Every since the $1 trillion European Union TARP program took place in May 2010 it has taken a back seat in the media. It seems as long as the stock markets around the world inflate higher on the back of the weaker U.S. Dollar Index everything is fine. However, the problems continue to surface in the European Union. The Irish bund spreads are as wide as they have ever been. The yield spread between Irish 10-year government bonds and the benchmark German 10-year bund has reached a new high of 541 basis points. In the past a spread this wide has spelled trouble. Greece, Spain, and Portugal do not fare much better despite not receiving the media attention.
As the U.S. Dollar Index declines the Euro rises and increases. A strong Euro cannot be helping the European exports. In fact, the German Finance Minister Wolfgang Schaeuble called the Federal Reserve’s $600 billion quantitative easing(money printing) “clueless” today. He also said that the Federal Reserve’s $600 billion injection “won’t revive growth”. Germany does not sound too happy by this statement and they have a fair point for feeling this way.
Since the Federal Reserve announced the quantitative easing plan in late August the stock market index has rallied higher by nearly 18.0 percent. However, commodities prices have also soared higher. Commodities such as cotton are higher by 80.0 percent since mid-July. Crude oil has rallied higher by 20.0 percent since late August. Copper has rallied higher by nearly 50.0 percent since early June. Gold and silver have soared as well, however, they both can be considered a true form of currency against the fiat money system that most countries use in the world. If the Federal Reserve wanted inflation they certainly got it.
Should the European Union start to hit major problems it is possible that the U.S. Dollar Index will see buyers again. Therefore, if the U.S. Dollar bounces higher or rallies the stock markets may begin to deflate and trade lower. Remember it was the Greece credit crisis that sparked the last major decline in late April of this year. The European Union problems cannot be over looked as the situation there does not seem to be improving.
