Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
Scottish Banks Salivating at the Prospects for an Independent Scotland of 6 Million Debt Slaves - 1st Sep 14
Small Man Europe Is Now In “Effective State Of War” With Russia - 31st Aug 14
The Unintended Blowback Of False Flags - 31st Aug 14
Tesco Supermarket Death Spiral Latest Profits Warning and Dividend Slashed - 31st Aug 14
Dow, Gold and Silver - A Last Stand, A Fake Out And A Surge - 31st Aug 14
If U.S. Consumers are so Confident Why aren't They Spending? - 31st Aug 14
Scotland Independence House Prices Crash, Deflationary Debt Death Spiral - 31st Aug 14
Obama’s “Catastrophic Defeat” in Ukraine - 30th Aug 14
Stock Market Inflection Point Approaching - 30th Aug 14
Gold And Silver - Elite's NWO Losing Traction. Expect More War - 30th Aug 14
Corporations Join Droves of Americans Renouncing US Citizenship - 30th Aug 14
Peter Schiff U.S. Housing Market, House Prices Bubble Warning - 30th Aug 14
Russia, Ukraine War - It’s Time to Play the “Gazprom Card” - 29th Aug 14
The One Tech Stock Investment You Should Never Sell - 29th Aug 14
Bitcoin Price $500 as Current Downside Barrier - 29th Aug 14
Don't Get Ruined by These 10 Popular Stock Market Investment Myths - 29th Aug 14
Low Cost Transcontinental Gold - 29th Aug 14
Gold Bullish Central Banks Should Give Money Directly To The People - Helicopter Janet? - 29th Aug 14
US House Prices Bull Market Over? Trend Forecast Video - 29th Aug 14
The Fed Meeting at Jackson Hole Exposed Yellen’s Greatest Weakness - 29th Aug 14
AAPL Apple Stock About To Get sMACked - 29th Aug 14
A History of Unlimited Money: Learn From It or Repeat Its Mistakes - 29th Aug 14
How You Can Play to Win When Market Makers Are Calling the Shots - 28th Aug 14
EU Gas Supply Is In Real And Imminent Danger - 28th Aug 14
Central Banks at the Root of Evil - 28th Aug 14
European Bond Market: Bubble of all Bubbles! - 28th Aug 14
Employers Aren’t Just Whining: The “Skills Gap” Is Real - 28th Aug 14
The ISIS Menace - Just What We Need, Another War - 27th Aug 14
The Risky Business of Methane-Rich “Fire Ice” - 27th Aug 14
CFR Recommends Policy Shift that is Very Bullish for Gold - 27th Aug 14
Ukraine Standoff Signals Global Power Shift - 27th Aug 14
Stock Market Panic Decline Begins - 27th Aug 14
The Monopoly of the Government Education Cartel - 27th Aug 14
How to Invest in Silver Today for Double-Digit Gains - 27th Aug 14
The Big Solar Energy Breakthrough We've Been Waiting For - 27th Aug 14
U.S. Empire’s Bumpy Ride - 27th Aug 14
Gold Market and the Interest Rate Trap - 27th Aug 14
Stock Market Staring Into the Great Abyss - 27th Aug 14
A Look at the Coming 30-year Inflation Cycle - 27th Aug 14
Forex Trading - Will USD/CHF Rally Above 0.9200? - 27th Aug 14
Europe’s Depressing Economy Dog Days of Summer - 27th Aug 14
How The Coming Silver Price Bubble Will Develop - 26th Aug 14
A Nation of Shopkeepers - Supply-Side (Voodoo) Economics? - 26th Aug 14
Stock Market Bear Tracks Abound In Wall Street - 26th Aug 14
65,000 U.S. Marines Hold up a Mirror to the Economy - 26th Aug 14
Bitcoin Market Provides Clues for Investors - 26th Aug 14
The Key to Trading Success - 26th Aug 14
Will The US Succeed in Breaking Russia to Maintain Dollar Hegemony?... - 26th Aug 14
Even Mainstream Academia Worried about Massive Bubbles in Markets - 26th Aug 14
Iraq and Syria Follow Lebanon's Precedent - 26th Aug 14
Colonization by Bankruptcy: The High-stakes Chess Match for Argentina - 26th Aug 14
Dow Stock Index On The Cusp - 26th Aug 14
Prohibition Laws and Agency Regulations - 26th Aug 14
Will Canadian Regulators be Able to Avoid Final Fatal TSX Venture Exchange (TSX-V) Crash? - 25th Aug 14
HUI Gold Mining Stocks Elliott Wave Projection - 25th Aug 14
Stock Market Uncertainty Resolved With New High - 25th Aug 14
Go Forth Multiply And Replenish The Earth - 25th Aug 14
Dollar Dumping: When Actions Speak Loudest - 25th Aug 14
A Plethora of Currency, Stocks and Precious Metals Chartology - 25th Aug 14
Why Isn’t Fed Monetary Pumping Helping the U.S. Economy? - 25th Aug 14
Myths About Money and Inflation - 25th Aug 14
The Fed Will Raise U.S. Interest Rates in March 2015 - 25th Aug 14
Gold Price Manipulation Still Alive - 25th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

