The Euro Before the Crash
http://gatesofvienna.blogspot.co.nz/2012/02/euro-before-crash.html#more
Henrik Ræder Clausen recently attended a conference in Berlin on the current financial crisis in Europe and the future of the euro. His report was published yesterday at Europe News.

See the original article for photos



EuroKonferenz II: The euro before the crash
by Henrik Ræder Clausen

Organized by the German Compact-Magazin, EuroKonferenz II was held in the Berlin suburb Adlershof on February 18th, 2012. A series of speakers lectured on the weakness of the euro system, the dismantling of democracy taking place through the European Union, and how to deal with the pending currency crisis on a practical level. One of the aims of the conference was to gain support and momentum for the “Adlershofer Erklärung”, a petition that Germany hold a referendum on leaving the euro.

Conference introduction

Organizer Jürgen Elsässer opened the conference by introducing the speakers. He brought the news that Thilo Sarrazin, famous for his bestseller Deutschland schafft sich ab, will soon be publishing a book on the euro and the crisis.

Elsässer went on to point out that peace in Europe after World War II had democracy as its fundamental cause, not the European Union or the euro. Politicians and civil servants arguing the case of the euro and the supposed need to save it falsely equate the euro or the European Union with Europe as such, which is patently false.

Further, he argued that direct democracy would be a solution to the crisis of confidence in the EU and the European political leadership, pointing to Switzerland as an example of how this can be used to keep power with the people.

The inevitable euro failure

Professor Wilhelm Hankel had no reservations naming the cause of the crisis. He said: “The crisis has a name, and it is ‘Euro’”. As was made clear in the original euro treaty, introducing the euro did not give Germany (or any other country) an obligation to save Greece from its own follies.

He noted that the euro constitutes a dysfunctional currency zone and that inflation will come with certainty. An example of the follies that take place in the eurozone is that after 10 years with the euro, Greek wages are up 80%, while German wages have hardly risen at all — without a corresponding explosive growth in Greek productivity.

In the current credit crisis and the bailout plans, it is usually forgotten that credits have to be repaid, sooner or later. There is no realistic reason to believe that Greece or other heavily indebted countries will be able to do that, ever. Sovereign debt is poised to keep growing, and the only possible way to deal with it would be massive inflation.

Since the Greeks have politicians even worse than those in Germany, the crisis is poised to become permanent and to last for generations. Those who created the crisis should be held responsible for the consequences, and to that end it is useful to take note of who benefits from the current situation. That would include the political elite, bankers and financial institutions.

As for globalization, Prof. Hankel rejects the notion that a large monetary unit like the eurozone bring benefits over small ones, pointing out that Switzerland, Singapore and other tiny countries do not exactly appear to be in poor financial shape. The euro is not a “Peace project”, rather a “State project” aiming to bring about a European superstate. This is now a war that cannot be won, and like a good general would do, it is time to end the war and cut the losses.

As it stands today, Europe is destroying its own future. There are ever more countries to bail out, and ever fewer countries to do it, the ultimate saviour being Germany — but this will bring about ruin, not salvation, for Europe.

European politicians claim there is no alternative to the bailouts, no “Plan B”, and no way to dismantle the euro. Professor Hankel countered them by presenting two strategies to roll back the eurozone:

1. Since the Euro started its life as an accounting unit (ECU), it can with relatively ease be returned to that role, reintroducing the classical national currencies such as the D-Mark, the Franc, Lira, Pesetas and so forth. That change of accounting units would not change fiscal policies, cause inflation or deflation, or have other inherent ill effects.
2. Quoting Albania as an example, we could introduce national currencies to compete with the euro in an open market. In Albania, the Lek and the Euro coexist peacefully, with all traders free to price their goods in either currency, and the economy is doing really well.

Finally, to politicians and civil servants saying “there is no alternative”, Prof. Hankel said: “There is always the path of common sense”.

The interests of Wall Street

Dr. Eike Hamer spoke about the reasons that financial institutions of Wall Street desire to keep the euro alive and functional. One thing is the ease of dealing with a single currency in what from a financial point of view is a single state.

