Wednesday, September 2, 2009

The EURO - starting a trip to oblivion

The EURO was a nice idea and I have to admit those central bankers did a good job. By implementing the EURO, they unified the constitutions throughout the EURO countries, theoretically simplified and centralized policy making and created a unified approach to managing the economic decision making of member nations. Theoretically, this is all good. But is it really?

In this article I will examine that question. In my estimation the motivations for the creation of the EURO are at best dubious. What's more though the intentions seem good on the surface - the long-term goals are definitely not

A global currency has been the panacea for the world banking system...and the fantasy of every ponzi scheme banker in the world. The benefits of a unified currency throughout a EURO consortium are obvious...
If your goal were to have absolute discretion regarding a fiat currency's exchange value for real assets...a unified currency eliminates a lot of headaches and that is the clear objective of the EURO. We have to start somewhere.
And if the long-term adgenda in EURO could succeed then that agenda could move on to unifying other currencies under its umbrella. The end result could be a harmonization of the most dominant currencies in the world - with absolute control by central banks of that currencies exchange value as they see fit. 

What is interesting is that the Fed has demonstrated that it can not manage prices yet the entire object of a unified currency is to manage prices and create an optimal instrument for debt pushers. The goal of the EURO experiment is to expand on and continue the policies of fiat currency that have been perfected in the United States since JP Morgan and his buddies blackmailed politicians and forced a holiday vote to wrestle control of OUR currency into private bankers hands...but now to apply them in a much larger scheme. 

Unified currencies eliminate huge problems and since relative values are hallmarks of a free market...currency consolidation is a socialist exercise and likely to result in the same result as most socialist exercises...failure.

The EURO attempts to assign arbitrary values on relative value balance sheet contributions of member nations to facilitate a real exchange of value...this would be even the slightest interesting if the word value entered into the equation at all in reality. The reality is that the EURO suffers from the same disease that the dollar does...dilution through credit. 

The EURO is another currency that represents debt not value. In the past the EURO represented less debt on a relative basis than the Dollar. However, over the last years that has changed dramatically due to coordinated efforts by central banks (debt pushers) to foster more and more debt exchange as a mechanism for transfer of value. Each member country of the EURO has different assets, obligations, reserves and GDP contributions, not to mention political, social and governmental stability,with which to participate in the consortium and contribute to the currencies aggregate stability and perceived value. 

First, we must realize that people's views that cooperation, unification and homogenization - i.e: socialization - is a bull market phenomenon. During times of wealth expansion, optimism reigns - reflecting power to impart social determination over individual choices. What's more bull market optimism makes people think it will work - this time - because this time its different. Cooperation among nations is a bull market phenomenon. Of course, when everyone is making money and in expansion mode they will cooperate and feel powerful enough to be able control their own destiny under nearly any circumstance. 

Russia, the US, Germany, England are great examples of what happens then everyone is making money and expanding - they want to collaborate and cooperate. All of these countries have at different times have been enemies when the perceptions were not so optimistic when social mood was negative and cooperation or collaboration would not increase wealth.

So, where are we heading? Well, Germany is offering to pay people 66% of their salaries for not working, England is offering all sorts of misguided plans, Spain, Yugoslavia are issuing EURO bonds like they are candy even though they are not credit worthy...and in general, all these countries are offering vastly different fundamentals to contribute the currencies stability, viability and perceived value. 

Make not bones about it for example, Spain is a wreckWith a 25% unemployment rate and ridiculous amounts of debt obligations of its government and is Spain going to sustain a balance with Germany which has much less of both a debt and unemployment? Germany is a much bigger contributor to the EURO's value and will not be happy to accept responsibility for Spain's deflationary spiral - neither will any other member who is in better shape that the failing members. Already, Germans are keeping track of German issued EURO's and are in increasing frequency asking to be paid in German Euros rather than French ones or Spanish ones...and what about Greece?

What about bank failures? A bank failure in Spain is much more likely than in Germany but all Euro nations would be adversely effected much differently than if they were independent nations operating in a free market. 

I am quite confident that this is not a good trend. Optimism will fade as deflation accelerates and the depression wears on. And since the predominant issue of debt and derivative is US Dollars - the EURO has another Achilles Heel - relative value collapse versus the Dollar. If we add dissension, instability and default among member nations to the picture - the EURO's relative value to the dollar sets it up for an intense nose dive. 

Now, if you want to understand more about what to expect from the dollar then please read: More dollar what-if discussion, crash warning and recommendations The Future of the Dollar - the biggest short squeeze

The main thing to understand is that the primary method of exchange of debt and leverage is US dollars. If that is the case, and everyone needs to get dollars to settle obligations, transfer credits/debits and close transactions...the value of the Dollar will rise against almost every other currency that is not absolutely stable - the stable currencies are the Swiss Franc, Singapore Dollar or New Zealand Dollar. 

There is no way that almost any country can isolate itself from global deflation. Diversifying single nations into one unified amalgamation only exacerbates the problem by infusing more dissension, instability and risk to an already risky situation. 

So, what will happen? Countries will pullout of the EURO, conflict will surely be a risk as a result of that type of confrontation. This will cause further erosion to the EURO...However, countries like Germany should have their own currency. Why did they need the Euro anyway? The Euro was not a boon for business and trade despite the marketing and promotion that it got.

I am also quite sure that leader nations will not be happy to suffer from debilitating problems of their weaker members. I certainly would not and it would be unreasonable to expect that they would either. Remember cooperation is a bull market phenomenon and this is NOT a bull market. The results will be most likely a dissolution of the EURO as a debt based currency and ultimately the demand for a replacement currency that represents value and not debt. 

So, there it is, my first post introducing what to expect from the EURO. I will be following up with a lot more research and information as time permits. Especially some charts and technical analysis.

As, Americans, we should try to help Ron Paul to restore our constitution and free markets so that we can set an example to the rest of the world rather than the potential alternative - which i rather not think about right now.
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