Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

It’s Time to Stop Putting a Patch on the Euro

Currencies / Euro Mar 16, 2017 - 02:43 PM GMT

By: Rodney_Johnson

Currencies Andreas Georgiou can’t catch a break.

The Greek statistician moved back to his home country in 2010, at age 50, to help right the financial ship. He left Washington, where he had spent 21 years working for the International Monetary Fund, to take over the agency that reports Greece’s financial health.

Part of the problem with Greece is that no one knows exactly how big their problems are, since the numbers weren’t exactly accurate.


Georgiou quickly realized that the country’s budget deficit in 2009 wasn’t 6% of GDP, as Greece’s statistics service had previously said. Or even 10%. He revealed to the world that it was closer to 15%. His calculations followed accounting procedures required of all Eurozone members.

And that was the problem.

His countrymen arrested him, accusing him of overstating the financial woes, leading to austerity and hardship. He could stand the name-calling and personal threats, but when strangers started threatening his daughter, he called it quits and returned to the U.S. where he teaches.

But his troubles aren’t over. Every time his case comes up – and is dismissed, because the accusations against him are bogus – the judge allows for more investigation. So prosecutors simply refile, hounding a man for telling the truth.

That’s the problem with the euro. It’s based on a lie that bankers and politicians keep repeating.

Namely, that very different countries, with different business cycles and views of credit, can all use a common currency without any distortion. Right.

These people have been invading and killing each other for centuries, they speak different languages and have wildly different governing structures. It was never going to work.

But everyone got something out of the arrangement, at least for a little while.

Stronger countries like France and Germany tied their fate to weaker countries like Italy and Greece because it put a lid on their currency, which helped exports.

Weaker countries hitched their wagons to stronger countries because it gave them a lower cost of capital when selling government bonds and making private loans. Car loans in Italian lira carried a much higher interest rate than Italian car loans in euros right after Italy joined the common currency, even though the backing was ostensibly the same.

It was perfect! Right up until it wasn’t.

The Greeks lie about their finances and carry billions of dollars of bad debt.

The Germans refuse to borrow, wanting to save for the future instead.

The Italians pray for a growth miracle to bail out their ailing banks.

If the euro didn’t exist, then the Greek currency would rightfully be in the toilet, the German currency would be the most expensive on the planet, and every other euro member would be somewhere in between.

On the euro, everyone that uses it is holding hands, angry at each other and demanding accountability that will never come.

The powder keg will blow up when a weak link, like Greece or Italy breaks and leaves the euro, or a nationalist like Marine Le Pen in France pulls the plug for political reasons.

The currency of weak countries will immediately fall in value.

When the dust settles, the euro will contain Germany and a few stragglers, and it will soar in price, reflecting the real value of the German economy.

We’ll be right back where we started, with investors correctly doubting everything financial that comes out of Greece and Italy, and the Germans struggling to hold down their currency so they can keep the BMWs and Mercedes’ rolling out the export door.

As difficult as the adjustment will be internally for each country, it will be even worse for foreign central banks.

Those holding euros will have to choose how much of each currency they want to buy as reserves. Or, they could take the easier path. Buy dollars.

All of the craziness I expect on the Continent points to one thing – a stronger U.S. dollar. It won’t reflect a robust U.S. economy or tranquil U.S. politics. Instead, it will represent a bunch of scared investors looking for a safe haven for their assets.

The biggest shame of it all is that this ugly process will have taken a decade to unfold, and will have stolen untold billions, if not trillions of dollars from investors in the form of artificially low and even negative interest rates as central bankers tried to hold the euro together.

Better to rip off the Band-Aid quickly, like Georgiou did, and be done with it.

Rodney

Follow me on Twitter ;@RJHSDent

By Rodney Johnson, Senior Editor of Economy & Markets

http://economyandmarkets.com

Copyright © 2017 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Rodney Johnson Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in