The Phaserl


Why the Euro Is a Doomed Currency

by Doug Casey, International Man:

For a long time, I’ve advocated that the world’s governments should default on their debt. I recognize that this is an outrageous-sounding proposal.

However, the debts accumulated by the governments of the U.S., Japan, Europe and dozens of other countries constitute a gigantic mortgage on the next two or three generations, as yet unborn. Savings are proof that a person, or a country, has been living below their means. Debt, on the other hand, is evidence that the world has been living above its means. And the amount of government debt and liabilities in the world is in the hundreds of trillions and growing rapidly, even with essentially zero percent interest rates. This brings up several questions: Will future generations be able to repay it? Will they be willing to? And, if so, should they? My answers are: No, no and no.

The “should they” is one moral question that should be confronted. But I’ll go further. There’s another reason government debt should be defaulted on: to punish the people stupid enough, or unethical enough, to lend governments the money they’ve used to do all the destructive things they do.

I know it’s most unlikely you’ve ever previously heard this view. And I recognize there would be many unpleasant domino-like effects on today’s overleveraged and unstable financial system. It’s just that, when a structure is about to collapse, it’s better to have a controlled demolition, rather than waiting for it to collapse unpredictably. That said, governments will perversely keep propping up the house of cards, and building it higher, pushing the nasty consequences further into the future, with compound interest.

With that in mind, a few words on the euro, the EU and the European Central Bank are in order.

The economy of the European Union is a constipated, sclerotic, malfunctioning entity that only registered real economic growth of 0.2% in the recent quarter—assuming you can credit their numbers at all. The continent is a giant monument to socialism, where everyone believes they can live at the expense of everyone else. As a result, the average European sees his government as a magic cornucopia, a source of unlimited wealth. When something goes wrong, Europeans look to their governments to “do something.” With this in mind, European Central Bank President Mario Draghi made the front pages by saying he is “ready to act” with a “whole menu of monetary policy instruments.”

This is central banker speak for “I’m willing to print an incredible amount of money in my attempt to keep my job and stimulate the economy by making people think they’re richer than they really are.”

Draghi’s money printing is a disastrously misguided attempt at creating prosperity. It will create bubbles, and cause people and companies to do all manner of things they’d never consider without the false economic signals he will send. If printing money were the path to prosperity, Zimbabwe and Venezuela would be the richest countries on earth instead of economic basket cases.

Traders who take positions based on the words of a central banker are naïve, and just asking for losses. Not only does the ECB believe printing money is a good thing, but they’re forced to do more, to keep the system from collapsing. This will send the value of the euro much lower; the currency will accelerate its descent toward its intrinsic value, namely zero.

The euro is a sure bet to join the ranks of many hundreds of defunct paper currencies. Not one currency in today’s world is backed by a commodity (like gold); they’re backed only by confidence (which can vanish like a pile of feathers in a hurricane). And, of course, the ability of governments to steal from the people. But the euro doesn’t even have that going for it. The European Union doesn’t have the power to tax. Right now, the Eurocrats in Brussels really only have the power to regulate. I’ve long said, “While the U.S. dollar is an ‘IOU nothing,’ the euro is a ‘who owes you nothing.’”

The EU itself is a completely artificial and dysfunctional union. The Swedes are very different from the Sicilians, and the Portuguese very different from the Austrians. These people have little in common besides a history of fighting with each other. Force them together into a phony union and they’ll become mutually resentful, the way the Germans and the Greeks now are. The EU was put together partly to avoid future wars, but it may turn out to be a war incubator.

The European Union itself makes no real sense. Its sole good aspect, the abolition of internal barriers to the free passage of goods and people, could have been had simply by dropping barriers. Setting up another huge, costly bureaucracy in Brussels was idiocy.

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