Should the UK Join the Euro?

Currencies / British Pound Dec 08, 2012 - 06:53 AM GMT

By: Jan_Skoyles

Currencies

Jan Skoyles looks at how the Euro might not be such a bad idea if it is the interim step to a return to the gold standard. Looking at a paper written by Jesus Huerta de Soto, she looks at the Austrian arguments for the UK joining the Euro, but concludes that the current path of central bank net gold investment and private citizens choosing to buy gold is more likely to be providing the first steps to the new gold standard. 


Believe it or not, despite many problems happening over the channel, there are still plenty of people who think the UK should join the Euro.

Whilst leaders of the current major political parties in the UK see no prospect of the UK joining the Euro in their political lifetime, there are many in politics who still believe it is an inevitable scenario. Conservative peer Lord Heseltine said back in April that it was likely we would join the Euro in the foreseeable, as part of our need to go through ‘Europeanisation.’ On other side of the political spectrum Labour peer Lord Mandelson said a couple of months ago that the UK could join the Euro Mark II within ten years.

For those of us tearing our hair out, not knowing which way to look as the international economy appears to self-destruct, is this the UK joining the Euro just another example of politicians not learning what’s truly going wrong?

To the contrary, looking at it from an Austrian economics perspective the UK ascending/descending (depending your view) to the Euro, might be just the type of lesson and discipline politicians and policy makers in the UK need.

The proxy for the gold standard

Back in May Jesus Huerta de Soto argued for the Euro as a ‘proxy’ for the Gold Standard and for free-market economists to support it ‘while the only alternative is a return to monetary nationalism’.

It’s common knowledge that Austrian economists believe in a return to a sound monetary system in order to facilitate social and economic progress. A country joining a single currency union that is the Euro is just one of the many ways that we could gradually move onto the gold standard. The key to remember is that whilst the Euro currency is by no means an ideal one, it does hold significant advantages over the management of other currencies such as the US Dollar.

From an Austrian perspective, joining the Euro may provide the discipline and control governments must learn in preparation for returning the gold standard.

As Ludwig von Mises wrote:

The gold standard makes the determination of money’s purchasing power independent of the changing ambitions and doctrines of political parties and pressure groups. This is not a defect of the gold standard, it is its main excellence.

The arguments against the Euro are often the very same as those for the gold standard.

  • Sovereign states unable to devalue their currency
  • Control of interest rates from an outside authority
  • No lender of the last resort
  • ECB concerned with low inflation
  • Difficulties of leaving

Are Euro countries in a better position than the UK?