More important, however, was the fact that the D-Mark was becoming severe competition to the dollar, for that would threaten the dollar as the reserve currency of the world and the currency of choice for commodity trade. The Deutschmark had a proven record of maintaining its value due to the strict policies of the German Bundesbank, and was becoming an alternative to the dollar for saving as well as for trade, also internationally.

Apart from the problem with giving the dollar real competition, the ever rising Mark was also seen as giving Germany and Germans an unfair increase in real world wealth, as German purchasing power was rising steadily, benefitting workers and savers alike. Having a national currency used internationally causes significant advantages, but that holds only as long as that money is broadly accepted. The broad confidence in the D-Mark had potential to cause severe problems for holders and issuers of dollars, so the American interest in creating and maintaining the euro is clear.

According to Dr. Hamer, the current construct lets the euro function as a subsidy for the dollar and the British pound. The main problem comes out of the USA, with the dollar and the euro engaged in a race for the bottom. Money is fundamentally a claim on others to provide goods or services, and when more money than goods/services are provided, the value of money is bound to go down. As things stand today, politicians are not aiming at solving the debt problems, but rather to prolong them as much as possible.

As for democracy, it has already been abolished in southern Europe, where unelected technocrats have replaced the usual elected politicians. That concentrates power even further from the people, effectively revoking their ability to rule their own countries.

One may wonder why Greece is not simply permitted to go bankrupt, restructuring the debt on free market premises and continuing with a clean slate. A key reason is that American banks and in particular AIG have issued extensive Credit Default Swaps (CDS) on Greek sovereign debt, which would be triggered by an honestly declared bankruptcy. Thus, according to Dr. Hamer, Obama has personally requested Angela Merkel to find a solution that will not trigger the CDS held by American banks.

A reason this is such a sensitive issue for the US government is that it has some 200 military bases around the globe, paying everywhere with dollars. If the dollar was no longer universally accepted, this global military presence can no longer be funded through export of dollars. It is noteworthy that rulers of countries like Iraq and Libya, when trying to trade their commodities in other currencies than dollars, quickly find themselves in quite severe trouble.

Thus, the US needs the euro in order to protect the status of the dollar as the global currency of choice.

As for “What to do?”, Dr. Hamer proposes that we should put our own interests first, We need a return to a policy of firm currencies, for inflation is a severe social crime. It constitutes theft from the thrifty, the workers and the pensioners. We need a return to stable money, as well as an end to the extreme concentrations of financial and political powers we are seeing. For, as Dr. Hamer put it:

Much power corrupts severely, total power corrupts entirely.

Finally, he added that he as a theoretician can explain the problems and propose solutions, but that we as citizens have responsibility to carry this knowledge on to politicians through letters to the newspapers, articles, debates and online activities, and that we need to stand together to achieve this.

A free market for money?

Oliver Janich, founder and chairman of the small “Partei der Vernuft” (“Party for Common Sense”), presented a more radical view of what has caused the current crises. He pointed at paper money as such, and in particular at the state monopoly on issuing money, as the culprits, and that historically, each and every fiat money scheme has collapsed within a generation, at most two.

Monopolies are generally understood to be bad, as they usually lead to misuse. That applies to all fiat money systems in history, which eventually ended through rampant money-printing and runaway inflation. Further, when the state has a monopoly on money and forces the citizen to use its specific currency, it over time creates state control of business and a planned economy.

A particular feature of this is the fractional reserve system, where a bank creates money on demand out of nothing. When one takes out a bank credit, it is not that the money is taken from a hoard held by the bank. It is simply credited your account, and recorded as a debt in the system, an obligation to be fulfilled at some point in the future. This system is susceptible to fraud, in particular when not backed by a commodity (such as gold).

When money goes bad, citizens usually notice it only when prices rise uncontrollably. Yet, even the moderate inflation desired and created by the central banks hurts everyone, and demands for wage increases help only superficially On the day of the conference, drivers of the Berlin public transportation system were on strike demanding wage rises to compensate for inflation. Unfortunately, according to Janich, even a full compensation for the officially recorded price index is insufficient, for the official numbers are manipulated to be lower than the real price increases. Further the workers are deprived of the gains from any productivity increases. Workers could much more usefully go on strike demanding an end to inflation.

One may wonder why our states and elected politicians are playing along with this? Janich pointed to several reasons, including the relief inflation creates for sovereign debt, the increased revenue from progressive taxation (in the US introduced when the Federal Reserve was established), and the fact that the actual manufacture of money is very cheap, creating seigniorage profits.

