Imminent Market Crash: Germany to Blame

If we are going to avoid a massive and painful global market crash, it will be because of the Germans. If we are going to experience a nasty, painful market crash, then it will also be because of the Germans.

Germany is the key to saving Europe.

Let me explain...

The so called PIIGS nations, which include Portugal, Ireland, Italy, Greece and Spain, will never be able to pay their off their debts at current interest rates. But forget paying off their debt -- at current rates, they can't even service their debts.

Like the big-spending personal consumer who racks up so much credit card debt that they can't even pay the monthly minimum, this is where the PIIGS find themselves.

Still, Germany has it in their power to restore confidence back into the Euro zone.

All they have to do is allow the European Central Bank (ECB) to start printing money. If the ECB is given the go-ahead to print as much as it needs to buy bonds in the open market, then rates will go down.

(Please, before you send me any hate mail, I am not advocating this policy approach. My job is to point out what I think will happen, whether it meshes with my personal beliefs or not.)

Germany is vociferously opposed to the idea of this type of unlimited ECB printing, because they know what happens when you print money to pay bills. They lived through the horror of runaway inflation during the Weimar Republic... and they are absolutely right.

But what other choice do they have?

If they pull out of the EU in protest, the Euro zone will collapse and the Euro currency along with it. No matter what happens, the Germans cannot allow the Euro currency to fail.

You see, what you may not know is that...

Germany has a dirty little secret that no one ever talks about.

The German economy is export-driven, and an export-driven country must have a weak currency so that their goods will be cheap enough for other countries to buy.

By agreeing to be part of the Euro zone, Germany gained a massive -- and unfair -- global advantage when they gave up the right to print their own currency, the Deutsche Mark.

Because of the Germans' legendary fiscal responsibility, the Deutsche Mark had been a bastion of strength. To an exporting nation, a strong currency is a death sentence (because it makes their goods more expensive to importing nations), so by embracing the Euro they got the benefit of exporting their goods priced in a currency that has proven to be far lower in value than if they had kept the Deutsche Mark.

A move back to the Deutsche Mark would destroy much of the outsized profitability currently being enjoyed by German manufacturers, as they have reaped massive gains from gaming the currency advantage that being in the Euro zone has given them for more than a decade.

The thing is, if the Germans let the ECB print money, then the Euro will get cheaper... and that will actually be a net positive for their exporters.

But fiscal memories run deep in Germany, and while I believe that ultimately the Germans will have to acquiesce to international pressure, they will not do so until we see an absolute collapse in stock prices.

Long story short, stock prices look lower... European stock prices look to go much lower... and any strength in the Euro should be shorted.