Financial markets continue to be buffetted by the ever-changing threat from Europe's sovereign debt crisis. Gold and silver investors have not been immune, with both metals sharply off their highs amid financial market volatility and margin rate increases by the CME and SGE. Since last Tuesday, there has been a wave of investor optimism that Europe is working on plans to finally contain the crisis. Bloomberg has an excellent synopsis of the many factors affecting the crisis, steps being taken to address market concerns, and the threat to the global economy Europe's mess represents. Gainesville Coins feels the article is worth the time to read.
“Cascading default, bank runs and catastrophic risk” lie ahead for the world economy unless Europe resolves its festering debt crisis, Timothy F Geithner told global finance chiefs on the morning of Sept. 24.
The U.S. Treasury secretary spoke from experience and lessons learned. Three years ago, he was president of the Federal Reserve Bank of New York and working to shore up a financial system in the chaos following the collapse of Lehman Brothers. His warning last month at a meeting of the International Monetary Fund in Washington was the third in three weekends after he jetted to conferences in France and Poland to appeal directly to Europe’s policy makers for action.
After New York-based Lehman filed for bankruptcy on Sept. 15, 2008, financial institutions lost or wrote off almost $1 trillion; the Standard & Poor’s 500 Index fell 40 percent in six months; and the world slumped into the deepest recession since World War II. The global economy still hasn’t recovered and has been close to stalling anew for the past several months.
Europe's nightmare scenario would mean fresh financial disaster, according to Nobel laureate economist Robert Mundell. In the worst case, authorities fail to prevent Greece from defaulting on 356 billion euros ($489 billion) and investors react by triggering insolvencies as far as Spain and Italy. Such a firestorm would devastate bank balance sheets, rock markets, derail economic growth and threaten to splinter the 17-nation euro area. The European Central Bank would probably have to lead the response as the Fed did in 2008.