9-15-2011

You’re likely familiar with the euro PIIGS (Portugal, Ireland, Italy, Greece and Spain). We’ve all seen Ireland decline. More recently Greece has been the focus of banker attention, with Italy rising to the forefront. The situation is dire indeed and has so many tentacles tangled in so many directions that the average Joe couldn’t possibly grasp it all. But there are aspects we can consider.

One thing to keep in mind is the challenge of Europe. The task they’ve taken on is immense. To bring so many amazingly diverse cultures, philosophies and natural resources under one currency is daunting indeed. The Germans are very industrious. The Greeks are very social. Some peoples are frugal. Others are spenders. Some know how to save and invest. Some couldn’t care less, but live for the moment. It’s not that one is necessarily better than another. It’s simply a major complication for savers to tell spenders that their monetary policy is going to have to work the exact same way. What ends up happening is that the spenders will spend until the money dries up, then the savers will have to use their savings to bail out the spenders. We see this everywhere. It’s in the U.S. But in Europe it’s more of a cultural difference whereas in the U.S., while it can be, it seems to be based more of an individual difference.

Another aspect of this is that, while huge, the Eurozone is not the world reserve currency. The incentive for foreign bankers to keep it propped up is not as strong as it is for the U.S. dollar. The world has used dollars for a long time, rendering divorcing any economy completely from the dollar an arduous process. It simply can’t be done overnight.

There are good and bad aspects to this. On the one hand, the lack of world reliance on the euro could very well mean that nobody will come to bail them out. The U.S. might do what it can by sending more empty promises in the form of Federal Reserve Notes. And it looks like China’s involved now as well. But the upward pressure by world economies simply isn’t there for the euro. This is a mixed blessing. If nobody bails out the euro then the can must be picked up. If they can’t kick it down the road they’ll be forced to reform, which will be very painful, but also will take care of the inevitable now rather than drawing it out, resulting in more pain.

The U.S., on the other hand, is the world reserve currency. This is why it’s going up even as the euro is declining. It’s also why it’s clinging to the cliff, even though the debt problems in the U.S. are every bit as serious as in Europe. This is good, in a sense, because it gives the dollar some stability. But the cost is massive. The stability is illusory. It’s a card trick that fails to deal with the reality of the downward pressure on the dollar. In the end, this will make things much worse for the dollar. The downward pressure is so immense that it cannot be staved off indefinitely. Eventually the world economies will divorce themselves from the dollar enough so that they can simply let it go. How soon will this happen? Your guess is probably better than mine. And there are possibly options of developing a world currency that might involve enough smoke and mirrors to mask the inevitable demise of the dollar.

So, what should Europe do? They should abandon the “too big to fail” policy and set free the market to do what it does best – shake out the losers and promote the prosperous. Germany and France have made it clear that pushing Greece out isn’t an option. However, for her own best interest, Greece should default and divorce itself from the euro. Of course, bringing in a gold standard would go a long ways toward building a stable economy there as well.

Will it happen? I don’t know if Greece has the gumption to leave the euro. But I would expect pigs to fly before any of these countries returns to the gold standard. Simply put, the gold standard is much more difficult to manipulate, which is what big government does best. And it’s this very manipulation that’s central to the whole problem in both Europe and the U.S.

The result of the dropping euro and rising dollar has also given a boost to stocks as more investors flee the euro for perceived safer havens. How long can this last? Again, it’s a tough question. But these events have resulted in a retreat for our favorite yellow metal and copper’s byproduct. This very well could be the last great buying opportunity for au & ag for a long time to come. Of course, that’s not advice. I’m just telling you that, if I had some dollars, I’d be selling them for some Morgan silver dollars, American eagles or European coins close to spot, if I could find them.

If you don’t understand the difference between the two, I’d recommend you study Keynesian and Austrian economics. The Keynesian policies systematically bankrupt the people through the manipulative destruction of wealth. The Austrian system promotes free enterprise, entrepreneurship and prosperity for most anyone who’s willing to work for it. You can get a crash course on this by investing 30 minutes listening to these two videos on EconomicPolicyJournal.com. Robert Wenzel nails it with his introduction.

Watch these clips and you will learn more sound economics than you would ever get from a full semester sitting in a Paul Krugman class at Princeton, where he spouts off Keynesian nonsense.

And one anonymous comment certainly makes his case as well.

Peter Schiff absolutely blew them out of the water! Awesome!
With people like Ron Paul, Peter Schiff, Thomas E. Woods debating others it’s almost unfair. It’s like mature adults debating a bratty 5 year old. These people simply can’t compete against the Austrians.

Understanding these two schools of economics may go a long way toward helping you to understand what’s happening and any steps you can take personally to prepare for your future, and that of your family. It’s no sin to lay up an inheritance.

 

Here’s to your posterity,

Joe

Standard small 13 op

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