I hope you liked the euro. It’s gone, deader than a door nail!

The on again- off again Greek bailout seems to have reached a point. It is likely too late for any bailout of Greece sovereign lending to effect the accumulating debt service costs against its rapidly shriveling economy. Greece cannot pay its own bills and if the Eurozone refuses to (pay at least some of the interest cost) … who will?

The interest costs matter since they are due to Eurozone banks which did indeed lend to Greece with both eyes open. Germany and the other European deficit hawks are certainly firm with spendthrift Greece but will be hardly as firm with their own spendthrift banks. Subsidizing some of the difference between Greek euro bonds and German bunds can only amount to a few hundred million euros. A bagetelle for Germany against the cost of outright Greek default and the consequent dissolution of the euro, not to mention the uncertainty risk. If (when) Greece goes, where and when does it end?

This is question that should be answered by Mr. Bernanke: where does it all end? It is hardly likely that the Congress will smile upon a Fed bailout of Eurozone banks as was the case in 2008. Bernanke got away with bailing out the French when nobody was sure what the Fed was up to but the surprise is now lost and the same trick cannot be played twice.

The idea that I posed earlier, an IMF funding coupled with IMF austerity is a no- win outcome for both Greece – which will then be unable to escape a deflationary collapse – and for the rest of Europe. The idea of the euro was to minimize the effects of these kinds of money panics. If the Eurozone cannot find the means or will to act in the face of a crisis it was intended to prevent, what is the point of the euro?

Now look at all the euro members in the baleful embrace of austerity: Spain, Ireland, euro wannabes Iceland, Hungary and Latvia. Germany is exporting its bitterness and willfulness as well. Deflation stands at the shoulder of the entire Eurozone. Some might think this would allow for a stronger euro: What is the point? What products will Europe exchange for what it wishes to own? There must be some commerce taking place from Europe to the rest of the world or the trap is sprung, not a liquidity trap but an export trap. This would keep them away from the crude oil that they require to function. This more than the debt compound spiral is what awaits the European Union. The alternative to commerce is  for the ECB to create more euros for the purpose of foreign currency exchange – t0 sell money rather than goods – but doing so now or later is pointless. 

Why not do so in 2008 when it would have mattered most and cost the least to bail out Greece and clear the  speculators and bank interests from the debt market at the same time? 

The euro becomes ironic: too hard within Europe itself but always second fiddle to the dollar for the Middle Eastern energy producers will always prefer the dollar as it represents ‘security’. 

When deflation stalks the land(s) both the ECB and the Fed are terrified of inflation, a bogeyman that cannot scare anyone with money multiples crashing everywhere. Just when liquidity and funds are needed most, they are being withdrawn. The errors of Herbert Hoover’s central banker George L. Harrison in 1931 are being repeated again and for the same foolish (political) excuse. If nothing else it is the terror on the part of so- called ‘conservatives’ of anyone other than financial elites to have any access to needed funds so that there is both return on capital for the investor and demand for the business- mans’ goods. Basic understanding of any form of economy must acknowledge that the prosperity of any country resides entirely upon that of its common citizens.

The alternative is deflation and what is portended by the nonsense taking place in Athens and Berlin is the European embrace of a Greater Depression; of the pursuit of money value that can only be had at the expense of commerce.

Ironically, another idea behind the euro was the creation of a reserve currency that could compete with the dollar and yen – with the combined purchasing power of greater Europe  behind it. This would allow member nations to buy Middle Eastern fuel without having to buy dollars – or gold – first. The euro was a part of grand strategic planning responding to the embargoes and inflationary recessions beginning in 1973 through the early 1980’s. This traumatic period saw the ascendancy of so- called ‘free market’ promoters such as Margaret Thatcher and Ronald Reagan into positions of national responsibility. 

This meant the US and UK could approach fuel issues by deregulating their economies while Japan and the US would inflate credit bubbles and the new Eurozone would offer a stable and valuable currency. We can use the benefit of hindsight to see how all the different strategies have failed (miserably) to work. Depletion is not relevant to currency type, cannot support inflated asset values nor does it follow regulations or lack of them. Depletion, as it plays out in Greece will mean decreasing acces to fuels under a euro regime and perhaps no fuel at all if Greece exits the monetary union and emits its own devalued currency.

Portugal is selling dollar- denominated bonds. This is really the beginning of the end of the euro. The dollarization of Europe starts now. The euro ultimately will not be exchanged for fuel or at a crushing discount to dollars. 

If it cannot be used to hedge fuel costs nor can it provide monetary security for all of its users, what good is it?

What euro?

What is taking place is exposing the underlying folly of the common currency, that changing the color of the money can somehow substitute for national discipline and the need to set better priorities. Greek euro- denominated subsidies of consumption were and are nothing more than subsidies for Greek landfills. 

Meanwhile, crude oil struggles to pierce the resistance of $84 per barrel. If the attempt fails (again), there will be more appreciation of the newly hard US dollar. Deflation will tighten its grip and more consumption wrung out of the system.  This is painful but in the end, necessary.

One way or the other, the modern world will conserve.