I had
a conference to attend in Southern California last week but the true capstone
was a Sunday evening dinner with several readers. Although ‘gold
bugs’ may be perceived in their writing as cranky I have found them to
be among the most considerate and cultured company. Perhaps it stems from
their respect for individual rights. Either way the grilled chicken was
fabulous and I brought delicious creations from Extraordinary
Desserts.
But we
had serious and complicated legal, financial and economic discussions. Fiat
currency, fractional reserve banking and derivatives have completely broken the pricing
mechanism. A tiny volcano burps and entire transportation systems
grind to a halt. We addressed tough questions about survivalism in the suburbs. And
then focus turned to the timing of the evaporation of the FRN$.
EURO
GOLD
But
the FRN$ is below the Euro in the liquidity pyramid. The FRN$ has
deeper capital pools, more economic underpinning, greater liquidity, a
stronger economic union and more thoroughly self-deceived owners of colored
coupons and imaginary digits. Therefore, the Euro will evaporate before the
FRN$. And that is precisely what is happening.
Fiat
currencies represent the common stocks of nations, or in the Euro’s
case the common stock of a weak coalition of nations. Since gold is the numaire par excellence
then let's take a view at the Euro zone’s stock through that lens.
A few
weeks ago when I was around Doug Casey he remarked that the Euro will be
gone in about five years. As the above chart shows, the Euro has lost about
75% of its value in the last 10 years. Mr. Casey may be slightly optimistic
about this particular intrinsically worthless colored coupon that represents
the common stock of that monetary union.
EURO
ZONE
So
what has happened in the Euro zone as its common stock has been evaporating?
Government budgets have exploded, economic output has slowed, individuals are
rioting and causing material amounts of damage, governments are being toppled
and armed forces, despite being prohibited by the law that they ultimately
enforce, are striking.
For
example, on 26 April 2010 King Albert II of Belgium accepted Prime Minister
Yve Leterme’s coalition government’s resignation after futile
blathering to resuscitate the government dissipated. This highlights one of
the common themes in Europe as Belgium is a prototype of cultural differences
with French and Dutch speaking communities disputing while the government
debt as a percentage of GDP is over 100%. These giant parasitical vampire
squids cannot be supported by the underlying livestock
base. But a friendly tip, if you are in Bruges be sure to
get a waffle as they are delectable.
Another
fun example, also on 26 April 2010, hundreds of Greek air force pilots called
in sick. Sure, these armed services members are not legally allowed to strike
but such civil disobedience happens when members of the enforcer and
brutalizing class do not get their paychecks or those paychecks are reduced
due to ‘austerity measures’.
Sure,
Greek Finance Minister George Papaconstantinou incoherently babbles about
cutting the budget deficit through structural reforms instead of salaries but
the truth of the matter is that government, like the vampires in Daybreakers,
would rather suck the humans dry and then die than curb their appetite and
coexist. It is economic law, not voluntary restraint by the vampire squids,
through undulating waves of mass psychology that forces limited government.
Despite
what Merkel and Germany do the die is already cast with regards to the Euro
and Euro zone. Interest rates must go up and the market is already forcing
this with rises in debt default insurance rates. Additionally, the European
banking system is still in terrible condition. On 23 April 2010 Moody’s
lowered National Bank of Greece’s credit rating one grade to A3/A.
Other Greek banks will likely be downgraded such as Emporiki, Agrotiki Bank,
Piraeaus Bank, Eurobank, and Alpha Bank. Plus, Belgium banks need to be
cleansed along with plenty of other banks throughout Europe from England to
Austria and France to Norway.
THE
EURO IS BROKEN
The
Euro is broken. This was its destiny. This is the destiny of all fiat
currencies. These bureau-rats cannot stop this anymore than Cnut the
Great could command the tide to halt. If these impotent
bureau-rats are so powerful then why did they fail to pass legislation
commanding the ash cloud to disperse?
So
what will a post Euro Europe look like? Hopefully, the Europeans do not go
back to doing what they have been doing for thousands of years. But those are
some of the ominous clouds on the horizon.
CONCLUSION
Gold
has hit record highs
around €860. The Euro is the only possible fiat contender as the world
reserve currency and for rational investors it fails to pass muster. Like the
Euro the FRN$ is destined to evaporate but this will likely happen later and
over a longer period of time.
As the
political situation continues deteriorating in Europe holders of capital will
continue turning towards the precious metals to protect and preserve their
wealth. Europe has a rich culture, delicious foods and fine art. Hopefully I
will be enjoying it next month and at a lower cost because of the evaporating
Euro.
But
Europe also has a savage past that only the vampire squids
desire to see again. After all, luring countries to increase their debt load
while destroying the production and productive capacity is bad for everyone
but the sociopathic bankers. And I should be
gone before that happens.
Trace Mayer
RuntoGold.com
Trace Mayer,
J.D., holds a degree in Accounting from Brigham Young University, a law
degree from California Western School of Law and studies the Austrian school of
economics. He works as an entrepreneur, investor, journalist and monetary
scientist. He is a strong advocate of the freedom of speech, a member of the
Society of Professional Journalists and the San Diego County Bar Association.
He has appeared on ABC, NBC, BNN, many radio shows and presented at many
investment conferences throughout the world.
|