–The end of the euro as we know it. Greece, Ireland, Portugal, Italy, Spain too.

Mitchell’s laws: To survive, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Reduced money growth cannot increase economic growth. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

The PIIGS are monetarily non-sovereign, which means they cannot control their own money supply. One of the PIIGS, Greece, soon will leave the euro and re-adopt the drachma. It must.

As I said way back 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.”

The euro is a failed system. Long term, all monetarily non-sovereign entities require money to come in from outside their borders, either via money imports (exports) or via assistance from another government. There are no exceptions to this.

The U.S. became Monetarily Sovereign in 1971. It can create all the money it needs; it can pay any bills of any size, any time. But, you and I, the states, counties and cities all are monetarily non-sovereign. You and I receive income – i.e. money coming in from outside our “borders.” The states and counties receive money from exports, tourism (a form of export) and aid from the federal government.

My village, Wilmette, receives income from our neighboring big city, Chicago. Many of our residents work in Chicago and are paid by Chicago firms. We then take some of that Chicago money and pay taxes to Wilmette. That is how monetarily non-sovereign Wilmette survives.

Which brings us to Greece. Here are some excerpts from the excellent blog, “naked capitalism”

. . . Germany is activating “Plan B”, telling banks and insurance companies to prepare for 50pc haircuts on Greek debt. . . Germany is “studying” options that include Greece’s return to the drachma.

German finance minister Wolfgang Schauble . . . said there would be no more money for Athens under the EU-IMF rescue package until the Greeks “do what they agreed to do” and comply with every demand of `Troika’ inspectors.

Yet to push Greece over the edge risks instant contagion to Portugal, which has higher levels of total debt, and an equally bad current account deficit near 9pc of GDP, and is just as unable to comply with Germany’s austerity dictates in the long run. From there the chain-reaction into EMU’s soft-core would be fast and furious.

Let us be clear, the chief reason why Greece cannot meet its deficit targets is because the EU has imposed the most violent fiscal deflation ever inflicted on a modern developed economy – 16pc of GDP of net tightening in three years – without offsetting monetary stimulus, debt relief, or devaluation.
The Eurozone is addicted to a failing remedy. Even if it could get its integration act in gear, austerity, as we predicted, is only making matters worse.
So much for the idea that economists had learned from financial crises and developed better reflexes. Economics has to an increasing degree become an exercise in promoting ideologies to defend the privileges of the rentier classes. They look to be about to be hoist on their own petard. Unfortunately, a very large number of innocent bystanders will suffer along with them.

Though the PIIGS are monetarily non-sovereign and the U.S. is Monetarily Sovereign, there is at least one parallel: Austerity breeds austerity. Tax increases and federal spending decreases reduce economic growth, increase unemployment, and reduce the quality of life for all residents.

This is a lesson not yet learned by the Tea/Republicans, old-line economists and the media. These slow learners, by demanding a reduction in the federal deficit, effectively will make the U.S. monetarily non-sovereign, and will guarantee a return to recession if we are lucky and depression if we are not.

Greece is the bellwether. That nation demonstrates what happens to monetarily non-sovereign entities, long term. Though it is the Tea/Republicans who strive to make the U.S. monetarily non-sovereign, perhaps these politicians can be excused their ignorance. They are, after all, politicians. The economists cannot be so excused. They should know better.

Austerity breeds austerity, in the PIIGS and in America. Unless we see a dramatic change in economics understanding, the last chapters of the Age of America now are being written. These chapters will describe a life of misery for you, your children and your grandchildren.

It’s not to late to rewrite this ending. The first necessary step is to understand that a growing federal deficit is necessary — today, tomorrow and forever.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings


4 thoughts on “–The end of the euro as we know it. Greece, Ireland, Portugal, Italy, Spain too.

  1. More Proof: The Dynamic IS As I Have Put Forward

    So this morning we wake up and the French stock market is in freefall, the DAX looks like someone beat it with a baseball bat, and our DOW futures are down nearly 200 points — all before 6:00 AM.

    I’d simply hoist up the old sign (the “Told Ya So” one) and walk off, but there’s a point in here that is extremely important to understand for our government — from Congresspeople to the President.

