Iceland Volcano's effect on the Economy & PM Prices

[gunDriller]

http://www.bloomberg.com/apps/news?pid=20601010&sid=aN_UBn1azuKs

this Bloomberg article spells out the short term economic impact - basically a lot of restricted travel. not unlike what happened after 9-11.

given that the entire European economy seems to be on the edge of a cliff, what effect will the closure of transportation for a few weeks have ?

i think if it becomes apparent that it will take a few months for normal transportation to resume, then the panic about PIIGS sovereign debt risk will return. in the past that panic has had the result of "Flight to So-called Safety" - i.e. a rise in the US dollar, and a decline in PM prices.

although the US stock market doesn't always track with other world stock markets ... possibly a sign of the PPT at work.

personally, i think current PM prices are quite fair, i.e. a good buying opportunity.

but i think we have a good chance of a ripple effect from the volcano ... more economic panic, and even better PM buying opportunities.

i imagine it sucks for some of the travelers. living off your Amex card in Europe for a few weeks can be VERY expensive.

[Spectrism]

Interesting thoughts. The crippling of European flights will delay parts of the economy. In an instant world, that will hurt.

Imagine what will happen when we have another volcano break loose in the western US.

[jedemdasseine]

I wonder what gold prices in Iceland are like now. Last time I was there, pre-krona collapse, there was quite a premium, on both the bid and the ask. They seemed especially eager to buy. Gold tends to become sought after in times of turmoil, and having part of your country explode from the inside out is probably worrisome to most residents. :o

[gunDriller]

i was thinking of it in terms of the Debt-to-GDP ratio.

many European nations were already in "danger territory", in terms of debt overwhelming GDP.

if the cessation of travel reduces GDP by 20% for one week - which is 2% of one year - then GDP falls about .4% for every week of interruption.

so, to keep the numbers round and the arithmetic simple, let's say the volcano causes a 2 1/2 week interruption in GDP, and a 1% reduction in GDP.

then the debt/ GDP ratio increases by about 1% - placing many nations further into danger territory.

among the PIIGS, i guess Ireland & Spain are closest to the volcano. the countries whose economic might would normally be expected to help bail out the PIIGS, e.g. England, Germany, & France, are affected more by the volcano's effect on transportation ... since they're further north.

anyway, this strikes me as being a bad time for a large natural disaster. sort of like California with their $20 Billion in debt. well, living in California, we're supposed to be prepared for earthquakes. but California right now is VERY unprepared for an earthquake.

i wouldn't be surprised to see this volcano situation evolve into a big mess, with implications on the upside & downside for fiat currencies (near term the US$ rises and there's a buying opportunity for PM's related to Euro weakness, long term the US$ is screwed and ... you know.)

[jedemdasseine]

Yeah. Everything is positioned so precariously now, I wouldn't be surprised to see this event spiral economies out of control.