At present it may appear as though countries which have maintained monetary autonomy are riding this crisis better than those who don’t. Those in Greece would argue that we Brits and Americans are in a far better position than themselves. At the moment we appear to be riding the financial storm better as we are able to inject liquidity into the economy and try, desperately, to weaken our currency. However, as history shows, this is merely a temporary measure and sets us up for a bigger fall.

In a brilliant paper, published May this year, economist Jesus Huerta De Soto outlines the three reforms needed to resolve the problems currently afflicting the financial system:

  •  The 100 per-cent reserve requirement must be re-established. This reinstates the ‘essential principle’ of what is yours, is yours in regard to bank deposits and equivalents.
  •  Central banks must be abolished. Their role as lender of the last-resort becomes invalid should 100 per cent reserve requirements be enforced. Legal tender laws would also be revoked and ‘government regulations that derive from them.’
  • The return to the gold standard ‘as the only world monetary standard that would provide a money supply which public authorities could not manipulate and which could restrict and discipline the inflationary yearnings of the different economic agents’.

Huerta de Soto believes the above indicates the reforms which could be implemented in the interim before moving onto a gold standard. They would help ‘permit a more sound judgement about the different economic-policy alternatives in the real world.’ Within these reforms we can see some similarities with the Euro, hence why it could prove to be a suitable interim arrangement before moving onto the gold standard.

The major argument against the Euro, heard frequently nowadays in the UK, is the inability of countries to inject liquidity whenever a crisis occurs. In the Euro countries work within a fixed-exchange style system and countries are unable to inflate their way out of their crises. Instead, learning tough lessons through austerity measures and strict new controls. As each country joined the single currency they surrendered their power over monetary policy, the ‘monetary nationalism’ has been removed.

Central banks have been forced to show restraint during the Euro crisis, as they, really are no longer the central bank given the ECB has usurped power from national central banks. Providing an ideal ‘training environment’ for governments and countries who were otherwise used to central banks bailing the country out and devaluing their way out of crises.

Monetary nationalism

Both Hayek and Mises argued ‘monetary nationalism’ and floating exchange rates are the nemesis of a healthy economy. One of the great criticisms of the Euro, and the EU for that matter, is it removes a country’s sovereignty. When it comes to monetary arrangements, this is a preferable situation. In a gold standard the need for national monetary policy is moot.

The gold standard works a fixed exchange rate and liquidity cannot be created from thin air therefore issues cannot be temporarily inflated away.

Those feeling the brunt of the crisis at present, Greece, Spain and Ireland (and no doubt Portugal, Italy and France to follow), have been unable to take on these irresponsible measures. According to Von Mises the inability to embark on such easy monetary policy is what is needed to provide a healthy, free-market economy.

Mises wrote “The only condition required is the abandonment of an easy money policy and of the endeavours to combat imports by devaluation.”

This is an extremely brief look at this idea, but is one which I hope to come back to in the future. In the meantime, look up Jesus Huerta de Soto and his analyses. They may not seem as crazy as they at first appear.

Personally, I doubt the transfer to the next monetary system will be so smooth as to go via another monetary regime. I suspect when we do see gold fully acknowledged as money it will be though the process we are seeing take place now – central bank gold hoarding and increasing private investment.

If there were ever the opportunity to join the Euro, I wonder if the British people would allow it, at present I suspect not. However, there are many things people ten years ago thought we would never see and look where we are now.

Want protection from the race to debase? Buy gold online in minutes…

Jan Skoyles contributes to the The Real Asset Co research desk. Jan has recently graduated with a First in International Business and Economics. In her final year she developed a keen interest in Austrian economics, Libertarianism and particularly precious metals.  

The Real Asset Co. is a secure and efficient way to invest precious metals. Clients typically use our platform to build a long position and are using gold and silver bullion as a savings mechanism in the face on currency debasement and devaluations. The Real Asset Co. holds a distinctly Austrian world view and was launched to help savers and investors secure and protect their wealth and purchasing power.

© 2012 Copyright Jan Skoyles - 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.


© 2005-2014 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

Free Report - Financial Markets 2014