"The Euro Is Finished"

Tyler Durden's picture

From Mike Krieger of KAM LP

There are two ways to conquer and enslave a nation.  One is by the sword. The other is by debt.
- John Adams

What lies behind us and what lies before us are tiny matters compared to what lies within us.
- Ralph Waldo Emerson

 

The Euro is Finished

To regular readers of my pieces over the last several years this may not seem like a particularly poignant statement.  After all, I have referred to the Euro and the U.S. dollar both as worthless political toilet paper for years.  The reason I bring it up right now is not to state the obvious long-term macro conclusion that the Euro is a foolish, unnatural creation that only political types twiddling their thumbs in a room could come up with.  No, rather the reason I say it now is because I believe the Sword of Damocles is now hovering right over it.

The only question in my mind at the moment regards the specifics of how it will end.  I would say that the majority of those that think there is a strong likelihood that the euro falls apart envision the PIIGS countries leaving or being thrown out.  While I certainly think this is a possibility, especially if Greece just calls it quits and then successfully transitions to its own highly devalued currency since this would for sure start the ball rolling and before long many of the other financially weak nations would also bail.  In such an event, I suppose what is left of the euro could be comprised of stronger Northern European nations and in that case what is left of the common currency could in fact strengthen materially versus other fiat currencies for which no such “restructuring” has occurred.  However, I am not convinced this is what happens.  The reason I am not convinced is because I don’t believe that the desired austerity measures will ever really go into effect in these nations and even if they did it would merely collapse those economies and the problem would not be solved.  As many have stated over and over (including myself) there is no conventional solution to this crisis.  There is far too much debt and there is no way real GDP growth can grow fast enough to counter this.  The debt will be defaulted on via restructuring/default or a dramatic destruction of the purchasing power of fiat currencies.  Nevertheless, the bureaucrats in Europe have such a deep love affair with their preposterous experiment they will turn a blind eye to all the transgressions of the PIIGS and continue to just pretend they have solved something with every new bailout scheme.

So that brings us to the other, and I think increasingly likely, outcome.  That is namely that the ECB continues to transfer wealth from the prudent and fiscally more sound nations (mainly Germany) to the periphery until the populace of Germany snaps.  I think that moment is very, very close at hand.  Once that tipping point is reached there will be no turning back.  The popular anger at the ECB and Euro will be so profound and so long festering that it will overwhelm all attempts to keep things together.  Germany could leave the Euro.  Or it could make it so difficult for the PIIGS that they are forced to leave.  Either way, Germany is EVERYTHING.  Nothing else in Europe matters right now besides the sentiment on the German street and it has become pretty clear lately which way that is going.  I am 100% convinced that Germany will play nice until that crucial moment is reached where it really is put up or shut up (we are close).  At that point, I have no doubt that Germany will do what is best for Germany.  In the event that Germany was to leave, the Euro would be gone forever.  It would become pure confetti overnight.  This is not my base case but it could happen.  Anything can happen right now.

The Fourth Turning is Global

All of this discussion about the euro brings me to a broader point.  While for obvious reasons I focus my attention on the United States because this is where I live and what I know best it is imperative for me to clarify my view that this Fourth Turing we are in is global in nature.  Remember, what really characterizes these shifts is the fact that the trends, institutions, political structures and parties, social mores, money systems, etc all die and are reborn during such episodes.  The last to get this of course are the elites and the political class who are always in bed together and seemingly at the height of their collective corruption once the Fourth Turning hits.  We see this everywhere at the moment, from the U.S. to the Eurozone to China.  What makes me laugh more than anything else are all these political hacks and financial “analysts” who keep saying that the answer to the crisis in Europe is a fiscal union in Europe.  That somehow this crisis will lead to the necessary resolve to form a fiscal United States of Europe, or some idiocy like that.  Sorry folks, it’s not going to happen.  This whole “problem, reaction, solution” playbook worked for the elite in the prior era but it will no longer work.  The playbook is out there.  It has been read and studied.  We know the playbook.  It’s not going to work this time. 

Like I have said before, one of the key aspects of the new age we are entering will be a dramatic reversal of a lot of the unrestrained globalization that has occurred since World War II.  Things are going to be more local everywhere.  Such as the food we eat and the products we use.  The lack of any breakthroughs on the energy front as we confront resource constraints demand that this be the case.  This reality will change everything in every possible aspect of life on earth.  Things in general will be much less “top down” on the political front.  There is a “tide in the affairs of men” indeed and that tide will take the Euro and any ideas of a fiscal union out to sea forever.  The key thing for everyone reading this to do is to get prepared for the new world as much as possible before it comes suddenly.  This has always been the idea behind my pleading to buy gold and silver.  We will need new forms of money and exchange.  It cannot and will not be a fiat SDR or any ridiculousness such as that.  That notion represents the past trends and the already failed dreams of our parents generation of central planners and free lunches.      

