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These States Will Suffer the Most in the Event of an EU Collapse

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Freedom4Me73986 Posted: Mon, Nov 21 2011 1:22 AM

http://www.theblaze.com/stories/these-states-will-suffer-the-most-in-the-event-of-an-eu-collapse/

Some analysts believe that a collapse of the EU will have a calamitous effect on the U.S. economy. But exactly how will that play out, that is, who will get hit the hardest?

Although every state would feel the effects of a possible EU collapse, as a halt of billions of dollars in exports to the EU could prove to be disastrous, analysts believe there are some states in particular that will bear the brunt of the burden.

As it turns out, Utah, South Carolina, Indiana, Alabama, Washington state, and West Virginia, all relying heavily on exported commodities, will most likely suffer the worst, according to a new study by Wells Fargo Securities.

“We don‘t think it’s enough to pull us into recession, but exports have been one of the lone bright spots in our economy,” said Mark Vitner, senior economist at Wells Fargo Securities who co-authored the report, according to the Huffington Post.

In Utah, which has an economy that relies on selling gold and silver produced in nearby states, European exports comprise 46 percent of all exports and 5.6 percent of the state’s economic output, according to the Wells Fargo report, writes the Post.

Or consider the case of South Carolina, an automobile manufacturing hub, where European exports make up 4.1 percent of the economy.

West Virginia’s economy is closely tied to the coal industry. Exports to Europe make up nearly 4 percent of the state’s GDP. So as Europe’s economy sinks, so too — the argument goes — will West Virginia’s GDP, reports the Global Post

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Kakugo replied on Mon, Nov 21 2011 4:43 AM

It all depends on how they define "collapse". Personally I have always maintained there will be no collapse but a very slow slide down a slope, with the slope becoming ever more slippery as the attempts to save the EU and the EMU in the present form become more and more frantic.

I think right now the effects of the European crisis have already started to be felt. West Virginia sells coal to Germany to make electricity. As the economies of Italy, Spain and Greece are grinding to a halt, these premier export markets can afford less German goods, made palatable by the EMU (what fueled Germany's GDP growth in the past decade). That means less electricity is needed by German factories, in turn requiring less coal from West Virginia. It has already started.

Also US exports to Europe have been made palatable by the rise in value of the euro relative to the dollar but that is already ending. Most European countries have hiked tariffs (or, to be more specific, tariff-related duties) and are becoming stricter about cashing them. Huge importers of strategic materials could negotiate with the customs, now that door is closing. Also as the situation in Europe is worsening from day to day (see the recent, unexpected French bonds problem) the dollar will slowly start to appreciate relative to the euro as investors will pick the lesser of two evils. So far the Fed and ECB (with the help of the BoE and BoJ) have been able to maintain a precarious equilibrium benefiting both sides: US exports are incentivated and Europe gets a bit of respite when buying dollar-priced commodities. But how long will it last? QE3 may be a tempting solution but remember 2012 is an election year in the US. Politicians may not understand the tie between monetary inflation and price inflation but be sure many Congressmen get angry letters from their constituents about fuel and food prices. Remember they only care about the next election and blaming speculators doesn't work anymore: people are starting to ask "You are the government, right? So why don't you just arrest speculators!". Bernanke has been given his chance and failed to deliver in spectacular fashion: I wouldn't be too surprised if they hauled Volcker out of the retirement home.

There's also the issue of how quickly the situation in Europe is deteriorating: CPI projections for 2011 were around 2% for the EMU area. Offical CPI is already around 4%, with a maximum of 4,5% in Italy, Europe's third largest economy. EU imposed governments in Greece and Italy are sapping their own lifeblood by increasing taxes and cutting deductions to wealth-producers. And everyone is surprised consumers are reacting like they are: by cutting purchases and hiding money under the matress. Many businesses aren't going bust: they just close down when they don't make money anymore as people are losing faith in future. And that's the big issue.

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Kakugo:

It all depends on how they define "collapse". Personally I have always maintained there will be no collapse but a very slow slide down a slope[...]

I think this is undoubtedly obvious. All you have to do is to listen to what central bankers are saying: The purpose of the bailouts and other market interventions are to prevent systemic collapse, etc.

The interventioners were sorta correct that the 2008 bailouts prevented a collapse of the finincial system. I do agree that the system would have collapsed, thereby wiping out millions of people out of trillions of dollars. But let's not forget, as Jim Rogers reminds us, that the competent would have been there to pick the pieces of the incompetent. I'll stop here since economics is value-free.

To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process.
Rabbi Lapin: "Let's make bricks!"
Stephan Kinsella: "Say you and I both want to make a German chocolate cake."

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Wheylous replied on Mon, Nov 21 2011 9:44 PM

So would you have enacted the bailouts on utilitarian grounds?

Or would you argue that better companies would have bought up the shares of the bad companies?

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DanielMuff replied on Tue, Nov 22 2011 12:12 AM

Wheylous:

So would you have enacted the bailouts on utilitarian grounds?

? No.

Or would you argue that better companies would have bought up the shares of the bad companies?

That's what I meant with the Jim Rogers part.

I think we're in the beginning of a 1930's depression, instead of an early 1920's sharp recession.

To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process.
Rabbi Lapin: "Let's make bricks!"
Stephan Kinsella: "Say you and I both want to make a German chocolate cake."

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