An alternative to popular faith

8:55 am ET 03/13/2010 – UPI: European Union ministers are nearing completion of a bail-out package for Greece. . . The package . . . could contain as much as $34 billion in aid with primary backing from France and Germany . . . Options include loans to Greece and a bond issue guaranteed by eurozone countries . . . The deal must be constructed to circumvent EU rules that prohibit a bail-out for a country on the edge of insolvency. . . “

Think of what this really says: EU rules prevent Greece from creating money. So, unlike the United States, Greece legally cannot service its debts. The EU will break its own rules to lend Greece more money, while insisting that Greece destroy money by running surpluses. (Debt creates money; destroying debt destroys money.)

Thus has the debt-growth-restricted world of the debt hawks merged with the money-growth-restricted world of the gold bugs in one currency, the euro. Each day, the euro will encounter problems with reality, problems that will require patches and rule-bending, and will devolve to a jerry-built, recession-prone, Frankenstein currency, eventually to be abandoned in the midst of crisis.

Those who have read this blog, my web site and FREE MONEY will not be surprised by Greece’s and the EU’s problems. The euro is the inevitable result of beliefs by debt-hawks and gold bugs — which are identical.

Debt hawks, gold bugs and the EU all are the same people, though they may not realize it. They all wish to restrict the growth of money, just through different mechanisms. Debt hawks would restrict money growth by outlawing its creation. Gold bugs would restrict money growth by tying it to a commodity with limited growth ability.

The EU nations are hobbled with both. They are tied to a “euro standard” (ala a gold standard) and the growth of the euro is legally restricted. Why does restricting the growth of money have such widespread appeal, when money growth so obviously is needed for a growing economy? Because even sophisticated economists do not seem to understand the three-word sentence the forms the very basis of all economics:

“Money is debt.”

Rodger Malcolm Mitchell