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The Twin Spiral USD And EUR Collapse

Currencies / Euro Jun 27, 2011 - 03:29 AM GMT

By: Andrew_McKillop


Best Financial Markets Analysis ArticleBYE-BYE THE EURO, HELLO THE DOLLAR
The basic problem of the Eurozone-17 nation group using the euro dates from long before the euro's creation and its proven unworkability was well known in advance. There is no excuse for this. From the often crisis-wracked EMU system (European Monetary Union) starting with the 1980s Ecu system and becoming the EMU in 1992, the creation of the ECB central bank from the central banks of Eurozone member countries, closely linked with non-members like the UK, only intensified political playacting and meddling in the economy. The excuse for this was supposedly to foster federal-type political integration of the European Union and achieve the goals of mostly forgotten treaties (except to Eurocrats) such as the coal and steel community and Euratom.

The risk that, in crisis conditions, any so-called rigour and accountability would be thrown out the window and the money printing presses put in motion was and is endemic. In no way is it a surprise. Supposedly ironically, but also by design the current permanent crisis in European governmental financing and debt servicing, most intensely concentrated at this time in Greece, Portugal, Ireland, Italy and Spain but also menacing many other countries such as Belgium, Hungary, the Baltic States, Romania and Bulgaria, will in theory weaken the euro and bolster the US dollar. A straight majority of Eurozone political leaders want a weaker euro, that is a stronger dollar. In this way and in a certain and real sense, both of these cuckoo moneys profit from each others weakness: when one is traded down by FX traders the other can strengthen, and vice versa. In that way, the party can be kept alive another day, disguising the extreme fragility of both these reserve moneys.

Americans can claim the dollar has the benefit of being the world’s most important or "single" reserve currency with a home economy that is claimed as still the largest in the world, depending on purchasing power parity and other corrections for gauging the true size of the Chinese economy. The Europeans have a considerably larger total GDP for their 27-nation Union, but do not have the USA's federal institutions. One semi-exception, or outrider of federal Europe is in fact the ECB pursuing its hopeless task of printing enough money to weld and unite Europe's disparate national economies, most with desperate debts and deficits, exactly like the US Fed or federal reserve bank wrestling US federal debt and deficits, and many large State governments in the US running massive debts and deficits.

This debt-based system - both US and European and similar in Japan - arose with the best of liberal intentions, such as balanced trade and full employment, but in fact transforms all participating countries, states and territories into profligate entities, addicted to blank check spending and faced with a very few final solutions. Political labels do not count for much at this late stage. Federal and socialist may be contrasted with capitalist and sovereign, but the game plan stays the same: print and spend. All the super-debt entities, the USA, EU-27 and Japan have corporate-capitalist ruling elites aiming for a vague notion of "global governance", that is power and domination in what they also recognize as an emerging multi-polar world geopolitical scene they neither own nor control.


The ideology and strategy of deficit spending can be called Keynesian. This approach seeks a boost to spending and investment, spurring growth, raising state taxes and revenues, able to quite quickly liquidate the new state debt taken on. The strategy therefore has a certain life expectancy, but very ironically today, this Keynesian-type raising of national debt is accompanied by austerity programmes - reducing consumer spending and business investment. Consequently this neo-Keynesianism can only be recessionary and in theory deflationary, but while it certainly is recessionary and surely slows economic growth, it is not deflationary because of the vast mass of new money pumped into the system.

Inflation lurks very close to the surface, making it all the more important to maintain unrealistic high values for the money units in circulation until the moment they are suddenly devalued, and to channel inflation into "socially acceptable" assets, especially housing and real estate where inflation can rip at 10 - 15 percent a year but not show in any official data. Classic solutions also exist for the inflation threat: create new moneys with artificial parities and equivalencies at the time of their forced introduction. To be sure, this brings us straight back to the introduction of the euro, and before that the 1985 Plaza Accord devaluing and depreciating US debt relative to Japan in particular, by raising the Yen's value by about 40 percent relative to the USD. In both cases this action produced sharp monetary inflation but economic deflation, well dissimulated by fake official inflation data and figures.

In today's context of hyper-debt underlined by Greece's untreatable crisis and, at a much larger scale the extreme mass of US debt needing daily and weekly placing and servicing, the only solutions are debt default and devaluation - or the introduction of new moneys. Since the first is politically unacceptable, except for politicians who resign straight after defaulting and devaluing, the creation of at least one new world money is almost certain. Any number of engaging theories and notions are available for this, at one stage concerning a "new carbon mony" as fragile and unrealistic as the junk-science that for a short while underpinned the now abandoned global warming promotion of Western ruling elites.

To be sure, there is a supposed alternate or accompanying strategy: war. Several well-known global finance experts like Marc Faber highlight this default option, saying: "I think we had the collapse of the financial system in 2008; the failed institutions and failed system were bailed out by government. Ultimately governments will fail. The US and Europe will print money, and when everything fails, they'll go to war and then we have the complete collapse" Late-for-the-Dollar-and-Why-Emerging-Markets-Look-Good.

The neocolonial wars in Afghanistan, Iraq and Libya can be seen in this light: war spending is vastly higher than any possible pillage or war booty and theft of resources - even oil - can bring in, but colonial-type war is carried out for elite morale-boosting, and perhaps the pleasure of destroying other peoples lives and proudly exhibiting Doomsday weapons like Depleted Uranium munitions. In the case of these three current neocolonial wars, additional spinoff for the elites includes heightened security consciousness and the easier introduction of police state control of the domestic mass of consumer citizens inside their home territories, of course "to protect the middle classes".


Probably not perceived this way by the ruling elites, the return to interwar and postwar Keynesian-type economic and monetary policies, never applied in the 1930s and not needed in the 1950s and 1960s, is a simple return to the war origins of this survivalist economic doctrine. The only difference is real war has not yet started, against powers able to hit back using any or all of the military strategies and technology used by the so-called defenders of Western democracy.

In this pre-war but war-hungry context the logical next step, of debt default, devaluation and the introduction of new reserve moneys massively depreciating existing debts of the USA, EU-27 countries and Japan, may in all liklihood trigger "real" war, of the type the ruling elites pretend they want, can manage, and win. The world's present and few creditor nations and blocs, to be sure, include the Arab petro-states only able to fight among themselves with an unsure and uncertain ability to understand, handle and use modern weapons, but also include China, Russia, India, Brazil, Argentina and Turkey.

Certainly the first three of these global powers are able to strike back against the kleptocratic and neolcolonial-minded elites of the Western states seeking to shrug off their debts by introducing new reserve currencies and-or suddenly devaluing their present moneys. When or if we move to the last stage of financial, monetary and economic briknmanship, the result for the Western ruling elites may entirely surpass their weak ability to manage even wars of the size of their Libyan "adventure". The time horizon for this is hard to set, but on current trends and under present constraints, this final solution could be launched in the near-term future.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2011 Copyright Andrew McKillop - 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.

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