Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
John Mauldin, a popular blogger and financial advisor, published an article about a dinner he had with those whom he called “. . . 16 money managers and investors. All very well-informed.” He said,
Charles Gave sat across from me at the middle of the table, and we talked and debated as the rest asked questions and offered opinions for 3-4 hours. . . I was asked if I still thought the euro was going to parity with the dollar, and I said I did, although I was not sure what the euro would look like in three years, or who would be in it. There was some pushback from people who thought the dollar would be the weaker currency.
Clearly, these “very well-informed” people do not understand that the euro is a failed concept – or at least failed in its current form, as all euro nations are monetarily non-sovereign. Because monetarily non-sovereign nations have little control over their money supply, they always are in danger of bankruptcy.
So I asked for a show of hands as to how many people thought the euro would be higher in one year’s time. There were 6 hands raised, but one gentleman said he was actually abstaining. So I asked how many thought the euro would fall, and we got 12 hands. Yes, that is 19 votes for 16 people. Clearly there were at least three economists in the group who voted both ways!
Classic old-line economists. They understand neither the past nor the present, so they vote two ways about the future. That way they always can say the predicted correctly.
Then someone asked Charles about the issue. Now, for those who have never had the extreme pleasure of time with Charles, he is a powerful, white-haired French patrician, and one of the better economists I know. Quite a brilliant thinker and not afraid to express his mind forcefully with a voice that sounds like God talking, with about the same assurance . . . .
“The question is entirely irrelevant” – punctuating the air for added emphasis. “The euro will not exist in a year. The whole thing was dysfunctional from the beginning.”
I suggested that was a tad bearish.
“Not at all. I think it is extremely bullish. The demise of the euro and the return of national currencies will allow for proper allocation of investments and resources. It is the best thing that could happen for the markets.”
Finally, an economist who knows what he is talking about. Welcome to Monetary Sovereignty and Modern Monetary Theory, Mr. Gave.
At some point, Europe needs to realize that the problem with Greece, Portugal, et al. is not illiquidity, but that they are insolvent and have few prospects for economic growth anywhere close to what is needed to solve their problems.
Europe would be better off just taking the money they are giving to Greece and using it to recapitalize their banks. Let Greece go. Give it up. Let them enter a 12-step program or whatever it is that insolvent nations do. That is harsh, but it is also the truth.
Close, but no cigar. Rather than letting Greece go, the EU should let the euro go. For the minor expedient of making trade a bit more convenient, the EU nations surrendered the single most valuable asset any nation can have: Monetary Sovereignty.
Later in his article, Mauldin discusses the possibility of a military coup in Greece. I agree. I also believe other euro nations face the same coup possibility, unless there is a drastic revision in the way the euro is handled. All monetarily non-sovereign governments, being unable to create their currency, need an inward flow of currency from outside their borders. So, keeping the euro requires either an ongoing, positive balance of trade or ongoing support by the EU. The problem is identical to what the U.S. states (also monetarily non-sovereign) face, with one exception. They can have a positive balance of trade with the U.S. federal government.
A true “United States of Europe” would be the best long term solution, but there is too much hubris, hatred and history for that to happen. As I predicted in 2005,
“Because of the Euro, no euro nation can control its own money supply. The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the euro.”
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetary Sovereign, , and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.
Remember that the next time you’re tempted to ask a teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it ruined my future.”