Like its metallic counterpart, the euro currency has the tendency to make other currencies it comes into contact with more like itself – radioactive. The inevitable result is the death of (natural) national currency systems.
The Nature of the Euro-Beast
The euro’s architects have recognized that the worldwide dollar-reserve system cannot be sustained. The reason: The US Fed’s dual – and conflicting - mandate of price-stability and full employment. The Fed was sold to Congress via the ‘hook’ that it would allow Congress to both control inflation and maximize employment if only Congress would agree to set up this version of a central bank in the US.
As we all know, there are very few politicians who can and will resist such a temptation.
Since that proposition has predictably turned into a slow-moving disaster, the euro architects figured out that they will have to give up some of the power bestowed upon them by centralized control of interest. They did this by limiting the ECB’s function to maintaining “price stability”, i.e., limiting credit-inflation.
In so doing, they curtailed the ECB’s ability to goose the markets on demand in order paper-over occasional and inevitable economic downturns. At the same time, they took the controls off the price of gold by (a) trying to maintain roughly fifteen percent of the system’s forex reserves in the form of gold, and (b) by revaluing its gold reserves quarterly at market prices.
This is in no way a form of gold backing in the traditional sense. There is no exchangeability of euros to gold at a legislatively fixed rate, but it shows that the euro is set up to be supported by a rising price of gold, rather than being undermined by it.
There has been and continues to be much talk about the euro being designed to ultimately take over the dollar’s reserve-currency function. That is not the case, at least not completely.
If you were to ask whether the euro was in fact designed with that goal in mind, the answer would have to be a definite yes and no. “Yes” in the sense that the euro was intended to incrementally displace the dollar, and “no” in the sense that the euro would not try to assume the full burden of the dollar’s world reserve currency function.
Because of the factors mentioned earlier, the euro can’t (or rather won’t) be inflated fast enough to spread around the world and fuel global malinvestment (er, … economic growth) the way the dollar did.
Instead, the hidden idea behind the euro was to literally force the creation of other regional currencies throughout the world.
By inevitably competing with the dollar for its reserve function, the euro creators did sign the ultimate death warrant for the US dollar system. Yet, by having this “anti-inflation” bias (which is not really adverse to inflating the money supply at all, but merely tends to slow the process somewhat) any attempt to merely substitute the euro for the dollar worldwide becomes simply self-defeating..
The only solution, then, is to force the creation of other currency unions so that the euro doesn’t have to completely take over the dollar’s old function.
At least, that’s what the plan was.
Irradiating the Dollar?
Now, just to eliminate any misconceptions, what will “force” the creation of these other currency unions is not some kind of magical force emanating from the euro. Rather, what is forcing this new system to emerge is the deliberate deconstruction of the dollar by those elected and appointed to preserve it, so the euro-uranium comparison “limps” to that extent.
The euro is not a European “attack” on the dollar. Remember who is credited with the title “grandfather of the euro” – Robert Mundell, a US professor of Economics at Columbia University. Okay, so he’s originally a Canadian. So what? The design for this new system still emanated from the US, just like the US was the birthing-den that spawned both the League of Nations and the United Nations.
Still, the combined effect of the creation of the euro and the time-warp destruction of the dollar is the same as if the euro was actually radioactive. Only by creating other currency unions can the world financial system be weaned from the dollar without turning the euro into just another dollar clone. In other words, the idea behind the euro has a very strong tendency to clone and proliferate itself across the globe. This is not just theory. It is happening as you read this.
There are, of course, arguments floating around maintaining that this or that regional currency (East Asia, for example) would not be feasible because the different countries’ economies and standards of living are too diverse, and because trade integration is already so high that a single currency would not be beneficial.
However, the fact remains that, once the dollar’s global reserve function is successfully eliminated via an engineered crash of the US economy, there will be no choice but to initiate at least regional anchor currencies that can assume the dollar’s reserve role in a more limited, regional fashion. These anchor-currency or regional reserve currency arrangements will then inevitably lead to regional single currencies.
The Good News for Gold Investors – Sort of
The good news for gold investors is that this development will tend to take all official opposition to rising gold prices out of the global monetary equation. The death of the dollar will the renaissance of gold – but not as an official currency per se; only in it store of wealth function. As such, gold will be allowed to find its ultimate equilibrium price relative to all other currencies without constituting an actual threat to its fractional fiat cousins.
The problem is that currency unions are also what could be labeled “sovereignty pools.” Countries participating in them will abdicate their national sovereignty to an ever-increasing degree. The nest example for that is Europe, where the central governing structure becomes more and more powerful in the political sphere since political decisions become farther and farther removed from the individual.
The Freedom of Choice
Nation states, as imperfect as they might be, are natural repositories of individual liberty by the mere fact that, as long as you have different countries with differing political regimes, you have a choice regarding where you want to live. If your country gets too oppressive, you can flee to another, less oppressive one.
In the end, the logical conclusion of the currency-union movement would be a world without sovereign nation states, dominated by regional arrangements that do not have the natural cohesiveness of “one language, one culture, one country.” These regional structures can then be easily subsumed into a global body dominated by the most powerful economic and military force. By the time this all comes to fruition, that force will be what today is known as China.
In the past and since World War II, the US was this power, but it was only able to sustain it because of its status as the world’s reserve currency issuer and its technological superiority. These two bases for its dominant power are now being dismantled as a result of the introduction of euranium – the new, designer-made, radioactive element in the periodic table of world currencies.
While ‘euranium’ undermines the dollar’s reserve currency status and thereby its demand foundation, the US financial elites’ own efforts at globalization are destroying America’s natural technological superiority. US corporations (as well as the US government) are giving the Chinese all of our secrets - in return for the right to rent their (still) cheap(er) labor force for a period of ten years. After that, all installations and production facilities built there by US corporations become the property of the Chinese government.
What investors in the West fail to appreciate is that China is a case study in endless imperial strife, centralization of power, and political and spiritual oppression of its own as well as its assimilated people. Chinese citizens have been brutally oppressed for so long that the current economic boom they are allowed to drive and enjoy is a gift from heaven – and to them, ‘heaven’ is their government. They consider Western notions of self-government and individual liberty as quaint and devoid of practical usefulness. A future world dominated by China therefore will be a far, far different place than the world we now live in.
So, yes, the buying power of your gold and silver will increase under this new emerging currency regime, but it may come at a prohibitive price – unless you act now.
By itself, it’s not enough.
The EURO vs. DOLLAR & GOLD MONITOR
In this multi-decade gold bull market, the old investment maxim of "know when to buy and when to sell" has been replaced by "know when NOT to sell!" Euro vs. Dollar & Gold Monitor subscribers know when not to sell.
August 2, 2008