John  Browne
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As the year draws to a close, understandable confusion reigns in the minds of many investors. While short-term indicators, such as consumer confidence, appear to beckon recovery, the longer-term strategic issues remain shrouded in the smoke and mirrors of central bank monetary manipulation. From the perspective of someone who has keenly observed global economics for more than a half century, I see little reason to believe that our economic morass will soon improve. Indeed, I do not believe we will see meaningful change until the Bretton Woods era of U.S. dollar dominated paper money finally comes to an end. In other words, our current experiment in unlimited monetary expansion will continue until it explodes.

In the meantime, there is holiday spending to cheer us. From early reports, it appears that consumer spending in November and December was stronger than most forecasters had predicted. Politicians and bankers moved mountains to make this spending possible. Endless unemployment benefits, payroll tax holidays, and the lowest mortgage rates in history have allowed Americans to keep spending even as their economic outlook deteriorates. In addition, people who have defaulted on their mortgages and maintenance charges find their monthly cash flows increased by hundreds, if not thousands of dollars. Depressed and frustrated by the hardships of recession, this extra cash has been spent largely on consumer goods such as autos, home improvement, and electronics. But it is important to recognize that these positive sources of funds are simply debits against the accounts of others. In particular taxpayers who will bear the burden of an ever escalating deficit.

American and European Union politicians have shown utter paralysis in tackling intractable economic problems. Unwilling to make the tough decisions they all know should be enacted to avoid a looming global economic disaster, they have endlessly kicked the can down the road, while assuming that the road will go on forever. With an estimated $6 trillion plus solvency shortfall of the Eurozone banks and $16 trillion in U.S. public debt, it will take leadership of far greater caliber to avert a disaster. Such leadership is nowhere to be seen.

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John Browne

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.