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W Texas | Now that the EU has taken the extraordinary measure of reclassifying bank deposits in Cyprus as an investment/equity in the bank, rather than simple deposits, and in so doing demonstrated a willingness to ignore the rule of law, what happens to the Euro value and the Dollar value?
I think this will start a long-term exodus of liquid capital from the European Union. It might be that the currency will initially move from south to north. The problem with this strategy for people with deposits is that the northern banks will be insolvent too, once the southern banks go belly up. People will begin to realize that savings are not safe anywhere in Europe and will begin to offshore their money in a major way within the next few months. This will lead to capital inflows into the US banking system, as well as Switzerland, Canada, Australia, etc.
My thoughts are this is long term bullish for the US dollar, as US banks will be forced to sell Euros and buy Dollars as the capital inflow occurs. In turn, commodities priced in nominal dollar terms will sink in value.
The irony is that the US dollar will rise in value because we are printing cash to keep our banks solvent, whereas the Euro will tank because they are forcing insolvency upon the banks rather than printing Euros.
Am I missing something? | |
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Dollar/commodity implications of the Cyprus meltdown.