The alternative, according to Janich, is to abolish the monopolies on money, in line with the ideas of F. A. Hayek. Thus, any bank would be free to issue any kind of money they see fit, leaving the free choice of the citizens to decide which of the monies is reliable and which are not worth our confidence. The objection that this would lead to a chaos of useless monies was countered by Janich by pointing out that historically, citizens with the freedom to choose had always opted for money based on either gold or silver.

Quoting Gresham’s Law, Janich explained that under a fiat money system run by government coercion, good money will invariably be driven out by bad, while in a free market for monies, good money will equally invariably replace bad, leading to a self-balancing, inflation-free economy.

Janich concluded his lecture by calling for everyone to call on government to let go of their monetary monopolies and let the free market ensure the quality of our currencies.

National banks and “Trabi money”

In the ensuing panel discussion, Dr. Hamer and Prof. Hankel strongly attacked Janich’s proposal for a free market for money. Hankel said that paper money really isn’t the evil it is made out to be, as central banks are to oversee that no more money is created than is covered by actual production. The problem is, according to Hankel, that they fail to do so due to national interests.

Dr. Hamer suggested that what we need is currency areas of a more sensible size, rather than the large ones with the dollar and the euro. The central banks in each of these areas would then be the neutral hands having only the single interest of ensuring monetary stability, not full employment or other political goals.

Oliver Janich responded by asking who gets to pick the supposedly ‘neutral’ persons to manage the money, and pointing out the impossibility of centrally making sure the needs of 80 millions are met. He called the existing currencies “Trabi-money” (a reference to the East German Trabant car), and expressed his confidence that in a free market, citizens would choose “Mercedes money” instead. Thus, the paper money system has to go, with it excess politicians and civil servants.

Jürgen Elsässer talked about the Federal Reserve, calling it a robber organisation run by private banks. The classical German Bundesbank, in contrast, was under public control. Directed to Oliver Janich, he said it was utterly wrong to equate the D-Mark with the dollar, euro and other crap currencies.

On Constitutions and sovereignty of the people

After the break, professor Karl Albrect Schachtschneider held a lecture about the euro as a threat to democracy as such. Prof. Schachtschneider is well known in Germany for challenging the bailouts and other EU policies at the German constitutional court, though without legal success.

The lecture he held was not only about monetary systems and the euro, it was also a philosophical treatise on how to restore the sovereignty of the people in Germany and in other European countries. Hegel took a particular bashing for having introduced the idea that the state as such is divinely legitimized rather than granted legitimacy by the citizens, leading to dismemberment of democracy.

Schachtschneider explained that the euro and the bailout packages are particularly undemocratic, because decisions and money are taken from the citizens without their consent and without a realistic way for the citizens to halt the process. This has led to a de facto abolition of the classical division of state power into legislative, executive and judicial branches, and an even larger Greater Europe state would certainly not be democratic.

He went on to elaborate that the euro and the related policies are a process of dismantling democracy, where a small group is assuming sovereignty over the currency and setting itself above the law, as has taken place for instance in the bailout packages and the European Central Bank purchasing sovereign debt, both outlawed by the original euro treaty.

Further, when German Chancellor Angela Merkel declares that the bailout policy is “without alternatives”, she places herself outside the constraints of the law and the Constitution, a position of sovereignty that in a democratic Germany should be held only by the German people, not by any politician or institution.

After the lecture, organizer Jürgen Elsässer said he could think of no more fitting and deserving person than Schachtschneider to become the next president of Germany, drawing broad applause from the audience. A bit later it was announced that Schachtschneider had accepted the idea, and the political parties present had no objections to accepting him as their candidate for the March 18th elections.

Hardcore crisis preparations

Walter K. Eichelburg of Hartgeld.com held a lecture “Euro-crash — how do I save my money?”. He said that in May 2010, Germany was entirely ready to single-handedly leave the euro and return to the Deutschmark, but was talked out of the plan in the very last moment. Having Germany simply leave would certainly have triggered an immediate and chaotic crisis in the remaining eurozone countries, a chaos that politicians wish to avoid, no matter the cost. According to Eichelburg, US president Obama put considerable pressure on the German government to stay and avoid the crisis.

