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Euro-sclerosis
Submitted by Alasdair Macleod via GoldMoney.com,
There appears to be little or nothing in the monetarists' handbook to enable them to assess the risk of a loss of confidence in the purchasing power of a paper currency. Furthermore, since today's macroeconomists have chosen to deny Say's Law, otherwise known as the laws of the markets, they have little hope of grasping the more subtle aspects of the role of money in price formation. It would appear that this potentially important issue is being ignored at a time when the Eurozone faces growing systemic risks that could ultimately challenge the euro's validity as money.
The euro is primarily vulnerable because it has not existed for very long and its origin as money was simply decreed. It did not evolve out of marks, francs, lira or anything else; it just replaced the existing currencies of member states overnight by diktat. This contrasts with the dollar or sterling, whose origins were as gold substitutes and which evolved in steps over the last century to become standalone unbacked fiat. The reason this difference is important is summed up in the regression theorem.
The theorem posits that money must have an origin in its value for a non-monetary purpose. That is why gold, which was originally ornamental and is still used as jewellery endures, while all government currencies throughout history have ultimately failed. It therefore follows that in the absence of this use-value, trust in money is fundamental to modern currencies.
The theorem explains why we can automatically assume, for the purposes of transactions, that prices reflect the subjective values of the goods and services that we buy. This is in contrast with money that is not consumed but merely changes hands, and both parties in a transaction ascribe to money an objective value. And this is why the symptoms of monetary inflation are commonly referred to as rising prices instead of a fall in the purchasing power of money.
The European Central Bank (ECB) is plainly assuming the euro is money on a par with any other major currency with a longer history. Despite caution occasionally expressed by sound-money advocates in Germany's Bundesbank, the ECB is aggressively pursuing monetary policies designed to weaken its currency. For example, it has reduced its deposit rate for Eurozone banks to minus 0.2%. This is wholly unnatural in a world where possession of money is always more valuable than an IOU. Furthermore banks are encouraged to limit their customers' cash withdrawals, often under the guise of fighting tax evasion or money laundering. But in Greece restrictions on cash withdrawals are clearly designed to protect the banks.
So far, there is nothing identified in this article that actually points to a destabilisation of the euro, other than it's generally a bad idea to fool around with peoples' rights to it. But lets assume for a moment that Greece defaults. In that case the Greek banking system would certainly collapse (assuming the ECB suspends its emergency liquidity assistance (ELA) because bad debts already on their balance sheets exceed tangible equity by a substantial margin. If that assistance is withdrawn, some €80bn of ELA will be lost. Furthermore, TARGET2 2 settlement imbalances at the other Eurozone central banks, which have arisen through capital flight from Greece and which are guaranteed by the ECB, total a further €42bn. This leaves the ECB in the hole for €122bn. Unfortunately, the ECB's equity capital plus reserves total only €96bn, so a Greek default would expose the euro's issuing bank to be woefully under-capitalised.
Therefore, if Greece defaults we would at least expect the validity of this relatively new euro to be challenged in the foreign exchange markets. Even if the ECB decided to rescue what it could from a Greek default by rearranging the order of bank creditors in its favour through a bail-in, it would still have to make substantial provisions from its own inadequate capital base. For this reason, rather than risk exposing the ECB as undercapitalised, it seems likely that Greece will be permitted to win its game of chicken against the Eurozone, forcing the other Eurozone states to come up with enough money to pay off maturing debt and cover public sector wages. So will that save the euro?
Perhaps it will, but if so maybe not for long. If the Eurozone's finance ministers give in to Greece, it will be harder for other profligate nations to impose continuing austerity. Anti-austerity parties, such as Podemas in Spain, are increasingly likely to form tomorrow's governments, and Spain faces a general election later this year. Prime Minister Renzi and President Hollande in Italy and France respectively are keen to do away with austerity and increase government spending as their route to economic salvation. Unfortunately for both the undercapitalised ECB and its young currency, they are increasingly likely to be caught in the crossfire between the Northern creditors and the profligate borrowers in the South.
Even if Greece is to be saved from default, the ECB will need to strengthen the Greek banks. This is likely to be done in two ways: firstly by forcing them to recapitalise with or without bail-ins, and secondly to restrict money outflows through capital controls and harsh limits on depositor withdrawals if need be. Essentially it is back to the Cyprus solution.
Whichever way Greece is played, Eurozone residents will see themselves having a currency that is becoming increasingly questionable. The bail-in debacle that was Cyprus is still etched in depositors' minds. Cyprus certainly has not been forgotten in Greece, where ordinary people are now resorting to buying mobile capital goods that can be easily sold, such as German automobiles, with the bank balances that cannot be withdrawn in cash and are otherwise at risk from a Cyprus-style bail-in. Greek depositors have realised that euro balances held in the banks are not reliably money. Folding cash is still money, but that is all, and furthermore the folding stuff is rationed.
