Most Americans simply do not grasp the gravity of what is happening. Just because the Dow is sitting above 12000 and a few U.S. economic numbers have improved slightly does not mean that everything is going to be okay.
The relative strength of the recent economic data from the US is supporting the dollar more generally, and we expect this divergence to persist as the euro-zone slides into a deep and prolonged recession. Above all, doubts about the very survival of the euro itself are likely to remain a drag on the currency. We therefore continue to expect the euro to fall to around $1.10 by the end of the year.
~ The stock of the biggest bank in Italy, UniCredit, is absolutely collapsing. Shares of UniCredit fell 14 percent on Wednesday and 17 percent on Thursday.~ Shares of another major Italian bank, Intesa Sanpaolo, fell 7.3 percent on Thursday.~ Shares of three major French banks all fell by at least 5 percent on Thursday.~ Even shares of German banks are falling like a rock. Shares of Commerzbank fell 4.5 percent on Thursday and shares of Deutsche Bank fell 5.6 percent on Thursday.~The yield on 5 years Italian bonds is back over 6 percent and the yield on 10 year Italian bonds is back over 7 percent. Analysts all over Europe insist that that the Italian debt situation is not sustainable if rates stay this high.~Italy's youth unemployment rate has hit the highest level ever.
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The euro should now be recognized as an experiment that failed. This failure, which has come after just over a dozen years since the euro was introduced, in 1999, was not an accident or the result of bureaucratic mismanagement but rather the inevitable consequence of imposing a single currency on a very heterogeneous group of countries.The adverse economic consequences of the euro include the sovereign debt crises in several European countries, the fragile condition of major European banks, high levels of unemployment across the eurozone, and the large trade deficits that now plague most eurozone countries.
"We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen ~ probably by mid-January ~ to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks."