Here we go again. With the debt ceiling approaching, the dollar hitting a record low against the Swiss Franc, dollar-based commodities soaring to new highs; everyone has been predicting the death of the dollar, again. Yet, as if by miracle, Euro-zone troubles emerge just in time to save the dollar from complete collapse.
Spiegel Online reported Saturday that Greece is considering leaving the Euro and printing its own currency, prompting a secret crisis meeting in Luxembourg. Finance ministers and European Commission representatives scrambled to figure out how to threaten Greece back into the fold.
‘It would lead to a considerable devaluation of the new (Greek) domestic currency against the euro,” the paper states. According to German Finance Ministry estimates, the currency could lose as much as 50 percent of its value, leading to a drastic increase in Greek national debt. Schäuble’s staff have calculated that Greece’s national deficit would rise to 200 percent of gross domestic product after such a devaluation. A debt restructuring would be inevitable,’ his experts warn in the paper. In other words: Greece would go bankrupt.
Somehow the threat of bankruptcy seems palatable to a country that is experiencing almost daily protests by the people due to unending austerity measures enforced by the IMF and European Central Bank. However, the Commission seems much more concerned about the overall health of the Euro than they do about Greece.
They are acutely aware, as the internal paper indicates, that a withdrawal of any country from the Union would “seriously damage faith in the functioning of the euro zone that would lead to contagion in the euro zone.” If true, they will likely do everything possible to “help” Greece and prevent the secession from happening.
Yet, all of this appears to be a manufactured story to elicit one goal: to weaken the euro against the dollar. The Guardian reported that Greece quickly denied the story, quoting the Greek deputy finance minister, Filippos Sachinidis, in Reuters, “The report about Greece leaving the eurozone is untrue. Such reports undermine Greece and the euro and serve market speculation games.” But the effect had already taken hold, bolstered in the headline Euro plunges after reports Greece could leave currency, which reported:
The euro has fallen sharply on the foreign exchange markets in late trading after reports Greece is preparing to leave the eurozone…
…The euro has had its worst week since January, and has fallen 1% to below $1.4400
On another front, the Scottish National Party won a landslide victory in the Scottish Parliament primarily on the promise to hold a referendum on independence from the United Kingdom. These elections in Scotland indicate that the newly elected government may seek independence from the U.K. in what can only be seen as a trend of de-consolidation of the area.
The news of the power struggle in the euro zone will likely cause the euro to fall once again against the flimsy U.S. dollar. It is the exact same trend we predicted in October, 2010 which came true in the very next month in what appears to be an endless yo-yo of perception moving the Forex.
The U.S. dollar and the euro are putting on a perpetual global show of “who sucks less.” This round goes to the dollar, and will continue until the Greece issue is “resolved” and the debt ceiling debate reignites in the United States. Then, at some future date when we are contemplating the death of the dollar again, Spain will fall and the exact same thing will occur.