The issue of global dent has been widely talked about for some time. Unfortunately, sometimes the damaging effects of massive debt are ignored due to a “borrow now, worry about it later” mentality. The EU has had more than its share of debt problems in recent years, with the financial crisis in Greece having had a significant impact on global financial markets.
Other nations have issues as well, and Italy has once again become a primary area of focus. Italy is one of the most indebted nations in the world, and it is unclear whether or not the country will remain in the EU as fresh elections will be seen in the second half of the year.
Ongoing debt issues for Italy, and other countries, also bring up an important issue: How might a stronger dollar affect those countries that issued debt in dollars? It’s no secret that a weaker currency makes debt payments more manageable. Here is a simple example: Suppose that an EU country issues $1 million in dollar denominated debt. At a EUR/USD exchange rate of 1.25, the debt issued would be worth about 800,000 euros. If the dollar strengthens versus the euro, however, and the exchange rate declined to 1.00, then the country would have to pay back 1,000,000 euros.
In other words, the more the dollar rises, the more expensive it becomes for issuers of dollar-denominated debt to service that debt. In countries that are clearly strapped for cash, that can potentially become a huge issue with significant contagion risk.
A stronger dollar not only makes it more difficult for other nations to repay their debt, but also has the same effect on the U.S. Now ask yourself, why would the U.S. allow the dollar to keep getting stronger and stronger knowing that it will dramatically affect the amount of money it must repay? If you think about this objectively, the fact is that nations that issue debt in dollars have good reason to prefer a weak dollar policy. Not only does a weaker dollar make debt payments more manageable, but it can also boost exports and even the stock market.
While the dollar has been on quite a tear lately, the upside seen in recent weeks is likely nothing more than a dead cat bounce that will see the currency eventually turn lower once again. Although a weaker dollar may be good for government debt servicing, it may not be so good for the average person.
A weaker dollar makes the cost of everyday goods and services relatively more expensive, and can even eat away at net investment returns.
Now is the ideal time to build an allocation in asset classes that may potentially increase in value as the dollar weakens, while also providing a possible hedge against inflation and a decline in purchasing power. Physical gold is widely considered to be the most important asset class when it comes to hedging inflation and declining currency values.
Adding physical gold to your portfolio has never been easier than it is today. Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our associates are here to answer any questions you may have, and can even show you how easy it is to build a significant allocation in this asset class using your IRA account.
Don’t wait for the next major global debt crisis or for a weaker dollar to erode your purchasing power. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: advantage gold, default, eu, exchange rate, gold, government ebt, Greece