The euro crisis was acute that month, newspapers printing “The euro burns!” on the front page, and a return of the D-Mark would hardly have been a major surprise to the public. However, rather than reasserting monetary sovereignty, the German government chose to stay in the eurozone, and today remains a leading proponent of the newfound eurozone ‘solidarity’, at any cost.

Eichelburg proceeded to explain that the euro is doomed to crash, and went on to explain in great detail what an average citizen can do to prepare for the fact. That included moving from fiat currencies to gold and silver, which he still considers significantly undervalued, getting rid of dangerous debts, moving from major cities to the countryside, having emergency electricity supplies and a wealth of other proposals. His pronunciation being hard to follow, and his presentation moving away from monetary matters, concentration in the hall fell noticeably.

The “Adelshofer Declaration”

A key purpose of the conference was to unite the German underforest of small political parties behind a so-called Adelshofer Declaration, outlining the constitutional and financial challenges Germany faces, and demanding a country-wide referendum on leaving the euro. The representatives had worked on the text, adding clarifications and ironing out difficulties.

Partei der Vornuft had an issue with the wording “an electoral alternative”, wondering if their party would be considered part of the establishment or of the alternative. A clarification was added that the alternative is to the established parties that offer the German voter little in the way of effective choice between a variety of ideas and policies. After that, all parties supported the declaration, and individuals were called to sign it on forms provided in the conference room.

Side items

Apart from the lectures, two stands were selling books, with well over 100 off-mainstream titles to choose from. Compact-Magazin, who organized the conference, was selling subscriptions to the magazine, and the conservative weekly Junge Freiheit was handing out free copies of the newspaper. A stand was selling gold and silver bars and coins to those convinced to move to hard money. Partei der Vernuft had an information stand as well.
Posted by Baron Bodissey at 2/20/2012 11:42:00 PM
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6 comments:
Chiu ChunLing said... 1
"Eichelburg proceeded...to explain in great detail what an average citizen can do to prepare for the fact. That included moving from fiat currencies to gold and silver, which he still considers significantly undervalued, getting rid of dangerous debts, moving from major cities to the countryside, having emergency electricity supplies and a wealth of other proposals."

Excellent advice. It is critical to remember that an economic crisis is not just a matter of money. It is important to realize that the ability to exchange goods and services in the wake of a financial disruption of the scale we now face is more a matter of being able to personally know and trust (and be known and trusted by) those with whom you do business. In the immediate wake of the failure of existing international currencies, "money" as such will have no meaning, even gold and silver coin.

Only after working economies (featuring the exchange of goods and services) are in place and have reached the capacity of a trust-based community does money become practical as a means of expanding the economy further. In practical terms this means that money (in the form of gold and silver coin) will only start to see use again after small, self-sufficient "village" economies stabilize and wish to trade with each other. This may take some time in certain parts of the world.

Janich's championing of the principle of competitive money should not be regarded as being in any way incompatible with the idea of well-run national banks being strong contenders in the marketplace for supply of stable currency. Dr. Hamer and Prof. Hankel may be advocates of competitive national currencies, but there is no reason that such would be in any way endangered by the participation of private entities in the market for reliable money.

Only essentially uncompetitive national (or international) currencies would be endangered by the availability of alternative currencies. This might deprive the D-mark of being the undisputed slayer of the dollar and Euro, but at this point it appears that honor will be held by the currency manipulators in Beijing anyway.

Chiu Chun-Ling.
2/21/2012 2:24 AM
Henrik R Clausen said... 2
Janich's championing of the principle of competitive money should not be regarded as being in any way incompatible with the idea of well-run national banks being strong contenders in the marketplace for supply of stable currency.

That's a point I was hoping to see raised. Particular in Germany, the Bundesbank would have a significant advantage in the form of public confidence. Would be interesting to watch.

Dr. Hamer and Prof. Hankel may be advocates of competitive national currencies, but there is no reason that such would be in any way endangered by the participation of private entities in the market for reliable money.

