In yet another eerie recollection of the fall crisis of 2008, liquidity problems in the banking system are making themselves known day by day. Posted by James Randolph on October 05, 2011
The Current Credit Crunch
October 5, 2011 – In yet another eerie recollection of the fall crisis of 2008, liquidity problems in the banking system are making themselves known day by day. This time the hysteria is mainly emanating from Greece. The hook on the line is that banks exposed to bad Greek debt, notoriously including Societe Generale, UniCredit, and Dexia, threaten to debase the Euro and cause a significant rift in the European Union.
Could all of this happen? Of course. It bears consideration, however, that in our world the hype seems to hurt more than the bite ever could. How long now have the problems in Greece been adversely affecting markets? That amounts to, as far as we could possibly know, trillions lost on bad news. I’m not saying that a major failure associated with Greece would not hurt (that’s a whole other story), but I am saying we have a direct correlation between what we think can happen and the action in the markets that, at times, is less than reasonable.
A lot of investors have been put off by the losses in gold in the past month. What does this have to do with it, you ask? In actuality, the same thing is taking place on two levels. First, some gold investors, instead of taking the long view, insist on screaming at the sight of a mouse and do something stupid like sell or get paralyzed when it comes time to buy. Is it not the trait of great investors to know when these two things are occurring and to do exactly the opposite?
But if this alone doesn’t make perfect sense to you, let me give you the numbers. At the very least, it will keep your mind occupied for a while. Although we have not seen a major bank collapse like Lehman, the conditions prevalent in the market are eerily similar to the climate we were in back when Lehman did collapse. One of the effects of the, for lack of a better word, hysteria then as now was a credit crunch. Banks and investors, on fears of what may happen and in reaction to what fear has already caused in the market, are using their remaining liquidity to cover losses and hedge bets.
The second level on which the negative hype is working is the credit crunch is adversely affecting gold prices through the futures markets, because the money that was there has been siphoned off to deal with other things. Do not be one of the fooled. There may briefly be shiny investments besides buying gold in the meantime, but no investment will outdo gold in the coming months and years. Recognize the fear and paralysis and do the opposite.
Senior Staff Writer – Certified Gold Exchange