What The Failing Eurozone Can Learn From The Break Up Of The US Fiat Currency Unions Of 1933, 1861 And 1744

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Wed, 10/12/2011 - 08:51 | 1765074 SheepDog-One
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OH right....Europe should look to OUR history of 'monetary unions' in the U.S. past (since the present is running so smoothly) and take a lesson from our past foulups and start flying right.

Eat the bankers.

Wed, 10/12/2011 - 09:31 | 1765198 idea_hamster
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The New England Colonies 1744

There is little to be learned from this ... rate system that broke down under the pressure of one economy printing too much of its own “currency”.

I think this shortchanges the example -- the whole point is that multiple colonies all accepted each other's bills and each colony had the independent ability to inflate.

Although Greece couldn't overtly print more Euros like Rhode Island did, Greece was able to commit itself -- and by extension, the entire no-one-can-ever-default Eurozone -- to pay enormous amounts in the future, i.e., issue endless bills of credit.

At first glance, this seems exactly like what happened with Rhode Island....

Wed, 10/12/2011 - 10:09 | 1765452 falak pema
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except that greek women are hot... I wonder if Rhode Islanders were pickled or tickled to Pocahonta heat?

Wed, 10/12/2011 - 10:18 | 1765512 Spitzer
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This article is dumb.

the Euro cant survive without a dramatic change in the current European monetary (and fiscal) structure and an unprecedented overhaul to the status quo.

Why ? They all have seperate bond markets.


Wed, 10/12/2011 - 10:49 | 1765684 trav7777
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Will germany care at this point if the EUR system causes every deposit to flow out of a bankrupt member state and into their nation?

Wed, 10/12/2011 - 17:08 | 1767182 BigJim
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I'm sure they'll express their deepest concern.

Wed, 10/12/2011 - 12:31 | 1766011 Ghordius
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I find this article strange, with no logic at all


at the moment, it goes like this: "all humans are mortal, you are mortal, therefore you will DIE NOW" - unless you start to bleed, of course...

fact is, nearly all writings about the EUR go like this: "the Euro is an abomination, it will never work unless the ECB prints, prints, prints, so PRINT MORE, ECB!" conclusion: the ECB has not printed enough for the writers, has not taken enough burdens, is simply refusing to QE at the required levels - because face it, attached to nearly every "ECB is abomination story" there is the "unless it bails everybody out" part, I now have a collection of dozen FT articles that are built according to this template.

I note: no comparisons, no gold holdings charts, no mention of comparable CBs, NO RESERVES, only pure faith in the evil of the Euro

who profits? and who takes the time to write articles that take convoluted history lessons to the conclusion that ALL MONETARY UNIONS failed (without noticing the fact that they might take two lifetimes to die?)? Of course, the 1933 example (which I have to look up) would mean that the US Dollar is now a de facto successful "currency union", eh? I start to think Tyler is pulling some legs here...

Would the Euro DIE in a maximum default scenario? NO. Because it's NOT a national currency. It's NOT like the Dollar and the British Pound. In fact, an international currency is exacty what you would want in a maximum default scenario. Unless, of course, the ECB prints.

No, there is another story behind it - there is a category of people for which a catastrophic failure of the banking system would spell the end of their world - unless, of course, the ECB PRINTS MORE

PRINT, ECB, you are not following enough the footprints of the FED and of the Bank of England!

Wed, 10/12/2011 - 08:48 | 1765078 Minoan
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Every European must read this.

But in which language?

Wed, 10/12/2011 - 12:19 | 1766117 Ghordius
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how about the european language called English? which is taught in every bloody secondary school (i.e. from the sixth school year on)

Wed, 10/12/2011 - 08:50 | 1765081 Hedgetard55
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All the political and accounting games in the world cannot change the fact that Europe has incurred debt that must be either paid off or defaulted on. They cannot pay it off, so the only question is how does the default play out? Direct haircuts to debt owners, or a general haircut for all holders of Euros through printing.


Same for the US.

Wed, 10/12/2011 - 08:57 | 1765090 SheepDog-One
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Who says the debt has to be paid off? Paid off to whom? By whom?

Same here in the US, YOURE the one expected to pay off the FED bankers debt and bailouts, now up to $150,000 or so for every american...well Im not paying it!

Wed, 10/12/2011 - 09:01 | 1765095 Hedgetard55
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     You are ALREADY paying it through monetization and consequent inflation. Do you hold cash or cash equivalents? Then you are paying it. Do you purchase any goods at all, even through barter or using PMs? You are still paying it through higher prices.


