Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

Time Magazine published online (9/29/11) an article by Roya Wolverson titled, “Will China help save Europe?” In the article, she said:

There’s been a lot of talk this week in China about whether it should swoop in to save the eurozone. Loading up on Italian debt is one possibility, which could keep Europe’s overall bailout tab in check and boost market confidence.

Another idea is to create an EU-China bond. Unlike an EU-only bond (a concept that hasn’t gained traction among fuming Germans and Greeks), an EU-China bond would rope richer China into the deal by offering a better interest rate than it’s getting on, say, U.S. Treasury bonds. And, backed by the heft of the German economy, the bond would offer a low-risk bargain for investment-savvy Beijing.

I don’t know why she refers to this as “saving” Europe. Lending more money to monetarily non-sovereign nations that already are indebted beyond their ability to pay, doesn’t sound like much of a save. It’s like rescuing a drowning non-swimmer by dragging him into deeper water.

There are only two long term solutions for the euro nations. Either:

1. Each to become Monetarily Sovereign by re-adopting their own sovereign currencies
2. The EU to give (not lend) euros to member nations ala the U.S. federal government giving money to the monetarily non-sovereign states.

My guess, the euro nations will be so desperate they finally will be ready to move away from their “lend-more-money-to-cure-indebtedness” philosophy. One or two nations might opt for solution #1, but the majority will be dragged, kicking and screaming into #2.

What will this mean? Done properly, without Tea Partyesque nonsense, solution #2 not only could save Europe, but it could make the euro the most powerful currency in the world, supplanting the dollar as the world’s reserve currency. Those European nations not currently using the euro probably would jump in, and down the line, even non-European nations could join.

Looking way, way into the future, I even could imagine the euro becoming the entire world’s sole currency.

By the way, Ms. Wolverson also said:

Of course, one perk for the Chinese would be boosting its status as a global financial player. But when you have a billion citizens restlessly awaiting their chance to climb out of poverty, it’s worth thinking twice about draining your rainy day fund.

Readers of this blog know Monetarily Sovereign nations like China (and the U.S.) neither have nor need a “rainy day fund.” They create all the money they need by spending, i.e. by instructing creditors’ banks to mark up creditors’ checking accounts.

Ms. Wolverson belongs to that vast army of columnists ignorant about Monetary Sovereignty.

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


Rodger Malcolm Mitchell