This editorial appeared in La Prensa today. I hope it begins to wake up some Panamanian officials to the danger of total dependency on the U.S. dollar.
Crisis 'real' is coming
One of the most important messages of my talk "The Dollar Crisis" is that no two financial crises, no one should worry us in Panama.
The first began in late 2007 when the bubble burst in the U.S. real estate (EU).
But this crisis was serious, but I always said that this was not what really bothered me. What really made me lose sleep was the reaction of U.S. government and Federal Reserve to this situation. My fear was that these entities would not let the economy corrects itself, but that they would intervene and try to revive an economy based on an economic model of unsustainable consumerism. My concern was (and remains) that all these interventions eventually going to cause another crisis: a currency crisis.
The monetary crisis which I refer is a run on the dollar. Currency crises are always caused by the same reason: a lack of confidence in the country's ability to solve its economic problems and concerns that will not stop printing money without backing to finance its persistent budget deficit. Perceiving this, obviously people decide they do not want to keep their investments in a currency loses its purchasing power than at any time and start the run.
The cold reality is that if we examine the situation in the U.S. see that sounds pretty similar to what I described above. In the case of EU this event could start with a sovereign debt crisis that would begin to question the EU's ability to repay their debts. This is already seeing multiple news (in prestigious journals like The New York Times, etc.) That have come out comparing the U.S. deficit with countries like Greece and threats of credit rating agencies have said that it is possible that the bonds U.S. losing its AAA rating.
Obviously nobody knows exactly when it would start a run. But there are signs that we can continue to tell us that this event is near. For example, I follow the performance or U.S. bond yield and the price of precious metals. In the last 4 months, the U.S. bond yield has risen about 30%.
This means that investors are demanding higher performance to the country to compensate for the loss of purchasing power of payments (interest and principal) will receive in the future. And as for precious metals, gold last year rose 30% and 70% silver. Both metals have seen demand soar for the possibility of a currency crisis.
More and more people are realizing that the situation in the U.S. is much more serious than initially thought. I hope this puts us to thinking, both personally and as a country, whether we are sufficiently prepared for a scenario of monetary crisis with each passing day more lies ahead.
The author is a specialist in financial planning.