    That's the beauty of monetization by the FED. Everyone pays and most don't even know it, and you can't escape it unless you move to another country that is not printing (good luck there).

Wed, 10/12/2011 - 09:24 | 1765169 SheepDog-One
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You can claim what you want asshole Im not paying SHIT!

Wed, 10/12/2011 - 10:02 | 1765410 Hedgetard55
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     I understand your anger but don't kill the messenger.

Wed, 10/12/2011 - 09:50 | 1765320 Internet Tough Guy
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Of course you can escape it. You buy gold.

Wed, 10/12/2011 - 11:20 | 1765833 s2man
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yeah, but you are buying gold with the already inflated, i.e. they stole some of its value, FRNs.  They still win. 

But when you barter with the gold, then you win, as you retained your wealth and they are stiffed on the sales/income taxes.

Wed, 10/12/2011 - 12:02 | 1766039 CapitalistRock
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If you've saved with PMs then you have been paying lower retail prices, not higher.

Wed, 10/12/2011 - 08:51 | 1765082 GeneMarchbanks
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You can read all the historic examples you want it's too late. The dye has been cast. Much of this is simply not applicable to the Euro Project.

Short of world-wide debt jubilee we all know the next phase.


Wed, 10/12/2011 - 08:56 | 1765092 SheepDog-One
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Right, the idea that they can print now to infinity, and YOU will pay it back in the future is insanity...this leads to collapse and revolutions and world war.

Wed, 10/12/2011 - 09:05 | 1765111 Comay Mierda
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Wed, 10/12/2011 - 12:06 | 1766056 CapitalistRock
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Not always. That is why printing is politically feasible. Remember, they only need to confiscate 30% to 40% of personal wealth. You can get most of that by running 10% inflation for a few years. Most sheeple won't realize they've been robbed. This happened in the US after WW II and in the 1970s. Wars did not break out. There was simply a wealth transfer from the stupid dollar holders to those intelligent enough to hold wealth in other ways.

Wed, 10/12/2011 - 08:59 | 1765094 falak pema
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Hey the EU has enough history of its own. Its not history that EU lacks. Its vision, will and also suffers  too much from rampant corruption. Nationalise 'de facto' the banks and repair the financial system world wide. Then we'll talk once the books have been clearly cleaned/profile identified of risky debt. 

Right now its the blind leading the blind, into the wall.

Wed, 10/12/2011 - 08:59 | 1765097 GOSPLAN HERO
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"Lincoln's Banking Legislation -- As soon as Lincoln took office the old Whig coalition finally controlled the entire government. It immediately tripled the average tariff rate, began subsidizing the building of a transcontinental railroad in California even though a desperate war was being waged, and on February 25, 1862, the Legal Tender Act empowered the Secretary of the Treasury to issue paper money ("greenbacks") that were not immediately redeemable in gold or silver. The National Currency Acts of 1863 and 1864 created a system of nationally chartered banks that could issue bank notes supplied to them by the new Comptroller of the Currency, and a 10 percent tax was placed on state bank notes to drive them out of business and establish a federal monetary monopoly. The government's paper money flooded the banks so that by July 1864 greenback dollars were worth a mere 35 cents in gold. Ever since the days of Andrew Jackson American presidents had opposed a fiat money system. The Jacksonian opposition to central banking was ended, literally, at gunpoint. Lincoln's main role was to avoid doing what presidents had done for the previous three decades: veto central banking legislation. There was no chance of that since Lincoln, unlike Jackson and President John Tyler, was a career-long advocate of central banking and fiat money." -- Thomas DiLorenzo

Wed, 10/12/2011 - 09:24 | 1765170 spanish inquisition
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So Lincoln freed the slaves by making everyone a slave....

Wed, 10/12/2011 - 10:03 | 1765416 you strawman talking
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No just citizens of the corporation known as the UNITED STATES OF AMERICA




Salt cures all things whether by sweat, tears, or going to sea

Wed, 10/12/2011 - 08:59 | 1765098 SheepDog-One
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The cacophony of the war sabres rattling is what really has me troubled, currency 'bills' passed against China, accusing Iran of wild plots for mass mayhem and bombings and murder...I think the clock is ticking down fast theyre grasping for diversions.

Wed, 10/12/2011 - 10:55 | 1765703 trav7777
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yeah...the notion that Iran was going to hire a fucking Mexican drug cartel to assassinate a Saudi diplomat in DC and blow up both theirs and the Israeli embassy?  This is the most absurd thing I've ever heard.  You couldn't get NEAR the Israeli embassy in DC without getting shot driving anything big enough to blow it up.