    Many have said that we must “spend now but be more austere later” to both stimulate the economy and yet in the future get the debt under control. This rolls off the tongue of politicians with a smile and a wink, whether it be Republicans or Democrats. At the same time they promise that no person over 50 will see any change to Social Security or Medicare.

    It’s a lie folks. It’s not a mistake, it’s a knowing and intentional lie told by politicians worldwide.

    Greece tells us exactly what is going to happen. What mathematically must happen. And what nobody is willing to (yet) admit to and accept.

    When, not if, fiscal consolidation (the end of deficit spending to the tune of $1.5 trillion a year) occurs GDP will decrease by more than the amount of the deficit cut. This is, again, as I’ve explained for four years nothing more than simple mathematics — GDP is defined as “C + I + G + (x – i).”

    If you stop deficit spending “G” decreases. If you raises taxes then either “C” or “I” decreases. As the direct decrease occurs there are fewer people employed to provide the former C, I or G and as a consequence the GDP decrease is more than “dollar for dollar.


    Greece “sold” to its people that they could “resolve” their problems fiscally without GDP (the economy) collapsing. They lied; the program was implemented and GDP collapsed.

    Wall Street and both our and other governments pushed the meme that this problem was “manageable” without GDP collapsing — resetting to a lower level that actually represented private final demand. They all lied.

    The banks all claim they’re “ok” due to credit protection and other schemes yet none of them are marking gross exposure to the market and no regulator is demanding that all alleged “hedges” be proved as dollar-for-dollar money good through one dollar of capital.

    They have all lied.

    And now the market is calling “BS!” on all of it, and the truth is being exposed in Greece.

    Greece is not a “big” problem. Our utter refusal to honor the basic first and second grade arithmetic – the rules of simple addition and subtraction — is why we’re in this mess and why the European banking index is down 12% in two days time.

    Wake up America. The very same dynamic that occurred in Greece must occur in every nation that is currently deficit spending like crazy (that’s most of them) and we must accept the GDP adjustment that has to occur in order to re-balance our economies and realign output with actual final consumer demand.

    You cannot devalue your way to prosperity irrespective of the path of the devaluation. More tax cuts and more deficit spending will not solve the problem — here or anywhere else.

    For 30 years we have lied to ourselves and to the world. Now the market is calling these bluffs exactly as occurred in 2007 and 2008 and if we do not cut this crap out — right now — the “Greece fire” is going to spread worldwide and take down every capital market and government in a coordinated fashion until the “bare bank*****” – all of them – are exposed and reality is recognized.

    There is no option remaining other than facing and admitting the truth; those who refuse to come to grips with reality are not worth your time folks, whether in the political sphere or anywhere else. We’ve had four years of lies and four years of misdirection.

    If the politicians and media refuse to accept the truth then the only intelligent choice remaining is to erect the middle finger in their direction and act as necessary to protect yourself and your family.


  2. wasl, I’m sure Karl Denninger would prefer you attribute him as the source of this rant, rather than claiming it as your own….

    PS, You may not have noticed the entire blog post you are responding to, but America, Canada, Japan, UK, Australia etc, etc, are not like Greece, they issue their own currency.


  3. Whether the countries you listed, Hamish, are monetarily sovereign or not, those pulling the strings refuse to behave as though they are or acknowledge the fact and continue to put in place constraints that negate the fact. Austerity will be imposed and the road to a fascist state made wide open. The necessary changes will not occur within the confines of the present system. The battle I’m afraid is for the most part lost and decline is the road we’re on. Do you really believe those in control will experience a sudden epiphany?


  4. True that all of them still behave as though we are on a gold standard or can somehow run out of something they create out thin air, but I’m not as pessimistic as I think it’s more ignorance than malice at work here. I look at history and see that things like slavery, child labour, the disenfranchisement of women, etc. were overcome despite heavy opposition from powerful vested interests.

    Having said that, I suspect it will have to get worse before those in control will look towards the different ideas required to fix things up again. It might take a smaller country to set the example for others to follow.


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