Euro Gold and the Euro Zone

I had a conference to attend in Southern California last week but the true capstone was a Sunday evening dinner with several readers. Although ‘gold bugs’ may be perceived in their writing as cranky I have found them to be among the most considerate and cultured company. Perhaps it stems from their respect for individual rights. Either way the grilled chicken was fabulous and I brought delicious creations from Extraordinary Desserts.

But we had serious and complicated legal, financial and economic discussions. Fiat currency, fractional reserve banking and derivatives have completely broken the pricing mechanism. A tiny volcano burps and entire transportation systems grind to a halt. We addressed tough questions about survivalism in the suburbs. And then focus turned to the timing of the evaporation of the FRN$.

Euro Gold

But the FRN$ is below the Euro in the liquidity pyramid. The FRN$ has deeper capital pools, more economic underpinning, greater liquidity, a stronger economic union and more thoroughly self-deceived owners of colored coupons and imaginary digits. Therefore, the Euro will evaporate before the FRN$. And that is precisely what is happening.

Fiat currencies represent the common stocks of nations, or in the Euro’s case the common stock of a weak coalition of nations. Since gold is the numaire par excellence then lets take a view at the Euro zone’s stock through that lens.

A few weeks ago when I was around Doug Casey he remarked that the Euro will be gone in about five years. As the above chart shows, the Euro has lost about 75% of its value in the last 10 years. Mr. Casey may be slightly optimistic about this particular intrinsically worthless colored coupon that represents the common stock of that monetary union.

Euro Zone

So what has happened in the Euro zone as its common stock has been evaporating? Government budgets have exploded, economic output has slowed, individuals are rioting and causing material amounts of damage, governments are being toppled and armed forces, despite being prohibited by the law that they ultimately enforce, are striking.

For example, on 26 April 2010 King Albert II of Belgium accepted Prime Minister Yve Leterme’s colation government’s resignation after futile blathering to resuscitate the government dissipated. This highlights one of the common themes in Europe as Belgium is a prototype of cultural differences with French and Dutch speaking communities disputing while the government debt as a percentage of GDP is over 100%. These giant parasitical vampire squids cannot be supported by the underlying  livestock base. But a friendly tip, if you are in Bruges be sure to get a waffle as they are delectable.

Another fun example, also on 26 April 2010, hundreds of Greek air force pilots called in sick. Sure, these armed services members are not legally allowed to strike but such civil disobedience happens when members of the enforcer and brutalizing class do not get their paychecks or those paychecks are reduced due to ‘austerity measures’.

Sure, Greek Finance Minister George Papaconstantinou incoherently babbles about cutting the budget deficit through structural reforms instead of salaries but the truth of the matter is that government, like the vampires in Daybreakers, would rather suck the humans dry and then die than curb their appetite and coexist. It is economic law, not voluntary restraint by the vampire squids, through undulating waves of mass psychology that forces limited government.

Despite what Merkel and Germany do the die is already cast with regards to the Euro and Euro zone. Interest rates must go up and the market is already forcing this with rises in debt default insurance rates. Additionally, the European banking system is still in terrible condition. On 23 April 2010 Moody’s lowered National Bank of Greece’s credit rating one grade to A3/A. Other Greek banks will likely be downgraded such as Emporiki, Agrotiki Bank, Piraeaus Bank, Eurobank, and Alpha Bank. Plus, Belgium banks need to be cleansed along with plenty of other banks throughout Europe from England to Austria and France to Norway.

The Euro Is Broken

The Euro is broken. This was its destiny. This is the destiny of all fiat currencies. These bureau-rats cannot stop this anymore than Cnut the Great could command the tide to halt. If these impotent bureau-rats are so powerful then why did they fail to pass legislation commanding the ash cloud to disperse?

So what will a post Euro Europe look like? Hopefully, the Europeans do not go back to doing what they have been doing for thousands of years. But those are some of the ominous clouds on the horizon.


Gold has hit record highs around €860. The Euro is the only possible fiat contender as the world reserve currency and for rational investors it fails muster. Like the Euro the FRN$ is destined to evaporate but this will likely happen later and over a longer period of time.

As the political situation continues deteriorating in Europe holders of capital will continue turning towards the precious metals to protect and preserve their wealth. Europe has a rich culture, delicious foods and fine art. Hopefully I will be enjoying it next month and at a lower cost because of the evaporating Euro.

But Europe also has a savage past that only the vampire squids desire to see again. After all, luring countries to increase their debt load while destroying the production and productive capacity is bad for everyone but the sociopathic bankers. And I should be gone before that happens.

Trace Mayer
Whiskey & Gunpowder

April 27, 2010

The Daily Reckoning