In Gold we trust

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Merkel Obama

Even in countries where Christian values play a vital role in everyday life, people know by heart that money amounts to something sacred. Take for instance the US whose coins and banknotes link their inner solvency to God’s trust. You couldn’t find a better patronage even if counting on Heaven’s intercession doesn’t prevent the dollar from being dented by an escalating debt.

The US faces a daunting outlook should the Congress prove unable to defuse in due time the fiscal cliff it is confronted with. Markets are confident that a last minute deal is likely being struck before the deadline expires.

The impact of sharp fiscal rises and expenditure cuts, draining up to 5% GDP, wouldn’t anyhow take place on January the 1st. Budget cuts might be delayed till May, while tax increases could be reversed retrospectively at any time next year. But the biggest economy is playing with fire should Washington lawmakers fail to agree on a reasonable plan to redress its burgeoning deficit.

The EU in comparison faces a more extricate problem than avoiding a fiscal cliff. By firmly committing itself to enforce fiscal balance in the midst of a deepening recession, it lacks any room to avoid a huge production gap. Moves to pump some stamina into an ailing economy are proving desperately skimpy. Thus, the EU is heading to an awesome growth crash no one seems to care about. Will the Euro survive such an upheaval?

In case it does it will not do it unscathed. Lack of confidence will plunge it into fresh lows, not to mention the likelihood some partners might simply be forced to leave the common currency.

Shock waves will hit the global economy, should recession in the most developed countries materialize. A daunting prospect that might send world demand to renewed depressed levels, cutting short any hope about an eventual recovery for a long time to come. Money would undertake a flight to safety, gold providing the only protected harbour from the raging tempest. Mending this utter disarray might take a full decade.

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.

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