The next blow for the euro could come from the exchange rate. If the euro continues to lose purchasing power on the foreign exchanges, it is likely to undermine confidence on the ground. And when that happens it will be increasingly difficult for the ECB to retrieve the situation and maintain the euro's credibility as money. It just doesn't seem sensible to take such enormous risks with a currency that has existed for only thirteen years.
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So, you say the euro is on the Greeced slide to the crapheap?
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"Prime Minister Renzi and President Hollande in Italy and France respectively are keen to do away with austerity and increase government spending as their route to economic salvation."
Really? Every honest economist and journalist in Italy who watch the EU like hawks, and keep their ear to the ground, would be very surprised by your statement. My best friend in Italy who's nearly as astute as these Italian experts would, undeniably, refute your observation.
greece must be CRUSHED as a just and deserved punishment for lieing cheating deceiving socialist parasite thieves
AND
to make a good example for others of their kind in all other socialist parasite societies
Greece alone is not enough to explain Greece's situation. It took some US citizen big boys to inflict the situation on Greece.
IMF recipes are well known (and Greece is not fully cooked by the IMF recipes book). Don't play the victim because you are part of the world who is emitting tons of credit. Does not fit.
Greeks follow the great US example. Nothing wrong with that. They have participated along the way of US citizenism.
Following US citizenism, they have to blob up. The other options being the ones one gets when being on the wrong side of US citizenism...
more shit from ZH's arab islamic-cult-worshiping asshole
Another funny example of US citizenism at work. You usually get funny results with US citizenism.
It is known that the US citizen world order favors the selection of people with a taste for propaganda and denial of reality but still a stretch between denying facts and building up a cogent spinning of reality.
US citizens are so hooked on power any 'discussion' attempt ends the same: them spinning and spinning facts to propagate US citizenism is not at the core of the issues on the world scale.
And here again, you find another characteristic of US citizenism: impossibility to accept responsibility.
It is always about retaining the positive consequences of an action and rejecting the negative consequences on others.
If you see somebody unable to take responsibility for the poor consequences of his actions, that somebody has at least the genetic make up of a US citizen, guaranteed. He might also have the ID papers.
Guaranteed that arab islamic cult worshipers are primitive savages, incapable of high-order rational thought, which is why their culture and societies are striving to restore DARK AGES empire - you are ALL living garbage, the only things you excel at are terror bombings and raping yazidis - ZERO accomplishments and achievements from you subhuman defectives, just primitive cult worship, savagery, destruction, oppression, ritual ignorance, and brutality. You are a failure as an individual and as a cult society.
The dominant point still being that you provided no argumentation over the points I recalled.
The euro is an artificial creation of European aristocrats and European bankers designed to allow destruction of social support systems in Europe.
It is accomplished in part by allowing free flow of speculative capital with no losses due to currency fluctuation associated with massive concentrated capital flight or inflow into relatively small individual economies.
It kills ability of any individual governments to conduct any social policy without facing capital flight or also damaging uncontrolled inflows.
Euro is backed by political extremism of Brussels and radicals from ECB. Yes extremists , mental nuts. Euro is not even backed by good trust and faith of individual governments. Brussels, ECB engaged in illusory flake job of central banking like the ones in France faked for unemployed so they don’t riot (yesterday’s ZH). Euro serves to confuse and rob blind population atomized and separated by “their money” imprisoned and alone inside fantasy asset bubbles priced in euro.
The money in general is a creation of ruling elites in order to negotiate as many human relationships as it is possible. Money as it is designed and used now severely interfere with human attitudes and moral values within family and community through propaganda of flat currency as supposedly a holder of values of our humanity in monetary units, which is not.
That's why philosophers hate charities or charitable foundations, government or private that solicit financial instruments instead labor or other material or spiritual support in not the sense of organized religion but rather reaffirmation of human dignity and innate value of human being.
Especially that those charities are morally supporting those who often cause social collapse and desolation such as the case of Darfur several years ago where Gates/Buffet foundation gave at least ten times money to perpetrators of atrocities than to victims (LA Times).
An honest and interesting discussion on origin of money within human society and its derivative namely financial system and its “products” can be found at:
https://contrarianopinion.wordpress.com/2015/04/14/plutus-and-the-myth-o...
I might submit that the Greek's obesity rates may be at the root of their troubles. half sarc/
https://docs.google.com/viewer?docex=1&url=http://www.oecd.org/health/49...
this article is pure propaganda
"The euro, probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to gold, but also its link to the nation-state. It is not backed by the durability of the metal or by the authority of the state. Indeed, what Sir Thomas More said of gold five hundred years ago – that it was made for men and that it had its value by them – applies very well to the euro."
Wim Duisenberg
The accounting system of the ECB allows gold to float freely in price, unlike that of the Fed, and although Draghi has proved to like QE just as much as Bernie & Janet, ECB still stems from a better tradition of central bankers, that of Germany and the Netherlands.
It is the Eurozone, rather than the Euro itself, which is in crisis.