L:
So Doug, a lot of readers are concerned about what’s going on in
Europe. Is this the beginning of the proverbial “it?” Or can the
Eurozone be saved?
Doug: In brief, the answers are “yes,” then “no” —
and a “good riddance” to both the Eurozone and the euro. But most people
think the old order should be maintained at almost any cost. That would
include George Soros, who recently penned an article called “Does the Euro Have a Future?”
Now, I don’t normally look to Soros for economic commentary, despite
the fact that he’s one of the shrewdest and most successful speculators
in the world. He does, however, represent the way the Davos people,
Eurocrats, and the ruling classes in general think. But just because
he’s made a lot of money doesn’t make him an expert in economics, any
more than financial success is proof that Ted Turner, Bill Gates or
Warren Buffett know anything about economics. They’re all idiot savants, a bit like Dustin Hoffman’s character in Rain Man. But that’s another subject.
Soros writes: “The political will to create a common European
treasury was absent in the first place, and since the time the euro was
created the political cohesion of the European Union has greatly
deteriorated.” He’s absolutely right about that and goes on to say
that to create a common European treasury, the EU would have to have the
power to tax. So, he’s saying that the euro should be preserved, and
that to do that, it should be backed by wealth extracted by force from
the average person in Europe.
But that’s the problem with every currency in the world today;
they’re not backed by a commodity, but only by the ability of government
to steal from the people. And the euro doesn’t even have that going for
it.
L: And the power to tax is an essential, defining
characteristic of the nation-state. It’s the thing that empowers it to
exist and separates it from voluntary organizations. To create that
power in Europe would really be to turn the place into one single
country. It wouldn’t be long before they had a European army.
Doug: Exactly. Right now the Eurocrats in Brussels
really only have the power to regulate, which is bad enough. But if the
European Union had the power to tax, it would become an actual empire.
Especially if they then created a European army — there’s no telling
what kind of mischief they’d get into.
On the bright side, they can’t really afford an army. That’s the
bright side of all these governments being bankrupt: They spend way too
much on welfare and debt service to afford much warfare… I guess that
makes welfare and debt good things, in a perverse way.
L: [Laughs]
Doug: Anyway, Soros went on to observe: “The euro crisis could endanger the political cohesion of the European Union.” That’s true too, of course. The EU is a completely artificial union.
The Swedes are very different from the Sicilians, and the Portuguese
very different from the Austrians. These people have little in common
besides a history of fighting with each other. Force them together into a
phony union, and they’ll become mutually resentful, the way the Germans
and the Greeks now are. The EU was put together partly to avoid future
wars, but it may turn out to be a war incubator. It makes no sense for
there to be a European Union at all.
Incidentally, people think of these countries — Italy, France,
Germany, and so on — as though they are fixtures in the cosmos, but they
aren’t. In their current forms, they’re all newcomers on the stage of
history.
L: You mean the gods didn’t affix them to the
celestial spheres, up there with the stars? I could have sworn Jupiter
told me he did…
Doug: [Laughs] No. The average person doesn’t
realize that the country we know as Italy today was only created in
1861, a consolidation of many completely independent and very different
entities that had been separate states since the collapse of the Roman
empire. Germany was only unified in 1871, out of scores of
principalities, dukedoms, and whatnot. Both unifications were very bad
ideas. Even today, there are separatist movements in big Western
European countries, like the Basques in Spain, or those in the United
Kingdom who wish it weren’t quite so united.
L: So what’s the alternative?
Doug: Of course, the ideal would be for there to be
seven billion little countries on the planet — each one a sovereign
individual. But I’ll take what I can get in the meantime, and would
rather see smaller states competing for citizens as customers — although
I don’t really like that analogy, because states are not voluntary
organizations, nor do they provide much in the way of useful services.
Anyway, a more cohesive European Union is a step in the direction of
Orwell’s Oceania, which was in constant warfare with Eurasia and
Eastasia. It’s odd how the world is becoming much more like 1984 in some ways at the same time that the nation-state itself is collapsing.
What would have made sense is for Europe to have become a free-trade
and -travel zone. No customs duties and no need for work permits or
passports. A free-enterprise union — created simply by dropping barriers
— would have facilitated all sorts of business and job creation.
