- Why is the euro supposed to be so "superior" to other currencies?
- How can the Euro, still being a mere fiat currency, survive the coming competitive currency devaluations?
- What, if anything, is supposed to prevent the euro from going the way of "all things paper?"
These (in a paraphrased sort of way) and many other excellent questions were asked by well-known gold commentator Nelson Hultberg on the euro vs dollar issue, after reading the article entitled "The Euro, Yuan, Taxes, and Gold".
Because many gold advocates have the very same questions, and because it is much easier to answer them in a simple Q & A format than to write endless articles about them, I am presenting them here together with the answers.
In our time, it is absolutely crucial for gold advocates (and gold as well as paper-investors) to completely understand the direction of the euro, its impact on gold in particular, and on world events in general.
And this impact cannot be overestimated.
Yet, the euro is no "super-currency." It is merely the tool by which the real super-currency -- Gold -- is being set free from decades of US-led price-suppression. To what end, and with what policy aim in mind this is being done remains to be seen. But one thing is absolutely beyond doubt: that the emergence of this new designer-currency on world markets has changed the world of investing -- and the validity and function of strictly debt-based paper currencies in that world -- forever.
Here we go.
Q: What Im not wholly clear on yet is WHY the Euro will not also go in the doghouse.
A: It will -- someday.
Q: After all Europe is a massive social-welfare, Keynesian paper economy just like ours. True. Are they going to suddenly stop printing up paper Euros?
Q: Are they not going to try and "competitively devalue" so as to retain a substantial export trade?
A: No again.
Q: Will they not get embroiled in the competitive devaluations among all nations that are going to take place over the next five years?
A: Yes and No.
Please understand that I am not at all saying the euro is this "super-currency" that will last forever. It is still paper, and it is still largely fiat, and one day it will end, but there are a few things that separate it enough from the formerly dollar-dominated currency systems that stand out. These are:
1. The ECB has a mandate of currency stability, not of micro-managing the business cycle like the dollar's Fed has. Evidence of that can be seen in Wim Duisenberg's refusal to lower ECB rates when the Germans, Italians, and French were literally screaming for it to help them stave off their own little recessions earlier this year.
2. You state: "After all, Europe is a massive social-welfare, Keynesian paper economy just like ours." That's absolutely correct, but they have the distinct advantage of being able to admit that, while Bush has to lie to us and say we are still a capitalist free-market society. But that's beside the point.
The point is that, in my personal opinion, totally unbacked by any evidence other than the fact that the Euro thinkers did choose to become pro-gold, there are some really smart people at work in Europe who have recognized that a world financial system that opposes gold is doomed, and doomed to go to its doom very soon. I believe (and this is just a hunch) that they figured out it is better to give up some control -- just to make sure there is still something left to "control" when they chips are down.
Of course, there is also the much more sinister possibility that they are simply using gold to "sack" the dollar, and once that is achieved and the US economy - and therefore military - is only a shadow of its former self, they will proceed full steam ahead with establishing their beloved UN led one-world order.
Which one of these it's going to be I cannot tell - yet. But both possibilities are there.
3. The euro will "devalue" along with anything else versus gold, as you have correctly noted. But less so (right again), so that GOLD will be the ultimate arbiter of economic value, and all currencies will measure themselves by how well they do against gold. Under this system there will no longer be politically mandated limitations on the price of gold. The resulting loss of a certain amount of power to manipulate is likely seen as a small price to pay - if it gets the Europeans the victory over this "Great Enemy of the UN" (which the US still is, despite the feverish aspirations of our CFR-bred political leadership) and that is, in large part, because of "ordinary" (i.e., non-elitist) Americans like you.
4. You have already seen that ECB did not go the "devaluation route" just to retain export-share. They actually underwent considerable economic pain to keep their currency value up relative to the US. They've actually got the US bagged in that respect. Their short term rates are almost as low in absolute terms, but still twice as high as US rates in relative terms. They rode the Fed all the way down, and they will likely also follow the Fed on the way up, should it come to that, sitting pat while the US starts raising rates (which I don't think will really happen beyond one or two points, at most).
Q: Because the Euro is not tied to the silly fixed price for gold like the dollar is, why does that protect it from depreciation?
A: Their gold reserves rise in value as the market price of gold rises, lifting their reserve position - and therefore their stability (i.e., attractiveness in the eyes of non-European investors). It's that old stability mandate again.
Q: Is not a currency valued in relation to how much of it is created vis a vis all other currencies?
A: Yes, but if it happens to be a world reserve and trade currency, it can get away with a whole lot more printing than strictly national currencies could - just like the dollar has gotten away with it in the past.
Q: If the Euro is being printed up lavishly, what difference does it make whether it is tied to a fixed price for gold or a market price for gold? It will not be printed quite as lavishly. And I believe that it will be printed up lavishly like all others when the depression hits. Not quite, but somewhat, yes. European voters will be squealing like stuck pigs, and politicians will rush to accommodate them so as to retain power.
A: National politicians will try to accommodate them, yes. But they are not the ones who have the say over the money supply anymore. That's one "benefit" of supra-national centralization. The EU member-countries' sovereignty is largely gone. The Union calls the shots, and they have a different, more over-arching agenda: to kill the dollar - but very, very slowly. Strictly national policy preferences will be sacrificed to that agenda.
