The cause of the European debt crisis, in its simplest form, was overspending by (mainly southern) European governments during the last decade, and especially after the 2008 financial crisis. FULL ARTICLE by Kel Kelly
Source link: http://archive.mises.org/15556/the-euro-debt-crisis-and-economic-theory/
The Euro Debt Crisis and Economic Theory
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Well it’s not the red team against the blue and yellow team and if one goes down then they all go down or has no one notice that we are all borrowing money from the same global bankers and that corporations are runing the world and not local goverments.
Egypt has shown the way by kicking out the puppets and Americans will follow when the last GM is moved to a another country where labour cost $2.00 a day
it’s a race to the bottom and along the way these bankers that control a fixed stock market are pumping the market for all its worth and then they will crash it to steel money from outside investors.
if you get the chance, not that i’ve manages so far but watch ‘Inside Job’ because the worlds goverment are doing all they can to keep a lid on this documentary so its sure to be good.
I know of only one currency that will works in Europe/UK/USA and like Viza is accepted around the world and this currency will still work in 2000 years just as good as the previous 2000 years and needs no introduction.
The wool has been pulled over your eyes and its time to wake up.
Aren’t there a couple of elephants in this room that won’t be ignored:
1. The Fed and its decisions about the US money supply and quantitative easing?
and
2. The ability of China, or necessity based on its self-preservation,to control Europe after it buys up the European banks, corporations and sovereign debt if default is allowed/chosen/unavoidable?
Hi Bob. I don’t think the Fed’s printing of money would have a great baring on actions taken by the EU in the case of default, nor with respect to what affects there would be in the US. Now, as in the 70s, if the Fed printed money IN RESPONSE to a perceived something or other, then certainly that would affect the US (but not Europe much).
The second issue is more of a theoretical stretch, or “left tail” possibility that a little to abstract to consider seriously at this point. I don’t think China, even if it owned a lot of EU debt, could “control” things very much. It is mainly the ECB, the banks, and the EU politicians that can “control.”
I wish that provincial and prejudicial acronym used to describe southern Europe would go away. The whole monetary system is the problem, every country shares in the responsibility. I’m not denying that those countries finances are part of the problem but the use of that moniker gives the proponents of inflation, debt, and taxation a back door excuse and scapegoat. Northern Europe has plenty of scars to pick at too.
The biggest danger is that there will be another European war, in which the US government would feel compelled to participate (again). Likewise, a debt crisis or some other major financial or trade disruption in the Far East, Middle East, South Asia or who knows, even Africa or Latin America.
An European war? I laugh. It is more likely that there is a new Civil War in the US.
I disagree. The Euro is not gold. Without some external pressure forcing people to use the Euro either through taxes or debt, it would revert back to it’s market value – the value of paper.
David, the assumption is that the only thing that changes is default. Citizens still will hold currency. In the case of a debt implosion, the money supply will fall. That makes each euro more valuable, Thus, there would be more demand to hold the euro. The same would happen with gold if it could be easily destroyed.
Kel,
Thank you for your thoughts on these issues. What follows is an elaboration on the point made by David C.
It is unrealistic to say that the inflation/deflation of Euro credit is the primary determinant of the Euro’s purchasing power. Simply put, this approach ignores the fundamental issue of a currency’s quality: in the extreme case the Euro would have no purchasing power if the EMU dissolved abruptly and the demand for the Euro approached zero.
The quality of a fiat currency is dependent on the perceived viability of the political structure (or state) that enforces its use. Factors that affect this perception include the popular acceptance of the structure and the ability/willingness of the structure to defend itself. Once the quality of a currency is questioned its purchasing power (especially in terms of foreign exchange equivalencies) can decouple from the narrow issue of quantity.
In his “Tragedy of the Euro” Philipp Bagus asserts that the EMU is part of an elite-driven socialist project intended to subjugate a unified Germany by redistributing its wealth and monetary prestige to the less productive and less responsible outlying nations of the union. Without the presence of a strong (offsetting) cultural bond, the union’s polar design is naturally prone to rupture. The viability of the EMU and the greater socialist project are brought into stark focus as the satellite nations consider debt default as desirable option: the tidal force of an abused German populace is seen on the one side and an endangered elite in the satellite nations is seen on the other. Here these elites gauge that the near term loss of fiscal/monetary control outweighs the longer term benefits (in potential future net resource flows) of remaining in the union.
In this way a satellite nation’s debt default can lead to a decline in the Euro’s exchange value in spite of a decline in the currency’s supply and no expectation of subsequent inflation.
Hi all. I believe there’s slight miscommunication/misunderstanding here. See below:
Re: first (true) paragraph above: I agree. Please keep in mind that in the article I stated “in and of itself” for a reason. I can’t assert a rule when there are myriad possible things that could take place as a reaction to a debt default. I was referring only to the resulting monetary effects of a debt default, not what individuals would do as a result. Clearly, if people shed the euro, there would be little demand for it. However, if the supply of euros was decreasing, we would have to wonder how fast people would move away from a currency which was becoming fundamentally/intrinsically more sound (again, assuming the CB did not expand). After all, if the euro’s intrinsic value was increasing, we would have to wonder why people would keep selling off that currency, when the quantity of the currency(s) people replaced the euro with was decreasing. How would a currency which saw its quantity increase have a higher quality than one which saw its quantity decrease?
Additionally, I did separately address the possibility of people shedding the euro. As I stated, if they, did, the monetary authorities would simply need to switch out the currencies, as they did in 2002.
Re: second paragraph: I’m not sure I would agree with this (not that I would say it has absolutely no merit at all). I would point out to you that the Iraqi Dinar (I think it was called). Had great demand and purchasing power after Hussein fell. It was a currency just “out there” and not supported or controlled by anyone. Similarly, other currencies in history such as gold, tobacco, cigarettes, etc. did not have a political entity backing them. Conversely, the German currency of 1923 was fully supported and controlled by a political entity, but its value fell solely due to quantity inflation. If you think about it, there is no real need for a political entity to control a medium of exchange.
Therefore I ask: why would the quality of the Euro be lower in the context that I laid out? Similarly, I think it is highly realistic, not unrealistic, to consider a currency’s (a medium of exchange) primary purchasing power determinant to be inflation/deflation. Most historical scenarios—if not all—show the quantity of the currency to the be the main determining factor.
Re: third and fourth paragraph: I agree with third paragraph, but really don’t see how that leads to the conclusion in the fourth paragraph. I can only assume you are referring back to your original explanation in the first paragraph.
Kel,
The market may very well chose the Euro, but from the price action, it seems like it is choosing gold again. The real question is, do people use the Euro because they want to, or do they use it because of things like legal tender laws and because they must pay their debts and taxes with it. If it’s the latter, then once those pressures fade, the Euro may very well decline even if they don’t increase the amount of money in circulation at all. People may also chose to use the Euro, even if they water it down like crazy, but supply and demand will practically guarantee less purchasing value. In fact, if they printed up Euros like crazy and bought gold with them, the value of the Euro may go up, even though the supply is increasing as well.
In my personal opinion, they know darn well that their currencies are just paper, and are extremely insecure about that, and so will work overtime to make sure that people suffer under excessive debts and taxes and law, and without that pressure their money would just crumble.
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