Quick Thoughts on the Swiss Franc     

While the move by the SNB to basically link its currency to the dying Euro was shocking and will send shockwaves throughout the global financial systems for months to come, in many ways it was inevitable.  The central planners are still in control and they are getting increasingly desperate.  Part of their desperation manifests itself in acts to prevent markets from sending out signals to investors and the general population.  This is why Central Bankers print money and buy government bonds.  This is why the ECB is buying worthless PIIGS debt.  This is why the SNB decided to destroy its currency.  After all, if they agree to destroy the value of the Franc at the same pace as the Euro then it will become less clear to the currency market just how quickly purchasing power is being destroyed.  Of course, you can always tell in the commodities sector.  What the Swiss did is unfathomably bullish for commodities, in particular energy, food and precious metals.  Every rich person with a Swiss bank account in Swiss Francs will be scrambling to turn that into the one hard currency left:  GOLD.  That is what the Swiss said to us earlier this week.  They told every investor on the planet “we don’t want to have a hard currency.”  If you want a hard currency you have once option now.  Gold.  When people really figure this out it is going to be a mad scramble for physical metal the likes of which no one alive has ever seen. 

Peace and wisdom,
Mike

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
caerus's picture

i say the franc (as a safe haven at least) is finished

Ahmeexnal's picture

maybe that's what "they" want everyone to think....

caerus's picture

maybe...but given the way the snb caved to the irs and their recent desperate attempt to depress the value of the franc by taking on unlimited amounts of worthless paper that they will eventually have to disgorge at massive losses i think the simpler explanation is that they (the snb) are idiots

dlmaniac's picture

Never expect a sound currency from a rampant socialism union. Mathematical impossibility.

EscapeKey's picture

Are you talking about Europe or the States?

dlmaniac's picture

Both.

When politicians are allowed to pint money at will the currency is doomed b/c you can be sure as heck it's being spent on unproductive activity that ruins the real growth opportunities and economy at the end.

Dugald's picture

Nah, Nah, Nah.....Don't you get it?      Its all a fiendish plot.....!

myTPisUSD's picture

I agree. I mean, think about it. The swiss peg the franc to the Euro, that means that gold will only go up (and faster) as the euro collapses, and swiss has a lot of gold. When the time is right they can depeg whenever they want to. Plus as the euro continues to fail it will make Swiss products (not just financial instruments) more attractive. Switzerland is used as a final assembly location for much of europe because of low taxes.

DosZap's picture

myTPisUSD,

< and swiss has a lot of gold>

For a small country they do, as for the toatal they own, NOT so much.

Since they went off the Gold Std

Magnix's picture

"...and swiss has alot of gold.." STOLEN by Nazis. :-)

ratso's picture

Another simplistic article that does nothing more then say "Buy Gold".  No insight hear into the intricacies of the EU, the ECB, the SNB and the political realites of all the EU countries.  Just blah, blah buy gold

Spitzer's picture

Funny how the ECB is way more hawkish then the Fed yet they say the Euro will hyperinflate first.

 

destiny's picture

Pretty God Damn Article in my book ! We'll see how you blah blah when shtf...

disabledvet's picture

"kaput" ...as in "not working as intended." "finished" connotes a failure of the intended purpose...yet you claim this is exactly what policy makers want. Therefore the "euro is kaput." this is very important to know this too. You see "you laugh but kaput is not funny." ....haha...i see you are laughing again.

Crisismode's picture

They will continue to issue debt . . .

 

. . . until nobody will accept their debt anymore.

 

And then they will try to take what they want by force.

 

Until they are stopped by force.

 

.

The They's picture

agreed. The Euro is a debt prison pure and simple.

Spitzer's picture

What is wrong with the Euro at the moment is what is right with it.

DaBernank's picture

Only an ill-informed individual with no understanding of national identities in Europe would spout such nonsense. Other than not being the Fed, the ECB has nothing going for it.

By buying bonds from governments and providing cheap credit to banks around Europe in a bid to stem the debt and bank crisis, the Eurosystem which underpins the ECB has become hugely leveraged. With only €81.187 billion in subscribed capital and reserves, compared to €1.895 trillion in assets, the ECB is now leveraged 23.4 times.10 In contrast, strong central banks such as the Swedish Riksbank, the Norwegian Central Bank and the Swiss National Bank, are leveraged only 4.7, 5.9 and 6.3 times respectively. Meanwhile, the average hedge fund is leveraged around four or five times.

Table 1: Spot the difference between the ECB and other central banks

(€m)            Capital     Reserves     Assets         Leverage     C+R as %ratio of Assets
ECB              10,761     70,426      1,895,870     23.4: 1        4.25
Swiss NB       36,174         -          226,641         6.25:1        15.96
Sweden         110         7,235        34,757          4.73:1         21.1
Norges Bank   8,441         -           49,345          5.85:1         17.1

Source: ECB weekly financial statement 24 May 2011, SNB Balance sheet, Swedish Riksbank weekly financial statement and
Norges Bank Balance sheet April 2011

TruthInSunshine's picture

Not only did I 'up arrow' you, I now will give you a:

 

 

+1

Also.