Q: Thus, why will not the Euro go down the tubes along with all the rest of the world's currencies?
A: It will, one day, but it will have more time than the dollar had - due to the above reasons.
Q: It seems to me that gold is going to be the only store of value worth holding, [Yes, absolutely. The European thinkers do recognize that] and that all paper currencies are going down the toilet in this next decade.
A: Relative to gold, yes, but that is planned. A high gold price is desirable to them. But relative to the dollar? Not at all. It will be the dollar that gets a first-hand experience of viewing the sewers from the inside. That appears to be one of the euro's main missions. Why do you think the Germans and French are so buddy-buddy with the Russians now, and with China on top of that? These European countries are now in truth enemies of the US, along with China and Russia, although they do not yet dare to openly say so.
Q: So, what am I missing about the Euro?
A: Not much, only that this is its mission, and this mission has the world's support, since they now all hate the US - more or less.
Q: If gold goes to $1500, $2000, $3000 an ounce, it is because the world's currencies are being depreciated big time. I don't see how the Euro will not be just another worthless paper currency. Maybe not as deep in the toilet as the dollar, but in the toilet nevertheless.
A: That's the whole point. Among all of the worthless paper currencies, it will be the most worthwhile and trusted one. Also, it will mainly be the "transactional" money of the world (along with other, national, fiats), while gold itself will mainly be the true "wealth" money - the ultimate store of value.
It is for that very reason that I suspect that, if their plan was a "sinister plot" aimed at total world -domination under the UN, they may be shooting themselves in the foot. China is giving its people a taste of economic freedom and true ownership of wealth with its decision to let them own and trade gold. They may not be able to put that genie back in the bottle after the US is gone as a serious "threat" (i.e., obstacle to their ambitions).
"America" is mainly an idea. An idea of maximum individual liberty under a limited government. They may wipe the country that is today called "America" off the map (though I will die if necessary to keep that from happening), but the idea of America may conquer them in the end. Gold ownership and freedom of information just don't jibe too well with totalitarian - or any other kind of - communism.
You and I have our work cut out for ourselves: alert a lethargic, dis-educated, media-bombarded American public to the dangers that lie ahead - and get them to act in the right direction, i.e., toward the Constitution and Liberty, not toward the idea of "What's in it for me, now?"And that needs to be done BEFORE a serious economic calamity destroys this country's ability to direct its own future.
Q: I'm missing something, I know. I just don't quite see the overall superiority of the Euro yet.
A: The superiority lies in gold, not in the euro. The euro's creators recognize that. They have just found a way to hitch their new currency to that superiority, rather than fight gold at every step of the way like the dollar did - and still does.
Q: Maybe its superiority lies in the fact that it will be a one-eyed man with a faint 20-800
vision in the kingdom of the blind.
A: Kind of, but it also lies in the fact that the euro is designed to let gold run free, without condemning itself to "die" from that freedom prematurely.
Q: Anyway, I loved the article. As for why so few people respond to this way of thinking about gold even in the hard money camp, I am at a loss there.
A: It threatens their vested interest in thinking that they are the sole purveyors of libertarian/classical-economic truth. In a way they are acting toward this 'euro vs dollar' analysis very much like the dollar acts toward gold: they want to be "the ones" who proclaim the truth. Just like the dollar fights gold all the way because IT wants to be "as good as gold". (Kind of reminiscent of a certain Biblical character that said he wanted to be "just like" someone whose name spells like "Gold", only with one letter less). We are all susceptible to human arrogance and the fear it breeds - which is our inheritance from that very same character.
Q: It is painfully clear to me that only a world-wide return to a gold standard can genuinely solve the age old dilemma of inflation-deflation cycles brought on by governments.
A: I agree. As I said, "they" (the forces and thinkers behind the euro) may not be able to put that gold-genie back in the bottle after they let it out.
Q: Why others are impervious to this is probably because 90% of humanity is comprised of herd mentalities; they robotically buy the Keynesian statist line that gold is barbarous, and paper is modern.
A: This will soon change as gold hits $400, then $500, then $1000, etc.
Q: They don't think for themselves. But even most of the 10% contrarians have also written gold off as a viable medium of exchange for the modern world.
A: They are stuck in the idea of leveraging their hoped-for gains in paper-gold (essentially gold derivatives), the very same thing they want the central/bullion bankers to stop doing. Go figure!
Q: Probably only 2% of thinking humans grasp and accept the necessity for
a world-wide pure gold standard. We have our work cut out for us.
A: We sure do.
Q: But as you say, "truth has a way of eventually working its way through all
the deceit, all the lies, all of the market-rigging...that our rich and powerful
are so overly happy to engage in." Eventually truth will win out. I just hope such a victory manifests soon, which would be indicated by a resounding defeat of the Demopublican statist philosophy at the polls in order to restore a floundering America deep in the throes of the coming depression.
A: I'm afraid this will happen only after a true economic catastrophe begins to develop and rattles our mind-numbed, collectivist cages a bit.
What helps me stay positive in that regard is the possibility that the United States actually, unilaterally, going back to a full fledged gold-standard, combined with accross-the-board tariffs on everything other than gold, may be the way out for America; and also, that such a unilateral move may effectively FORCE the other countries to do the same, just to stay competitive. Wouldn't that be fun?