There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.
– John Adams
What lies behind us and what lies before us are tiny matters compared to what lies within us.
– Ralph Waldo Emerson
The Euro is Finished
To regular readers of my pieces over the last several years this may not seem like a particularly poignant statement. After all, I have referred to the Euro and the U.S. dollar both as worthless political toilet paper for years. The reason I bring it up right now is not to state the obvious long-term macro conclusion that the Euro is a foolish, unnatural creation that only political types twiddling their thumbs in a room could come up with. No, rather the reason I say it now is because I believe the Sword of Damocles is now hovering right over it.
The only question in my mind at the moment regards the specifics of how it will end. I would say that the majority of those that think there is a strong likelihood that the euro falls apart envision the PIIGS countries leaving or being thrown out. While I certainly think this is a possibility, especially if Greece just calls it quits and then successfully transitions to its own highly devalued currency since this would for sure start the ball rolling and before long many of the other financially weak nations would also bail. In such an event, I suppose what is left of the euro could be comprised of stronger Northern European nations and in that case what is left of the common currency could in fact strengthen materially versus other fiat currencies for which no such “restructuring” has occurred. However, I am not convinced this is what happens. The reason I am not convinced is because I don’t believe that the desired austerity measures will ever really go into effect in these nations and even if they did it would merely collapse those economies and the problem would not be solved. As many have stated over and over (including myself) there is no conventional solution to this crisis. There is far too much debt and there is no way real GDP growth can grow fast enough to counter this. The debt will be defaulted on via restructuring/default or a dramatic destruction of the purchasing power of fiat currencies. Nevertheless, the bureaucrats in Europe have such a deep love affair with their preposterous experiment they will turn a blind eye to all the transgressions of the PIIGS and continue to just pretend they have solved something with every new bailout scheme.
So that brings us to the other, and I think increasingly likely, outcome. That is namely that the ECB continues to transfer wealth from the prudent and fiscally more sound nations (mainly Germany) to the periphery until the populace of Germany snaps. I think that moment is very, very close at hand. Once that tipping point is reached there will be no turning back. The popular anger at the ECB and Euro will be so profound and so long festering that it will overwhelm all attempts to keep things together. Germany could leave the Euro. Or it could make it so difficult for the PIIGS that they are forced to leave. Either way, Germany is EVERYTHING. Nothing else in Europe matters right now besides the sentiment on the German street and it has become pretty clear lately which way that is going. I am 100% convinced that Germany will play nice until that crucial moment is reached where it really is put up or shut up (we are close). At that point, I have no doubt that Germany will do what is best for Germany. In the event that Germany was to leave, the Euro would be gone forever. It would become pure confetti overnight. This is not my base case but it could happen. Anything can happen right now.
The Fourth Turning is Global
All of this discussion about the euro brings me to a broader point. While for obvious reasons I focus my attention on the United States because this is where I live and what I know best it is imperative for me to clarify my view that this Fourth Turing we are in is global in nature. Remember, what really characterizes these shifts is the fact that the trends, institutions, political structures and parties, social mores, money systems, etc all die and are reborn during such episodes. The last to get this of course are the elites and the political class who are always in bed together and seemingly at the height of their collective corruption once the Fourth Turning hits. We see this everywhere at the moment, from the U.S. to the Eurozone to China. What makes me laugh more than anything else are all these political hacks and financial “analysts” who keep saying that the answer to the crisis in Europe is a fiscal union in Europe. That somehow this crisis will lead to the necessary resolve to form a fiscal United States of Europe, or some idiocy like that. Sorry folks, it’s not going to happen. This whole “problem, reaction, solution” playbook worked for the elite in the prior era but it will no longer work. The playbook is out there. It has been read and studied. We know the playbook. It’s not going to work this time.
Like I have said before, one of the key aspects of the new age we are entering will be a dramatic reversal of a lot of the unrestrained globalization that has occurred since World War II. Things are going to be more local everywhere. Such as the food we eat and the products we use. The lack of any breakthroughs on the energy front as we confront resource constraints demand that this be the case. This reality will change everything in every possible aspect of life on earth. Things in general will be much less “top down” on the political front. There is a “tide in the affairs of men” indeed and that tide will take the Euro and any ideas of a fiscal union out to sea forever. The key thing for everyone reading this to do is to get prepared for the new world as much as possible before it comes suddenly. This has always been the idea behind my pleading to buy gold and silver. We will need new forms of money and exchange. It cannot and will not be a fiat SDR or any ridiculousness such as that. That notion represents the past trends and the already failed dreams of our parents generation of central planners and free lunches.
Quick Thoughts on the Swiss Franc
While the move by the SNB to basically link its currency to the dying Euro was shocking and will send shockwaves throughout the global financial systems for months to come, in many ways it was inevitable. The central planners are still in control and they are getting increasingly desperate. Part of their desperation manifests itself in acts to prevent markets from sending out signals to investors and the general population. This is why Central Bankers print money and buy government bonds. This is why the ECB is buying worthless PIIGS debt. This is why the SNB decided to destroy its currency. After all, if they agree to destroy the value of the Franc at the same pace as the Euro then it will become less clear to the currency market just how quickly purchasing power is being destroyed. Of course, you can always tell in the commodities sector. What the Swiss did is unfathomably bullish for commodities, in particular energy, food and precious metals. Every rich person with a Swiss bank account in Swiss Francs will be scrambling to turn that into the one hard currency left: GOLD. That is what the Swiss said to us earlier this week. They told every investor on the planet “we don’t want to have a hard currency.” If you want a hard currency you have once option now. Gold. When people really figure this out it is going to be a mad scramble for physical metal the likes of which no one alive has ever seen.
Peace and wisdom,