Biggest Financial Risk to America (Aside From Itself) Lombardi Letter 2017-08-22 02:27:04 eurozone U.S. economy U.S. economy IMF predictions GDP overvalued stock market The eurozone remains a major risk to American that investors shouldn’t ignore. Read the full story. International Markets,News

Biggest Financial Risk to America (Aside From Itself)


Sure, there are a lot of risks facing the U.S. economy. We have a severely overvalued stock market. We have an economy that’s gone nowhere for years. Interest rates are rising. And nothing is getting done in Washington to help our economy.

But there is a threat in the international market that could be very damaging to America if it is not contained. Of course, I’m talking about catastrophic eurozone risk.


Eurozone Facing Economic Contraction

In June, industrial production in the eurozone declined by 0.6% from May—that means after billions of new euros created by the European Central Bank (ECB) to spur the economy (and to stop Italian banks from failing), the eurozone is experiencing economic contraction. (Source: “Industrial production down by 0.6% in euro area,” Eurostat, August 14, 2017.)

The chart below shows the quarterly gross domestic product (GDP) of the common currency region. As you can see, despite all that money printing by the ECB, growth in the eurozone has been declining.

FRED graph - Eurozone GDP

(Source: “Real Gross Domestic Product for Euro area (19 countries),” Federal Reserve Bank of St. Louis, last accessed August 16, 2017.)

According to the most recent International Monetary Fund (IMF) projection, the common currency region is expected to grow just 1.9% in 2017 and then just 1.7% in 2018. (Source: “World Economic Outlook Update, July 2017,” International Monetary Fund, last accessed August 16, 2017.) The IMF’s predictions are usually on the optimistic side, and they tend to get revised lower. Hence, I’m looking at negative growth in the cards for the eurozone.

A Ticking Time Bomb for U.S. Economy

Investors often don’t care about the eurozone, because they think it’s not relevant for the U.S. This is a wrong assumption. Last year, the U.S. and the European Union traded roughly $700.0 billion worth of goods. (Source: “Trade in Goods with European Union,” U.S. Census Bureau, last accessed August 16, 2017.) And how about all those American companies that have made investments in the eurozone? How about their risk of loss?

Dear reader, I see the eurozone as a multi-trillion-dollar ticking time bomb for the U.S. economy. If the slowdown in the region persists, it could cause a lot of trouble for U.S. companies, investors, and our own economy. Add this to the list of big risks facing America

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