Well, only if the national currencies are poorly managed, which is a very real risk...
2/21/2012 3:51 AM
Chiu ChunLing said... 3
Yes, the tight management of the D-Mark was significantly rooted in a desire to compete against the dollar (which started to be really mismanaged after being assigned reserve currency status, an effective international monopoly). If a nation does not engage in international trade and thus is not subject to the need to make their currency convertible at a competitive rate, then a national currency will not have adequate competitive pressure on it from other nations and will be abused if there is no competition from private currency.

But without the cushion of foreign exchange and commerce, the effects of inflation become dramatically apparent much more quickly. One can see this in how the Euro has reached a crisis that looks very similar to that of the dollar in a much shorter time...the true situation of the dollar is much worse in mathematical terms, but is hidden because so many dollars are being held outside of the U.S. (though the reason in this case is slightly different).

In the end, avoiding competition with other currencies (whether foreign or private) only buys a national currency so much room for mismanagement before it is rejected as an economically viable form of money.

Chiu Chun-Ling.
2/21/2012 6:29 AM
doxRaven said... 4
I don't believe the European Monitory Union does have the capacity to solve the structural problems of Greece or of any of the Euro-Meds. What the Eurozone does do well though is devise ever more elaborate means to ratched up the leverage and risk across the EMU. As the risk goes up, a point will be reach that suddenly Bundesbonds or Eurobonds - whatever is in place at the time - will suddenly jump up in refinancing cost and a programmatic down-rating will triggering the death spiral as we saw for Greece. But this time there will be no big brother to save the day and the only lever left for the desperate 'committed Europeans' will be to hype up inflation to catch up with the debt while global recession deepens.

The EU project will the also be dead - no great loss for it was slowly building the machinery of big-brother totalitarianism, where democracy is only tolerated as scripted theatre to fool the masses.
2/21/2012 6:47 AM
jeppo said... 5
Further, he argued that direct democracy would be a solution to the crisis of confidence in the EU and the European political leadership, pointing to Switzerland as an example of how this can be used to keep power with the people.

Hey, that's a good idea.

More important, however, was the fact that the D-Mark was becoming severe competition to the dollar, for that would threaten the dollar as the reserve currency of the world and the currency of choice for commodity trade. The Deutschmark had a proven record of maintaining its value due to the strict policies of the German Bundesbank, and was becoming an alternative to the dollar for saving as well as for trade, also internationally.

Does not compute. In 1998, before the euro was introduced, the Deutschmark made up only 13.8% of the currency composition of official foreign exchange reserves, compared with 69.3% for the US dollar. By the third quarter of 2011, the USD was down to 61.7%, compared with 26% for the euro.

So the euro is in a much better position to eventually overtake the USD as the world's reserve currency than the DM ever was. Which only makes sense because the US economy is more than 4 times the size of Germany's, while being only slightly larger than that of the eurozone (and smaller than that of the EU as a whole).

It's true that the DM was a "harder" currency than the today's euro is, but the euro is not competing with the DM, it's competing with the "soft" USD. And it's been the relative softness of the euro that's led to Germany's export-driven economic boom. Reverting back to the hard DM would kill the golden goose: cutting exports, slowing growth and increasing unemployment, so I can't see any benefit for the Germans in doing it.
2/21/2012 5:01 PM
Chiu ChunLing said... 6
Actually, the Euro-zone is already putting their toe into the Chinese debt pot. But Beijing is not a kind "big brother" looking out for the best interests of others...they don't spend time worrying about the hardships their decisions might inflict on their actual kin living in abject poverty or outright slavery.

I came across one of the ubiquitous discussions that pits the U.S. military against the Chinese in a hypothetical (of course) war. I always have to laugh and cry at the presumption that Americans have some magical ability to project force globally that is not subject to the laws of economics. If the dollar crashes, then the U.S. military will not be able to buy fuel or other supplies locally in most of the world. Leaving aside the fact that the Chinese have demonstrated that they can hack into the top-secret systems of the U.S. and take them over virtually at will, without the ability to buy fuel and supplies the U.S. military may have trouble even getting their troops home again.

But, as mentioned, this can actually be a positive development if it strips the totalitarians currently in power over Western governments of the tools to continue enforcing their will on the people while there is still a desire for freedom. A cold comfort, perhaps, compared to what ought to have been had free men never suffered rule by fools, but a ray of hope all the same.

Chiu Chun-Ling.
2/21/2012 5:30 PM