Money Monday: Live Blogging the Collapse of the EurozoneJune 18th, 2012
So I wake up this morning and the lead headline on The Drudge Report is the one you see pictured above, “EURO SURVIVES,” with a link to an AP article entitled, “Euro crisis far from over, stock analysts warn.”
I decided that instead of peeking at Greece and Europe now and then with a sinking feeling of dread in my stomach and a vague fear of impending doom as I listen to voices that I respect and that understand what’s going on a lot better than I do talk about the woes of the Eurozone and how they could spread here, I’m going to take a lesson from myself as it was applied to personal finance in my interview with Jeff Berwick, and I’m going to apply it to watching global financial markets: Yes, I’m going to try to educate myself so I can take action instead of worry uselessly…
Knowledge is power and understanding gives you the power to act instead of the paralysis of ignorance and aimless dread. So throughout the rest of today, I’m going to be live blogging my investigation into Greece, the Eurozone, and the global economy for today’s Money Monday feature. I’m also inviting you to join me and help me as I go (or ask for my help– I’d be glad to help). There are several questions I’ll set out to answer and I’ll list them as I think of them. If you have questions of your own or answers to questions or relevant information to share today as we take a close look at Europe, please use the comment thread at the bottom of this post, the comment thread on our link to this post on our Facebook page, or email me.
A couple places to start: In plain language, what exactly is the situation with Greece? Why is Greece in so much trouble and what incentives does it have to leave the European Union? What incentives does it have to stay? Why would Greece’s exit lead to the collapse of the entire European Union like commentators always seem to suggest and take for granted as likely, but seldom seem to explain? Why would a collapse of the Euro as a currency bring the US Dollar down with it? If someone can explain this last one, please do share with me. I’m trying to figure it out. It seems to me that if the Euro collapses, it would increase demand for Dollars and drive up their value. Why wouldn’t it? (Pasha, care to take a swing at that last one?)
That’s a good start. I’m going to be reading news headlines, economic analysis, and Wikipedia articles all day and blogging what I find as I go in updates to this post you’re reading now. Stay tuned and get involved!
UPDATE (3:54pm Eastern) – A guest article at ZeroHedge shares some anecdotal signs of Europe’s instability: a usually-busy major airport in Finland eerily empty yesterday, Italians getting freezed out of their bank accounts with no explanation or warning, ATM limits being opposed by banks across the continent, open talk by policymakers of implementing severe economic controls to halt capital from fleeing the continent. This is what I mean by all the scary news you hear that makes you worry. I here reports like this every day. But why? Fundamentally, what is happening in Europe and why? The better grasp we can get on those questions their answers, the better job we’ll do when we move on to answering “When?”
UPDATE (5:07pm Eastern) – Have I spent this long just reading? I mean I’ve been multitasking too, but dear goodness the rabbit hole is deep. Some of my thoughts in updates will be forthcoming over the next hour…
UPDATE (8:??pm Eastern) – Or not. So that wasn’t much of a live blog at all was it? I’m ready to dive in with everything I found, but I was so absorbed in all of it that I couldn’t stop until I had dug all the way to the bottom of the rabbit hole! Maybe I should have just saved this all up and published it at once. I was periodically checking here and on Facebook for comments in case any of you had any questions. If you do after reading all of this, please leave them in the comments. I’ll be paying close attention because we all need to learn and understand this stuff.
So here’s what I found:
It’s easy! There’s nothing complicated about it. The Greek government spent too much money! Borrowed too much money. Ran out of money. Doesn’t have the assets, the resources, the people, the finances, the capitalization, the level of confidence from investors– doesn’t have the power, the ability– doesn’t have the economy to pay back all of the Euros it’s borrowed. Greece is worse than just broke. Greece is bankrupt. (Take note, America. You’re kind of Greecing it up yourself.)
And the whole “crisis” is people recognizing that fact and acting accordingly– just the way they’re supposed to. Just the way they should act if in fact the Greek government is broke and bankrupt. That’s all it is. This isn’t a crisis. When the government of Greece got greedy enough, corrupt enough, idealistic enough, well-intentioned enough, or whatever enough of whatever it was that got them dumb enough to be so irresponsible and short-sighted with their finances: THAT was the crisis! That was when some great moral principle was at stake. That was when ideas, and reason, and facts could have prevailed. That was when the alarm should have been sounded. That’s when it should have resounded from the halls of universities, from the pens of editors, from resolutions of political party meetings, from the words and deeds of businesspeople. That was when people should have stepped up and said their nation was at a point of crisis and that action needed to be taken. That was when disaster and destruction could have been averted. (It can’t now. I’m so sorry that it can’t. The damage has already been done. So much real wealth just isn’t there anymore.)
But Greece is not in an economic crisis. The present Greek crisis is an emotional one and a political one. The people and institutions of Greece are in the process of coping with reality, and what the world is calling an economic crisis is actually the Greek people coming to terms with reality and trying to behave as they ought to if in fact they are a broke and indebted nation. Like any individual in this situation, they should declare bankruptcy. The “crisis” is that if they do, no one will lend to them anymore (“…so how will they pay for all their expenses?“). No one should lend to them! They’re broke. They’re not even good for what they’ve already borrowed. What kind of financially illiterate person thinks it’s a good idea for them to borrow more or, or even worse, for anybody to lend them more and expect to get it back?