Nice work.

Ghordius's picture

Ehmmm...
Wait
The assets and ratios of CB's are only relevant for the DEFENCE of a currency.
Not the current situation, is it?

In a defensive I-have-to-keep-value situation RESERVES are what you need, FX and/or Au.

Nate H's picture

meaning they are (gulp) not that far from needing recapitalization....

Little John's picture

  When democracy is replaced by tyrany those with rifles will still get to vote.

taint's picture

yippee, I will get to vote 25 times!!

Dugald's picture

Yeah so?   You can only fire one at a time chum......

FeralSerf's picture

"Those who vote decide nothing. Those who count the vote decide everything." - Joseph Stalin

BigJim's picture

Our overlords will continue to issue debt that no one wants, but which everyone will be required to purchase if they wish to see their banking licences unrevoked.

QaplaSilver's picture

I'm very concerened that you are right about that.. sad times ahead.

Roy Bush's picture

Yeah, that's about right....couldn't have said it better myself.

ml8ml8's picture

Begs an interesting question:  What is a successful transition out of the EU from Greece's point of view? 

SheepDog-One's picture

Best line in the whole article 'This 'problem reaction solution' worked for the elite in the prior era but it will no longer work, we know the playbook now, it has been read and studied, its not going to work this time'.

nope-1004's picture

Much appreciated Mike.  Always enjoy your views.

 

TruthInSunshine's picture

The only way the EUR is saved (if even temporarily, as in kick the can for a few months/years, and losing 50% or more of its value over a very short peiod as the ECB cranks out the EUR trash fiat), is if German Politicians fall on their literal swords as they pledge current and two or three future generations of Germans' labor, savings, sweat equity and output in order to bail out the welfare PIIGS+France nation states that surround them.

And even if German Politicians fall on their literal swords doing this, it can all be undone when their successors are brought into office, and the former office holders have to literally seek exile for reasons of their personal security.

 

Highrev's picture

I've never before seen anything blown so far out of proportion by so many completely uninformed "experts".

TruthInSunshine's picture

And your defense of the EUR and EU is so thick with meaty, substantive statistics.

Do tell how Germany is going to stretch itself thinly enough to bail out PIIGS+France.

gratefultraveller's picture

They commissars don't want anyone to leave, neither the rich nor the poor.

EU = Hotel California?

"According to the opinion of the EU-comission, the highly indebted Greece cannot be excluded from the Euro zone. "Neither voluntary departure nor exclusion are possible", the spokesperson for EU-commissar Olli Rehn said in Brussels on Thursday. The Lisbon treaty specifies that membership in the currency union is "irrevocable". The spokesperson specified that his was both a judicial as well as a political reply, and added "There will not be a discussion about this."

 

(Source: Topnews Dow Jones)

FeralSerf's picture

"Them's fight'in words", y'all!

CD's picture

http://en.wikisource.org/wiki/Consolidated_version_of_the_Treaty_on_European_Union/Title_VI:_Final_Provisions#Article_50

http://en.wikipedia.org/wiki/Withdrawal_from_the_European_Union

Perhaps these sources are outdated, but there explicitly IS an exit clause in the Lisbon treaty. If a country (esp. Germany) decides to withdraw, what is the EU going to do to stop it? Send in troops to prevent a humanitarian disaster?

For more detailed analysis:

http://www.ecb.int/pub/pdf/scplps/ecblwp10.pdf

Of course, you are absolutely right in that they want NOONE to leave.

Clorox Cowboy's picture

I think J.C. "lie when it's really important" Juncker had a hand in crafting this statement...

FunkyMonkeyBoy's picture

How have we got into such a state that the fate of the world 'economy' rests on what a bald Jew fella has to say?

Oh yes, that's right, it's apathy that got us in such as state... and apathy is rife in the good old USA, more prevalent than ever.

At least the men and women of the middle east and parts of Europe got out of their chairs and put up a fight against the tyranny.

Juan Wild's picture

That's true but we already have a zog and they are ironically just starting one. If the UN and USA help liberate countries you can bet a Rothschild controlled central bank will appear. Then they can start thier lovely new lives repleat with ipads, wide-screen tv's and 7 credit cards each. That's not what I call liberation.

web bot's picture

Leave the Jew stuff out of it... The Jews are our elder brothers and don't forget that.

Shell Game's picture

"So is cheerleader Perry"  ..there, fixed it for you.

fuu's picture

Ron Paul is done being the nice guy perhaps. Wtf was up with Perry grabbing him onstage?