Fix The Euro?
Originally posted Feb 12 2010
WILL THE EURO BE THE VEHICLE to increase the floating exchange rate system or the vehicle for the next step in the devolution of paper money? What you are presently witnessing is the unwind of sovereign entities as a product of their adventures into OTC derivatives and disregard for economic law. Greece is the Lehman Brothers of the euro, making it harder to accept Soc Gen’s position today that the euro is about to break up.
I see this as a crisis situation by design for the establishment, in time, of a single Western currency and a single Western central bank of central banks. Gold will then be attached at the hip in the inverse to this single Western world currency with the single western currency trading lower against Asian currencies or a single Asian currency.
In that situation gold emerges as the only real storehouse of value. My feeling is that this well publicized event today of sundering confidence in the euro will simply accelerate the devolution of paper money as any storehouse of value, upgrading gold in the final analysis as the most trustworthy currency form. It is unlikely that central bankers would want to have history record them as the caretaker when a system dissolved. They would much more likely prefer to be known as the architect of something new. Trichet certainly wishes he kept his mouth shut when the euro was at $1.52 as the decline thereafter to his verbal intervention set the stage for the attack that followed.
Think about this for a moment. A collapse of the euro would retrogress to the dollar trading against a host of currencies, opening up each currency to a successful attack on whatever was deemed to be the weakness, picking off each country’s debt one at a time. The dollar will be in more, not less, danger when it is valued second to second, not against the simple euro, but rather a host of other Western currency units. It would set the stage for a Western world collapse of confidence in money as a storehouse of value.
Consider the implications if the Korean press is right about a common Asian currency amongst the strongest Asian nations. We have created so much paper in the world that it is now considered kindergarten to attack individual stocks when you can bankrupt countries. To assume the dollar is insulated against this “Art of War” approach to planetary destruction is silly. That would mean you accept the December hogwash of a sustainable US recovery.
The US is headed towards the same economic conditions of the second leg of the Great Depression. A 1933-1934 type unwind is coming. The only argument for a sustainable equity market in the Western World is the Weimar case. All currencies are headed in one direction: down in storehouse of value character. Gold is the only storehouse of value. Gold has demonstrated that clearly even in the face of the Crimex and the gold banks fighting it.