This is insanity...and Place Holder was ALL OVER IT, probably cracked the motherfuckin case hisself.

Wed, 10/12/2011 - 13:19 | 1766359 XitSam
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Interesting the that the embassy of Israel and Pakistan are right across the street from each other.

Wed, 10/12/2011 - 09:06 | 1765108 Michael Victory
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morning Gold fix:

Watch: Turkey talks with Thorsten Polleit Topic: Fiat

Wed, 10/12/2011 - 09:06 | 1765113 narnia
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sure would be nice to see a case study in competing currencies.  i'm sure the market can produce a medium of exchange preferable to promises of arbitrarily defined governments on worthless pieces of paper enforced by the barrel of a gun. 

Wed, 10/12/2011 - 09:07 | 1765116 apberusdisvet
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There is an interesting piece on GATA; a talk Chris Powell gave in London about the historic central bank suppression of gold.  One of the takeaways from this is that, quite probably, there is a finite amount of gold that is constantly lent, swapped among the CBs and that this physical amount may only a fraction of the promises extant.  Now add the belief that Fort Knox is empty, and you have the perfect storm of eventual price discovery should a significant currency implosion occur.

It will be interesting to see if Hugo's gold ever really makes it to Venezuela.  Naval blockade, anyone?

Wed, 10/12/2011 - 10:44 | 1765660 CrazyCooter
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Just my two cents but I think all the gold is in Ft Knox/West Point. These are military installations and I trust the base commanders aren't playing for another team.

That said, the gold has been leased, levered, swapped, and god knows what else. I have no doubt the contractual claims grossly outweight the actual physical. But these claims are paper claims on metal still sitting in base vaults.

When the system goes tits up, the contacts are going to be voided, per the clauses in the contracts. The gold will still go no where.

We will come around to a gold standard, the question is what road do we take to get there?



Wed, 10/12/2011 - 11:12 | 1765790 trav7777
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are you fucking kidding me?  They do whatever they're ordered to do.

If that's hiding evidence on Pat Tillman or lighting up reporters w/ a 20mm chain gun then hiding that, soldiers do what they're told.  If one breaks ranks, they Bradley Manning him.

Thu, 10/13/2011 - 00:57 | 1768488 CrazyCooter
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I am cynical, but I am not that cynical.

I believe the US has the gold, it never went anywhere, and that it is leased 100:1 paper to physical.

The money system will reset.

And when that happens, the US is going to have the best seat in the house to continue previous policies under a new money regime.

Oh, and war, lots of that will go around.



Thu, 10/13/2011 - 08:41 | 1768927 spanish inquisition
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Here is a link on the gold, no gold in Ft Knox from 1981 http://www.rumormillnews.com/cgi-bin/archive.cgi/noframes/read/126553

And don't get me started on how hard it is to count stuff and not create inventory drift. So if you don't count the gold, there wont be a discrepancy. We all just need to have faith it is there, just like we have faith the dollar is worth something.

The point of the great finance game is to make money. Gold is money or, as I like to call it with its characteristics, the most consistent barter exchange intermediary over time. I am guessing Ft Knox has tons of titanium surrounded by a thin plate of gold and the NY Fed is holding a lot as collateral for the US.


Wed, 10/12/2011 - 18:42 | 1767593 BigJim
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...It will be interesting to see if Hugo's gold ever really makes it to Venezuela.  Naval blockade, anyone?

I wouldn't be at all surprised if they 'discover' Hugo helped the evil Ahmedinnerjacket in his nefarious (and ever so clever!) scheme to blow up a.... Saudi diplomat.

When I first heard this story, I just laughed, thinking no one could take it seriously. And then, over at the WSJ, I saw hundreds of comments doing just that, with maybe 5% expressing some doubt.

Most people here in the West really will believe anything their governments tell them. It's amazing.

Wed, 10/12/2011 - 09:11 | 1765125 Medea
Medea's picture

Are you fucking kidding me with this post?

Wed, 10/12/2011 - 09:16 | 1765139 andthensome
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i always crack up at your stupid movies..



Wed, 10/12/2011 - 09:18 | 1765145 tarsubil
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Does anyone have a recommended resource for more details on the consequences of the Rhode Island printing of 1710-1744? I'd like to read more about that.

Wed, 10/12/2011 - 10:19 | 1765527 CrazyCooter
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Ralph Foster's "Fiat Paper Money" might pique your interest. There is a whole chapter on the early American economies and how fiat played out before and after the revolution.



Wed, 10/12/2011 - 10:21 | 1765543 New American Re...
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Yes, try Murray N. Rothbard, "A History of Money and Banking in the United States", but it will take you awhile to be able to read it without falling asleep.  But once you get over that hump, it is fascinating reading.

