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Energy, Housing and Trade Shield U.S. From Euro Crisis

June 6, 2012 by Four Percent

Jack Ablin, Bloomberg Investors have been captivated by the European debt crisis. Just as in 2011, first-quarter gains in stock prices have given way to losses fueled by Europe’s springtime uprisings and political acrimony. In the 1990s, faced with the prospect of economic decline, European leaders were able to prolong their untenable government largesse by linking arms and unifying around a common currency. The euro enabled Germany to price its goods and services by some estimates 30 percent below what they would have been had the deutschmark continued to exist. Meanwhile, southern European customers, suddenly holding a respected currency, found themselves with purchasing power. This economic symbiosis enabled the region to neglect economic reality. Now that the countries’ capacity to take on debt has reached its upper limit, Europe is weighed down by the reversal and by a rapidly aging population. Based on market activity, investors mistakenly think that Europe’s malaise will be contagious. Although there is an eerie parallel between debt burdens, the U.S. is somewhat insulated from Europe’s predicament. In many respects Europe’s loss is America’s gain. Read More

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