Relating this back to the original question of a Greek exit from the Eurozone, the reason Greece would leave is also a matter of acting as it ought to if it is, in reality, broke and bankrupt, which it is, so it ought to, and so it probably will. By leaving the Euro, a currency that hasn’t yet come to terms with reality because it still has enough other big, dumb victims that have passed their point of true moral crisis like England and Germany to suck dry until they end up like Greece, by leaving the Euro, the Greek people will be able to adopt a national currency that reflects the prices of things in their own country more accurately. Though don’t forget, when they let that little glimmer of light in, they’re only going to see how ugly things are. Their new national currency will be just as worthless as Euros, so it’s not any real fix in itself, but unlike the Euro, it will at least reflect just how worthless it actually is a little better.
Why? They’re going to hyperinflate the hell out of it. Once they leave the Euro and get their hands on their own currency, they’re going to print and create it like crazy to try and pay off all their debts. They’ll abuse and wreck it with abandon like an addict with an unlimited supply of his own sweet, sweet, addictive, totally destructive, awful drug that’s ruining his life. But, “It’s only after we’ve lost everything that we’re free to do anything.” () Even if its leaders aren’t conscious of it and don’t understand it, Greece’s economy “wants” to leave the Eurozone so it can set prices closer to what they actually are. All Greece needs is its own fiat currency to finally revert it to its intrinsic value for the Greek people to see and understand: zero.
Remember as I’ve said before, you should be looking forward to the coming global monetary collapse. You should want the dollar to collapse. Right now the economy is suffering because it’s inefficient, because its prices are distorted, because of the giant wealth black hole that is fiat central banking, which blasphemes the very essence of economics, the study of scarcity, with the false and impossible promise of infinite liquidity, a false promise that will walk you hand in hand straight to hell, especially if you have enough good intentions to pave a road there, a false promise– to switch analogies– that the entire web of prices in the world economy responds to as gospel truth because they believe it, tearing and stretching at the fabric of an economy just as a black hole pulls at the fabric of space-time –and sucks everything around it into annihilation and non-existence. That second one is almost something more than an analogy when I think about it. A fiat central bank spewing the false and underived-from-reality mathematics of infinite liquidity onto the fabric of a growing, but finite economy is– as far as my admittedly cursory understanding of cosmology goes– actually geometrically congruent to a black hole casting its gravity well of seemingly infinite mass: peeling, stretching, and distorting the fabric of space-time.
Remember that there is no such thing as a free lunch. Reality will not be cheated. As Ayn Rand once said, “You can evade reality, but you cannot evade the consequences of evading reality.” If a system of money is essentially worthless, we should admit that it is and act accordingly. That’s exactly what the Greeks would be doing, intentionally or not, by way of a “Grexit” (cute word, huh?) from the Eurozone. And that’s the crisis that has the world’s central bankers and their beneficiaries in a panic! If Greece admits it’s bankrupt and using worthless money, we’ll all be hard up trying to keep our own naked emperors covered in paper notes printed by Benjamin Bernanke with a signature from tax cheat, Timothy F. Geithner. The Greeks won’t just be running their own currency into the ground after they leave; their exit from the Euro will be a run on the Euro, a run on the entire global fiat banking system. We have enough economic panics and failed ponzi schemes (but I repeat myself) throughout history as evidence: It only takes a few to start the run. Once they do, if you don’t, the guy next to you will, and there won’t be anything left for you, so you run. That’s why they call it a run, because you’re hurrying, because you’re panicking. That’s why they call it a panic, because it’s that moment when everybody realizes all the money they thought was there wasn’t really there after all, which is really not a bad reason to panic.
Why wouldn’t a Eurozone crash-and-burn drive up demand for US Dollars as other Eurozone exiters with less cute portmanteaus grasp for it as for a life raft, bewildered and unable to stand on their own sinking Euroboat? By then the horror will be complete. It will be impossible to keep pretending that we aren’t all broke and that our money isn’t all worthless. In full-blown panic, people will dump Dollars for things that can’t be printed (like gold and silver) so that what happened to the Greeks, and to the Portuguese, and to the Italians, and to the Irish, and to the entire European continent won’t happen to them. It’s a run, remember? If you don’t, your neighbor will get there first and dump the worthless money for the good money before you get a chance, and then it’ll be all gone. All gone.
This is it. The reality is: Our governments are broke. Our money is worthless. It doesn’t give us the right information, so people who need that information are going to stop using it. It doesn’t preserve the value of our labor and creativity, so the people who will not be cheated out of their lives are going to stop using it. Like Greece, the global monetary system and economy don’t have the goods to back up the promises. The current mild panic shows that people are already wise to what’s going on. The fact that we’re even talking about Greece means we’ll be talking about its exit soon enough, and the collapse of the Euro soon after that, and the final collapse of the Dollar after that. This is going to happen. Now that enough of us know, the run is inevitable because it will be in the self-interest of market actors to get out of the fiat currency game early as they see it start to tumble down, and the faster they run, the faster it tumbles, and we’ll all race each other to the bottom of the black hole to find that intrinsic value of our fiat notes, that empty promise, that void, that nothingness, that zero.
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