Thu, 10/13/2011 - 14:24 | 1770414 tarsubil
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Thank you both Crazy Cooter and NAR for recommendations.

Wed, 10/12/2011 - 09:18 | 1765146 lookma
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No shiz!?!  The euro was built to try to survive the ineivitable fallout from the end of the dollar system without a major hyperinflation.  That's what all the gold's for, ya know, the first asset on the consolidated statenment?  You couldn't possibly miss it. See its right here - > http://www.ecb.int/press/pr/wfs/2011/html/fs111005.en.html.

Over the past twelve-year lifespan of the Eurosystem, when coupling gold’s rise from the January 1, 1999 euro-launch price at €246/oz along with MTM revaluation accounting methods, the gold reserves of the Eurosystem have elevated from €99.6 billion...

This growth in gold reserves makes a stark contrast when compared to the initial net position in foreign currency held in 1999 (€227.4 billion) that has undergone a significant shrinking ...

Within this positional admixture*, gold’s role has gained musculature from a mere 30.5% proportion to it’s current dominance...

Meanwhile, due to the woefully outdated paradigm established by the U.S. Congress for gold held by the Treasury Department, the gold reserves of the United States are effectively anemic and bedridden upon the books of The Federal Reserve System, where they exist only in certificate form — valued at a static $42.22/oz., forming a paltry $11 billion stake.



Silly kids and their cute little playground tiffs over "fiat money," this kinda intellectual jibberish was called out a deacade ago:

Mind you, this is all happening while Western style "Hard Money Socialists" are defending their stance by saying the Euro is just another fiat. Ha!



Wed, 10/12/2011 - 09:48 | 1765310 Internet Tough Guy
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If Tyler read FOFOA he wouldn't post such nonsense. The euro is fine; it was made to devalue. The dollar, not so much. Euro will win.

Wed, 10/12/2011 - 10:23 | 1765557 CrazyCooter
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The US has 8k tons, mostly at West Point and Ft. Knox. The European countries collectively have about 10k tons.China has about 1k tons.

I don't follow your argument.



Wed, 10/12/2011 - 10:59 | 1765725 Internet Tough Guy
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It's the structure of the euro that matters; gold floats on the ECB balance sheet. The euro can depreciate against that one thing, gold, so no hyperinflation in real goods prices.

The dollar can only depreciate against real goods; hyperinflation.

The euro can be depreciated and live. The dollar can't.


Wed, 10/12/2011 - 11:13 | 1765803 trav7777
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are you stoned?

You think if it depreciates against gold that it WON'T depreciate against oil?

Oil is substantially more important than gold.

Wed, 10/12/2011 - 11:21 | 1765838 Internet Tough Guy
Internet Tough Guy's picture

You are a fool, but why confirm it?

Someone much smarter figures it out years ago. See if you can understand this quote.

Few do grasp what is happening and why! They think the holding of gold reserves by the Euro is of a little point, as to what good are gold reserves? One cannot use gold as Marks or Yen to intervene in currency market to support the Euro. My friend, the BIS has played the, as you say, "big poker hand"! The holding of large reserves by the ECB and the withholding of sales from the market will not only bring the end of the London paper gold market, it will, thru a high USD gold price, "make the dollar weak in gold"! From this position, the dollar will lose the "oil backing" from the Middle East! At first, all oil for Europe will be in Euro's, then all producers want "strong currency"!


Wed, 10/12/2011 - 11:23 | 1765852 Internet Tough Guy
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There is more: Many say, how to defend Euro without much currency reserves? If gold go to many thousands US, what will be used to bid for Euro as defense? I say, these persons will find a problem on their computer screens! You see, the Euro will start as "nothing", no holdings of size, anywhere! The dollar is held as reserves as "the stars in heaven"! It is to say, "the dollar will bid for the Euro", not "the Euro will bid for the dollar"! All currencies will "flow into the Euro for trade". But, if the Euro becomes so strong, how to compete in world trade? It will be the price of oil that will make the "trading field" level! The soaring US$ price of gold will make even a 10% Euro reserve be as 100% today, in USD! Oil will become, very, very cheap in Euros and allow that economy to do well! Many other countries will see this and also want to join the new "world reserve currency" that has become"the new world oil currency"!

Wed, 10/12/2011 - 11:49 | 1765979 Not For Reuse
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LOL right, who cares about physical reality; the only thing that matters is how numerical abstractions behave on government balance sheets.

What a load of steaming ivory tower horseshit

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