Casey on the Collapse of the Euro and the EU
by Louis James, Editor, International
by Doug Casey:
The US Government Is Bankrupt
L: So Doug,
a lot of readers are concerned about what's going on in Europe.
Is this the beginning of the proverbial "it?" Or can the
Eurozone be saved?
In brief, the answers are "yes," then "no"
and a "good riddance" to both the Eurozone and the euro.
But most people think the old order should be maintained at almost
any cost. That would include George Soros, who recently penned an
article called Does
the Euro Have a Future?
Now, I don't
normally look to Soros for economic commentary, despite the fact
that he's one of the shrewdest and most successful speculators in
the world. He does, however, represent the way the Davos people,
Eurocrats, and the ruling classes in general think. But just because
he's made a lot of money doesn't make him an expert in economics,
any more than financial success is proof that Ted Turner, Bill Gates
or Warren Buffett know anything about economics. They're all idiot
savants, a bit like Dustin Hoffman's character in Rain Man.
But that's another subject.
"The political will to create a common European treasury was
absent in the first place, and since the time the euro was created
the political cohesion of the European Union has greatly deteriorated."
He's absolutely right about that and goes on to say that to create
a common European treasury, the EU would have to have the power
to tax. So, he's saying that the euro should be preserved, and that
to do that, it should be backed by wealth extracted by force from
the average person in Europe.
the problem with every currency in the world today; they're not
backed by a commodity, but only by the ability of government to
steal from the people. And the euro doesn't even have that going
L: And the
power to tax is an essential, defining characteristic of the nation-state.
It's the thing that empowers it to exist and separates it from voluntary
organizations. To create that power in Europe would really be to
turn the place into one single country. It wouldn't be long before
they had a European army.
Right now the Eurocrats in Brussels really only have the power to
regulate, which is bad enough. But if the European Union had the
power to tax, it would become an actual empire. Especially if they
then created a European army there's no telling what kind
of mischief they'd get into.
On the bright
side, they can't really afford an army. That's the bright side of
all these governments being bankrupt: They spend way too much on
welfare and debt service to afford much warfare
I guess that
makes welfare and debt good things, in a perverse way.
Soros went on to observe: "The euro crisis could endanger the
political cohesion of the European Union." That's true too,
of course. The EU is a completely artificial 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. It
makes no sense for there to be a European Union at all.
people think of these countries Italy, France, Germany, and
so on as though they are fixtures in the cosmos, but they
aren't. In their current forms, they're all newcomers on the stage
L: You mean
the gods didn't affix them to the celestial spheres, up there with
the stars? I could have sworn Jupiter told me he did
No. The average person doesn't realize that the country we know
as Italy today was only created in 1861, a consolidation of many
completely independent and very different entities that had been
separate states since the collapse of the Roman empire. Germany
was only unified in 1871, out of scores of principalities, dukedoms,
and whatnot. Both unifications were very bad ideas. Even today,
there are separatist movements in big Western European countries,
like the Basques in Spain, or those in the United Kingdom who wish
it weren't quite so united.
L: So what's
Of course, the ideal would be for there to be seven billion little
countries on the planet each one a sovereign individual.
But I'll take what I can get in the meantime, and would rather see
smaller states competing for citizens as customers although
I don't really like that analogy, because states are not voluntary
organizations, nor do they provide much in the way of useful services.
Anyway, a more cohesive European Union is a step in the direction
of Orwell's Oceania, which was in constant warfare with Eurasia
and Eastasia. It's odd how the world is becoming much more like
1984 in some ways at the same time that the nation-state
itself is collapsing.
have made sense is for Europe to have become a free-trade and -travel
zone. No customs duties and no need for work permits or passports.
A free-enterprise union created simply by dropping barriers
would have facilitated all sorts of business and job creation.
Instead, idiotically, the Europeans just created yet another layer
of government in Brussels. Which is rather ironic in that Belgium
is itself a non-country, created out of two very different societies
Flanders and Wallonia. Now there's a wannabe megagovernment
bent on finding new ways to regulate enterprise out of existence.