Instead, idiotically, the Europeans just created yet another layer of
government in Brussels. Which is rather ironic in that Belgium is itself
a non-country, created out of two very different societies — Flanders
and Wallonia. Now there’s a wannabe megagovernment bent on finding new
ways to regulate enterprise out of existence. And if people like Soros
are heeded, it will have the right to tax in addition, in order to give
value to its essentially worthless currency.
All this would be a non-problem if they simply used gold — which is
what, as I’ve long predicted, is happening, starting with the gold-for-oil trade between India and Iran.
People talk about the EU as being a way to avoid new wars in Europe.
But they forget that in the 19th century, Europe had fewer wars than
ever before or since. At that time, “mark,” “lira,” “franc,” and “pound”
were all just names for specific amounts of gold. It worked very well;
and to paraphrase Ludwig Von Mises: When goods cross borders freely,
soldiers don’t — or at least are less likely to.
All the gyrations and machinations these Eurocrats are desperately
rushing into place to try to save the unnecessary and counterproductive
euro are…
L: …not just the wrong thing, but the exact opposite of the right thing.
Doug: [Laughs] Just so. Back to Soros. He has a prescription for preventing a meltdown, of course. He advises: “First, bank deposits have to be protected.”
In other words, to discourage people from bailing out of unsound banks
and destabilizing a corrupt banking system, all bank deposits should be
guaranteed. That’s a catastrophic idea. It would further encourage all
sorts of bad lending by incompetent bankers while sucking hundreds of
billions of capital from productive parts of the economy. He also
asserts that some banks in defaulting countries have to be kept
functioning, in order to keep the economy from crashing entirely. That’s
another ridiculous idea, plundering the prudent and productive to pay
for the profligate.
If banks were run according to sound banking principles, with a clear
division between demand deposits and time deposits and no fractional
reserve banking, we wouldn’t have to worry about any of these issues.
But instead, Soros goes on to write that the European banking system
should be recapitalized and put under EU supervision. I want to know how
this recapitalization would be done — all those governments are
bankrupt. All that Soros is suggesting is to make a bunch of national
problems into one big continental problem. For all anyone knows, the Fed
is creating trillions of dollars to give to the EU. The only thing
that’s really clear is that we’re moving out of the eye of the hurricane
and back into the storm. But it will be much, much fiercer than what we
saw in 2008.
Soros also states that government bonds have to be protected from
“contagion.” Whatever that means, the implication is more central
control and throwing more taxpayer money at the insoluble government
problems. The bankrupt banks will have to lend the bankrupt governments
money, so they can pay their bonds off, while at the same time the same
bankrupt governments lend the bankrupt banks money, so they don’t go
under. It’s all just a ridiculous shell game.
L: It all sounds like a call for creating more
unbacked currency units. If their only answer is just to run the
printing presses, it’ll be Weimar hyperinflation all over again.
Doug: Yes. Soros’ bottom line is: “There’s no alternative but to give birth to the missing ingredient: A European treasury with the power to tax and borrow.” This, he claims, is “the only way to forestall a possible financial meltdown and another great depression.”
Forestalling the depression is impossible. All that can be done is to
make it less severe — by doing exactly the opposite of what Soros
recommends.
L: And that would be…?
Doug: My view, as you well know, is that they
shouldn’t forestall the meltdown, but should let the market correct past
mistakes and get on with building real economic growth for the future.
Nietzsche was right when he said, “That which is about to fall deserves to be pushed.”
But it really doesn’t matter what these fools do; we’re in the early
stages of the Greater Depression. It’s going to have a life of its own.
Soros’ solutions are counterproductive band-aids. But since he got to offer solutions, I’m going to offer some too. For starters,
the national debts of all these countries should be defaulted on,
including the United States. Those debts constitute an unethical
mortgage without consent on the next two or three generations of people
as yet unborn as a result of the excess consumption of their parents and
grandparents. The government debt should also be defaulted on to punish
the people stupid enough, or unethical enough, to lend these states the
money they’ve used to do all the destructive things they do.
Second, central banks should be abolished and
thereby fractional reserve banking as well. That would force banks to
run on sound, classical terms, and depositors would be induced to seek
out the most sound and secure banks.
Third, there shouldn’t be national currencies. Commodities — with gold most likely the popular choice — would again be used as money.
Fourth, most financial regulations and taxes —
especially income taxes — should be radically reduced or eliminated. At
the same time, government spending should be cut even more radically.
