since always. 1913 it was backed by gold (though FRB is restricted by the finite amount of possible reserves), then govn’t bonds during WW1, then about anything it wants. Today it buys subprime mortgages and other worthless derivatives that should have never been created in the first place with new money.
The banks loan us phony (nonproductive) money, then if we can’t pay that phony money back with interest (interest is the incentive for us to be productive when borrowing) they demand that we give them real (productive) assets.
They aren’t out there nakedly printing money, they justify it through the banking cartel activities. The joke of that is the FOMC; where they smoke cigars and and out new credit to banks and trade gov’t bonds and blowjobs. This is why debt is money. It’s all really based on future tax returns paying off the loans and it is in fact mathematically impossible to ever get out of debt underneath it. This is why the banks indoctrinate us to think that Mexican bonds are perfectly fine to hold as reserves for the issuance of new loans (money). The reasoning is that they will collect, or trade, what the Mexican government bond promises to pay. Which is pesos, so we won’t collect it, we’ll roll it over and collect interest or trade it for liquid assets.
Think, when the banks are getting “liquidity injections” it just means getting cash. That cash is given to them in exchange for the bad assets that they need off of their books.
In the Depression, when, they teach us in class, there were “liquidity problems” or “liquidity deficiencies” all that this PROPAGANDA means is that the banks cannot sell the assets that they currently are holding for the price that they want to sell them for. THEY ARE OVERPRICED! The extra credit that allowed them to buy them is what takes the price higher and since no one else had it, or they would have bought it with no need for new money, it is cause for a problem that the banks say the solution is “give someone else new credit so that they can purchase this asset for x price!” But we all know that x is waaay too much. That is inflation.
So let me get this straight. “Backed by something…since always.” In 1913 “something” = gold…in WW1 “something” = government bonds, and later “something” = anything…including nothing.
I don’t think there will be huge rally. Both the euro and the dollar are locked in a race to the bottom: their exchange rate always fluctuate around 1.40 while both are losing badly relative to more stable currencies like the Australian dollar and the Swiss franc. I will consider a huge dollar rally anything over 1.30.
And trust me, it won’t be an apocalyptic scenario: it will be a long slide into oblivion. Greece’s exit from the EMU could buy some time and probably lead to a strong euro rally but in the end it won’t amount to anything more than a desperate rearguard action. To save the euro the ECB and the EU have to act damn right now: but again while a hefty interest rate increase (from the present 1.25% to over 5%) could buy some time and help defuse a meltdown it won’t address the underlying issues. Excessive government spending and decreased competitivity/industrial production, especially in countries with low capitalization per worker. Neither can be addressed in the present climate and by the present sclerotic leadership. Again the two-speed economy could be a viable solution: the countries with high capitalization and manageable debts on one side (Germany, The Netherlands, Austria and Belgium, if it will survive the next decade) and those with big deficits and low capitalization on the other (Italy, Spain, Portugal etc). That of course leaves out the 6 tons elephant in the room: France. Economically speaking France is halfway between both blocks. But politically speaking France is the driving force behind the present brand of European integration, based on strong management from the top and a very centralized government. France will fight nail and teeth to keep the EU in its present form, no matter the cost, and even increase it in scope, as the Lybian fiasco is demonstrating.
It should also be considered there a couple of countries that could melt away in the next two decades: Belgium and Italy. Both are artificial creations of the XIX century “New World Order” and both are held together more by their inhabitants’ sloth than anything else. There will come a time when the EU’s threats and cajoling won’t be enough to keep the two halves of Belgium from going their separate ways and the central government in Rome will be so bankrupt (both morally and economically) as to force Italy to break up in two or maybe three regions just to stay afloat.
If I had any serious money and these where the only currencies available, I’d stake it all on the euro going first. Its very valiant (and a testament to American lurking libertarianism) that Americans are even comparing themselves o the sclerotic, socialistic European states. The US has still some way to go.
I think the dollar is in a worst state than the euro, the only aspect that is preventing the dollar collapse, is that it is the reserve currency and too many other countries hold dollars and this prevents people from losing confidence in it. But at some point that will change.
But i do think that the euro will technically collapse before the dollar, even though the dollar is in a worse state.
“Suppose you are the prime minister of a democracy in Europe or the Pacific. What do you think of the U.S. dollar and its future prospects? Regardless of party affiliation, or private preferences, you support the dollar. In fact, you cannot do otherwise. Your country’s security is tied to the dollar, because your country lacks the military strength to guarantee its national survival in a major conflict (like the one that began in 1939, in which dozens of nations were unable to defend themselves). As a small or medium-sized country, you either do not possess any nuclear weapons, or the number is too small to save you in a real conflict with a large nuclear power (like Russia). And so, the dollar is more than a currency. The dollar’s universal value is like an agreed-upon tax that the democratic world pays for the added security provided by the Americans.”
… I thought the rest of the world didn’t want us policing everything. It’s expensive.
It is not that other countries don’t want USA involvement, it is simply that they have no choice. Once the most powerful criminal syndicate knocks on a weaker nation’s door, it must comply to their demands or die trying to resist them, e.g. Iraq & Afganistan.
The problem with the Euro is that all the PIGS know that they must be bailed out. They have every incentive to say the hell with austerity, and just party on. The Greeks know that trillions of $$ of credit default swaps make them too big to fail. They can tell the Germans to shove it and still get their bailout. Unless the EU forms a complete fiscal and transfer union, internal jealousies are bound to tear it apart. The Germans will not tolerate the PIGS spitting in their face and saying either you bail us out or the Sword of Damocles falls. Something has to break here.
The US on the other hand can keep on printing money until fundamental energy constraints force a “Game Over” .Supplies of oil are finite and the extraction rate has peaked. If China continues to grow, the US must shrink.
There are tons of examples of untapped oil reserves all over the world.
Look up how Russians drill for oil. There is a reson why they are competeing with Saudi Arabia for oil exploration. And it’s not because of scarcity. It has to do with depth and location of wells. We, in the west, dig 15k feet and not to the mantle; the russians will dig through the mantle up to 45k feet deep. They did it in Vietnam after we left. They found oil where we didn’t. We sabotaged their deep earth oil drills in the 1980’s in Indian and elsewhere in Asia.
You’re right on the EU, it was doomed to fail from its inception, a shared fiat currency can’t work without near complete loss of member states sovereignty like we have in the USA.
You’re wrong on the energy, peak oil is a myth and even if it was true there are plenty of other sources of energy available.
As Michio Kaku has expressed, the only hope for humanity is to evolve to a point where we can fully utilize our planet’s energy. I believe the only way this can happen is through Global Anarcho-Capitalism.
Merlin, Switzerland is indeed very interesting and it’s definitely #1 option on the table. They managed to weather the darkest years of the EU expansion without too much damage and now they feel vindicated. Of course, it’s not paradise on earth: for example the agricultural sector is extremely subsidized, taking up a whooping 9% of the GDP. Only Japan comes close. But, again, taxation is lighter than in most of the EU, there are good breaks for R&D and retooling and the Central Bank is run by normal lunatics as opposed to the escaped mental patients running the Fed and the ECB.
As far as politics go the battle between cantonal governments and the Confederate government in Bern is still ongoing. In general you can say there’s a balance of power between the great city-cantons (Geneva, Zurich, Bern, Basel-Stadt etc) and the “forest” cantons (Uri, Schwyz, Graubunden, Vallais etc) with the cities being more “centralized” and “progressive” and the forests being more “decentralized” and “conservative”. As long as this balance is maintained the situation will remain stable. The forests were responsible for defeating most of the progressive-oriented referendums in the past two decades.
