I try not to be alarmist or give too much credence to the myriad of conspiracy theories that swirl around the global financial system.
The global web of commerce is prone to false alarms and I’m always skeptical of claims that organizations barely capable of coherent management of their core mission are somehow capable of pulling off a global coup.
I don’t need to traffic in conspiracy theories or fear to make a case for precious metals being part of your investment mix; there are many good reasons to invest in gold and silver, even in a perfectly healthy economic climate. All the same, I’m going to sound alarmist this morning.
The reports coming in from Europe are troubling and convey the impression that a sense of panic is setting in across the Atlantic. There is good reason for concern here because of the intertwined nature of the global banking system.
If the European finance ministers fail, Europe fails. That fairly alarming statement is not overstating the situation. First, Greece would fold up like a pup tent in a wind storm. That by itself would be bad enough; European banks would get crushed. The shock waves from Greece could swamp Italy a day or two later, followed by Portugal and Spain. The European banking system would slam shut in a matter of hours.
I’m not talking about next year or even next month; I’m talking about next week.
Our banks in the U.S., already on life support, would be dragged down by the tentacles of derivatives trading that was one of the primary drivers of the meltdown in 2008 and continues today.
Imagine the Argentinian melt down of the late 90s happening everywhere at once. Withdraws of money would be limited and everyone would be waking up at once to the reality that, other than change for the teller drawers, banks don’t really keep much cash on hand these days.
Such an event would certainly spur the Fed to pour money into the economy, whether it would help or not is not clear. Adding more money to an economy when no one is spending the money they have is like using gasoline to fight a forest fire.
Keep in mind all these ominous clouds could disappear in a blink. It’s not unusual for Europeans to fight and back-bite over the most trivial of matters, only to have a consensus decision materialize seemingly out of thin air. European banks have been laying on reserve capital for months and it’s possible a Greek default could turn out to be painful but manageable.
Still, the possibility is real enough some prudent precautions might be advisable. Perhaps keeping a little more cash on hand than usual, at least temporarily. What’s the harm in that? You can always put spare cash back in the bank later. And it’s always wise to keep a small stash of emergency supplies on hand.
It’s not paranoid or alarmist to advise people to take prudent and reasonable precautions that would be helpful in any kind of an emergency situation. Honestly, I think the potential for a nightmare scenario is really quite small. Still, the essence of being prepared for storm is putting away supplies when skies are sunny. .