These governments, if their existence is to be tolerated at all, should
be strictly limited to doing nothing more than protecting people from
overt force and fraud.
L: Sounds good to me, but you know that’s not gonna
happen. So, tune in your guru-vision for a moment and tell us what you
think is most likely to happen. Does Soros get his wish and we see a new
European superstate emerge? Or does the EU disintegrate?
Doug: There’s not a snowball’s chance in hell that
the EU will turn into a superstate. The chances are much, much better
that it will fragment. If these countries have breakaway movements
within them, how could they possibly succeed in peacefully joining
together?
If you think about it, the Soviet Union was a sort of Eastern
European Union, and it disintegrated. Yugoslavia also showed what
happens to artificial European unions, as did Czechoslovakia. These are
all straws that show which way the wind is blowing in Europe.
That’s quite apart from the fact that trying to compact all of these
different ethnicities, languages, religions, cultures, and so forth
together into one giant nation-state is illogical, counterproductive,
dangerous, and pointless.
L: So, how long do you give the EU before it breaks up? And the euro?
Doug: Well, as you know, one should never predict both an event and the time it will take place. But I’ve long said that, “While the US dollar is an ‘IOU nothing, ‘ the euro is a ‘who owes you nothing.’”
So I think the euro will reach its intrinsic value long before the
dollar does. The euro — in anything like its present form — will cease
to exist within two to three years at the outside. If I had a lot of my
wealth in euros, I would get it out ASAP. My favorite alternative for
protecting wealth, of course, is the precious metals: gold and silver.
If you want to speculate for gains on this trend, I think there will be a
bubble in the mining stocks, many of which are cheap right now.
L: For new readers, Doug’s notion of the intrinsic
value of the euro, the dollar, or any unbacked “fiat” currency is zero.
They are literally worthless and only useful as long as people imagine
otherwise. So much for the euro, but what about the EU itself?
Doug: Centripetal force will eventually tear it
apart, with the EU as a whole disintegrating long before its individual
parts — France, Italy, Germany, the UK, etc. — fall apart.
L: How long is “eventually?” Can the EU itself last long after such a crushing setback as the collapse of the euro?
Doug: Probably not — they’ll likely go in close
succession. Europe is just in a world of trouble; the continent reminds
me of that cruise ship that sank off the coast of Italy
recently. They are dying financially, with all the debt bankrupting
governments, businesses, and individuals. They are economically in a lot
of trouble, with stifling regulations and taxes. They are
demographically in a lot of trouble, with birth rates far below
replacement in general, except among African and Muslim immigrants who
are not integrating. Europe has long been a hotbed of religious, ethnic,
and race wars — quite frankly I see the next one building up right now.
L: What about Eastern Europe? They have different
problems — like endemic corruption and other Soviet legacies — but they
tend to be very pragmatic and willing to work hard.
Doug: Yes, there’s a dichotomy. The bad news is the
Soviet legacy hanging over them, but the good news is that they’ve
experienced naked socialism, and they know what it’s really like. A lot
of thinking people there are experiencing shock therapy and leaning much
more towards free markets than people in the West. I’m definitely more
optimistic about Eastern Europe than Western Europe. However, the
general decline of Europe — which started with World War I — is going to
continue. I only hope Europe just declines in relative terms, not
absolute terms.
The fact of the matter is that I’m most optimistic about the Orient.
That’s where the action has been and is going to be. I’m also favorably
inclined toward Latin America, which has huge problems but is, at least,
mostly out of harm’s way from the evolving Forever War.
L: Doug, you’re on record as saying that China is in
a bubble and that it’s going to pop. How does that square with your
being optimistic about the Orient? You can’t be thinking Japan will take
the lead again…
Doug: No, certainly not. I do think China is ripe
for a fall, but it’s a matter of the short vs. the long run. I’m very
bearish on China in the short term, but after the current system washes
out, I think it’s going to be the place to be — or at least, that area. I
think China is another country that has excellent chances of breaking
up into five or more separate countries.
L: Wow… okay… More investment implications, besides getting out of the euro?
Doug: Buy gold and silver. Don’t be fooled into thinking the dollar is strong just because the euro is weaker.
L: Very well; thank you for your thoughts.
Doug: My pleasure. I’ve got some other things on my mind, so we’ll talk soon.
L: Looking forward to it. Have a great evening, Tatich*.
Doug: You too, Lobo
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