal, I wouldn’t be surprised to see gold prices double from their current levels.
In order to take advantage of the problems in Europe, you should consider adding gold to your portfolio, in the form of bullion bars, coins or numismatics. You can also buy options on gold futures, an ETF like the SPDR Gold Trust, or even some key mining stocks. In addition, you could bet against the euro by shorting the currency directly, or using an ETF like the ProShares UltraShort Euro, ticker symbol EUO.
As we ring in the New Year, the best gift you can give yourself is the ability to protect your wealth, and profit from the major changes that are sure to come.
For Uncommon Wisdom Daily, I’m Kevin Kerr, wishing you a safe, happy and healthy New Year.