And if people like Soros are heeded, it will have the right to tax
in addition, in order to give value to its essentially worthless
All this would
be a non-problem if they simply used gold which is what,
as I've long predicted, is happening, starting with the gold-for-oil
trade between India and Iran.
about the EU as being a way to avoid new wars in Europe. But they
forget that in the 19th century, Europe had fewer wars than ever
before or since. At that time, "mark, " "lira, "
"franc, " and "pound" were all just names for
specific amounts of gold. It worked very well; and to paraphrase
Ludwig Von Mises: When goods cross borders freely, soldiers don't
or at least are less likely to.
All the gyrations
and machinations these Eurocrats are desperately rushing into place
to try to save the unnecessary and counterproductive euro are
just the wrong thing, but the exact opposite of the right thing.
Just so. Back to Soros. He has a prescription for preventing a meltdown,
of course. He advises: "First, bank deposits have to be protected."
In other words, to discourage people from bailing out of unsound
banks and destabilizing a corrupt banking system, all bank deposits
should be guaranteed. That's a catastrophic idea. It would further
encourage all sorts of bad lending by incompetent bankers while
sucking hundreds of billions of capital from productive parts of
the economy. He also asserts that some banks in defaulting countries
have to be kept functioning, in order to keep the economy from crashing
entirely. That's another ridiculous idea, plundering the prudent
and productive to pay for the profligate.
If banks were
run according to sound banking principles, with a clear division
between demand deposits and time deposits and no fractional reserve
banking, we wouldn't have to worry about any of these issues.
Soros goes on to write that the European banking system should be
recapitalized and put under EU supervision. I want to know how this
recapitalization would be done all those governments are
bankrupt. All that Soros is suggesting is to make a bunch of national
problems into one big continental problem. For all anyone knows,
the Fed is creating trillions of dollars to give to the EU. The
only thing that's really clear is that we're moving out of the eye
of the hurricane and back into the storm. But it will be much, much
fiercer than what we saw in 2008.
states that government bonds have to be protected from "contagion."
Whatever that means, the implication is more central control and
throwing more taxpayer money at the insoluble government problems.
The bankrupt banks will have to lend the bankrupt governments money,
so they can pay their bonds off, while at the same time the same
bankrupt governments lend the bankrupt banks money, so they don't
go under. It's all just a ridiculous shell game.
L: It all sounds
like a call for creating more unbacked currency units. If their
only answer is just to run the printing presses, it'll be Weimar
hyperinflation all over again.
Soros' bottom line is: "There's no alternative but to give
birth to the missing ingredient: A European treasury with the power
to tax and borrow." This, he claims, is "the only way
to forestall a possible financial meltdown and another great depression."
Forestalling the depression is impossible. All that can be done
is to make it less severe by doing exactly the opposite of
what Soros recommends.
L: And that
Doug: My view,
as you well know, is that they shouldn't forestall the meltdown,
but should let the market correct past mistakes and get on with
building real economic growth for the future. Nietzsche was right
when he said, "That which is about to fall deserves to be pushed."
But it really doesn't matter what these fools do; we're in the early
stages of the Greater Depression. It's going to have a life of its
are counterproductive band-aids. But since he got to offer solutions,
I'm going to offer some too. For starters, the national debts of
all these countries should be defaulted on, including the United
States. Those debts constitute an unethical mortgage without consent
on the next two or three generations of people as yet unborn as
a result of the excess consumption of their parents and grandparents.
The government debt should also be defaulted on to punish the people
stupid enough, or unethical enough, to lend these states the money
they've used to do all the destructive things they do.
banks should be abolished and thereby fractional reserve banking
as well. That would force banks to run on sound, classical terms,
and depositors would be induced to seek out the most sound and secure
shouldn't be national currencies. Commodities with gold most
likely the popular choice would again be used as money.
financial regulations and taxes especially income taxes
should be radically reduced or eliminated. At the same time, government
spending should be cut even more radically. These governments, if
their existence is to be tolerated at all, should be strictly limited
to doing nothing more than protecting people from overt force and
L: Sounds good
to me, but you know that's not gonna happen. So, tune in your guru-vision
for a moment and tell us what you think is most likely to happen.
Does Soros get his wish and we see a new European superstate emerge?
Or does the EU disintegrate?
not a snowball's chance in hell that the EU will turn into a superstate.
The chances are much, much better that it will fragment. If these
countries have breakaway movements within them, how could they possibly
succeed in peacefully joining together?
If you think
about it, the Soviet Union was a sort of Eastern European Union,
and it disintegrated. Yugoslavia also showed what happens to artificial
European unions, as did Czechoslovakia. These are all straws that
show which way the wind is blowing in Europe.
apart from the fact that trying to compact all of these different
ethnicities, languages, religions, cultures, and so forth together
into one giant nation-state is illogical, counterproductive, dangerous,
L: So, how
long do you give the EU before it breaks up? And the euro?
Well, as you know, one should never predict both an event and the
time it will take place. But I've long said that, "While the
US dollar is an 'IOU nothing, ' the euro is a 'who owes you nothing.'"
So I think the euro will reach its intrinsic value long before the
dollar does. The euro in anything like its present form
will cease to exist within two to three years at the outside. If
I had a lot of my wealth in euros, I would get it out ASAP. My favorite
alternative for protecting wealth, of course, is the precious metals:
gold and silver. If you want to speculate for gains on this trend,
I think there will be a bubble in the mining stocks, many of which
are cheap right now.
L: For new
readers, Doug's notion of the intrinsic value of the euro, the dollar,
or any unbacked "fiat" currency is zero. They are literally
worthless and only useful as long as people imagine otherwise. So
much for the euro, but what about the EU itself?
force will eventually tear it apart, with the EU as a whole disintegrating
long before its individual parts France, Italy, Germany,
the UK, etc. fall apart.
L: How long
is "eventually?" Can the EU itself last long after such
a crushing setback as the collapse of the euro?
Probably not they'll likely go in close succession. Europe
is just in a world of trouble; the continent reminds me of that
cruise ship that sank
off the coast of Italy recently. They are dying financially,
with all the debt bankrupting governments, businesses, and individuals.
They are economically in a lot of trouble, with stifling regulations
and taxes. They are demographically in a lot of trouble, with birth
rates far below replacement in general, except among African and
Muslim immigrants who are not integrating. Europe has long been
a hotbed of religious, ethnic, and race wars quite frankly
I see the next one building up right now.
L: What about
Eastern Europe? They have different problems like endemic
corruption and other Soviet legacies but they tend to be
very pragmatic and willing to work hard.
there's a dichotomy. The bad news is the Soviet legacy hanging over
them, but the good news is that they've experienced naked socialism,
and they know what it's really like. A lot of thinking people there
are experiencing shock therapy and leaning much more towards free
markets than people in the West. I'm definitely more optimistic
about Eastern Europe than Western Europe. However, the general decline
of Europe which started with World War I is going
to continue. I only hope Europe just declines in relative terms,
not absolute terms.
The fact of
the matter is that I'm most optimistic about the Orient. That's
where the action has been and is going to be. I'm also favorably
inclined toward Latin America, which has huge problems but is, at
least, mostly out of harm's way from the evolving Forever War.
L: Doug, you're
on record as saying that China is in a bubble and that it's going
to pop. How does that square with your being optimistic about the
Orient? You can't be thinking Japan will take the lead again
Doug: No, certainly
not. I do think China is ripe for a fall, but it's a matter of the
short vs. the long run. I'm very bearish on China in the short term,
but after the current system washes out, I think it's going to be
the place to be or at least, that area. I think China is
another country that has excellent chances of breaking up into five
or more separate countries.
More investment implications, besides getting out of
Doug: Buy gold
and silver. Don't be fooled into thinking the dollar is strong just
because the euro is weaker.
L: Very well;
thank you for your thoughts.
Doug: My pleasure.
I've got some other things on my mind, so we'll talk soon.
forward to it. Have a great evening, Tatich.
Doug: You too,
Note: For new readers, "tatich" is Mayan for "big
Casey (send him mail)
a best-selling author and chairman of Casey
Research, LLC., publishers of Casey’s
© 2012 Casey
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