Euro Bashing and Debauchery
Mike Shedlock AKA Mish's GET comments on Euro Bashing.
"Italy should thank its lucky stars it is anchored to the Euro. Its currency would otherwise be worthless after repetitive devaluations and it still would not be able to compete with China or Japan on manufactured goods.
The problem with Italy is not the Euro. The problem is simply Italy's incapacity to reform. Blaming the Euro is a scapegoat. Desmond Lachman is engaging in unfounded Euro bashing, no more no less. ."
We love Mish and we agree that Italy and many other Western nations including the US need to reform their economic ways and means, but this isn't Euro bashing.
What Desmond Lachman alludes to is rooted in a far deeper fundamental systemic problem within the European Union.
In the United States of America, unlike the EU, 50 states share a common unified sovereign cause under one federal government.
The 12 EU members do not share a common unified sovereign cause under one federal government.
The 12 nations in the EU share only a trade, fiscal and monetary policy, otherwise they have separate interests, social policys, agendas and sovereignty.
Tying 12 separate sovereign nations to the same currency, trade and fiscal policy will never work. Why?
What is good for some is not good for the whole. What appears to be good for the whole, may not be good for some.
And the latitude and fortitude to sort those differences out between the "Michigan's vs Arizona's" does not exist in this loosely knit union.
Ask anyone living in Italy what happened when the Euro was introduced in their sovereign nation and they will tell you the following:
Wages stayed the same, yet prices on all goods and assets virtually doubled, effectively doubling the cost of living. It was a good move for big business and the merchants, not the employees and commoners.
A similar story in varying degrees can be found in most of the 12 member states excepting Germany. This is why England and Switzerland opted to stay out of the fray.
Effectively the formation of the EU for the specific purpose of creating a monetary trade union has been one of the greatest money grabs perpetrated on the public in the history of the planet.
Mish goes on to comment: "Excuse me but since when are "periodic devaluations" ever a viable economic policy?" ...
"Anyone that proposes "periodic exchange rate devaluations" as a solution to problems caused by incapacity to reform is simply barking up the wrong tree in more ways than one."
Mish, I could not agree with you more. Unfortunately, such economic policy behaviour is common and considered "normal" in the world of fiat currencies and central banks.
Periodic devaluation is the economic policy of central banks and the main tenant of how to steal the public blind while they sleep through slow and insidious debauching of the currency.
"Italy should thank its lucky stars it is anchored to the Euro. Its currency would otherwise be worthless after repetitive devaluations and it still would not be able to compete with China or Japan on manufactured goods.
The problem with Italy is not the Euro. The problem is simply Italy's incapacity to reform. Blaming the Euro is a scapegoat. Desmond Lachman is engaging in unfounded Euro bashing, no more no less. ."
We love Mish and we agree that Italy and many other Western nations including the US need to reform their economic ways and means, but this isn't Euro bashing.
What Desmond Lachman alludes to is rooted in a far deeper fundamental systemic problem within the European Union.
In the United States of America, unlike the EU, 50 states share a common unified sovereign cause under one federal government.
The 12 EU members do not share a common unified sovereign cause under one federal government.
The 12 nations in the EU share only a trade, fiscal and monetary policy, otherwise they have separate interests, social policys, agendas and sovereignty.
Tying 12 separate sovereign nations to the same currency, trade and fiscal policy will never work. Why?
What is good for some is not good for the whole. What appears to be good for the whole, may not be good for some.
And the latitude and fortitude to sort those differences out between the "Michigan's vs Arizona's" does not exist in this loosely knit union.
Ask anyone living in Italy what happened when the Euro was introduced in their sovereign nation and they will tell you the following:
Wages stayed the same, yet prices on all goods and assets virtually doubled, effectively doubling the cost of living. It was a good move for big business and the merchants, not the employees and commoners.
A similar story in varying degrees can be found in most of the 12 member states excepting Germany. This is why England and Switzerland opted to stay out of the fray.
Effectively the formation of the EU for the specific purpose of creating a monetary trade union has been one of the greatest money grabs perpetrated on the public in the history of the planet.
Mish goes on to comment: "Excuse me but since when are "periodic devaluations" ever a viable economic policy?" ...
"Anyone that proposes "periodic exchange rate devaluations" as a solution to problems caused by incapacity to reform is simply barking up the wrong tree in more ways than one."
Mish, I could not agree with you more. Unfortunately, such economic policy behaviour is common and considered "normal" in the world of fiat currencies and central banks.
Periodic devaluation is the economic policy of central banks and the main tenant of how to steal the public blind while they sleep through slow and insidious debauching of the currency.
Comments
You are of course right and you are of course wrong! Does that make two of us? ggg
Ask anyone living in Italy what happened when the Euro was introduced in their sovereign nation and they will tell you the following:
Wages stayed the same, yet prices on all goods and assets virtually doubled, effectively doubling the cost of living. It was a good move for big business and the merchants, not the employees and commoners.
And exactly what would have happened to Italy had the recommended solution "repetitive currency devaluation" happened? Would prices in Italy have gone up under that scenario or not? Do you think wages would have doubled to match? If so, how long before hyperinflation?
If you read closely at what I wrote, you will not see any references by me proclaiming the Euro as the next "super currency". I am no huge Euro bull. Europe in general has a demographic problem as does Japan. I do not see a way around the problems in France.
But but but... I am sticking to my guns here in saying that Italy should thank its lucky stars here. This is not 1992. Like it or not (and no one does) Italy and France and Spain and Germany will either reform or die. The Euro is allowing that that to happen over time as opposed to NOW.
Perhaps you misintrepreted my message, or perhaps I simply was not clear enough.
In either case, Euro or not, Italy better damn well get its act together. Luckily for Italy, it has a Euro scapegoat to blame to give it more time. How much longer I have no idea.
Mish
I agree the Euro "forces" reforms over time. And no one "on the continent" really likes it.
With "periodic" debauching the Italians and other EU members always had an easy "out" rather than face the pain of meaningful reform.
Yes prices rise over time with periodic debauching. But its slow and painful rather than the shock of what happened here.
The best analogy of what happened with the introduction of the Euro that I can give is suddenly your on German prices (high) for Italian goods and services (usually known for being cheaper because of the constant debauching) and your getting paid the low Italian wages.
Prices literally doubled in a very short time span. A true nightmare for anyone who is an employee. And a real nightmare for anyone on a fixed income.
Ask an Italian if they prefer 2000 lira to the dollar or 1.22 dollars to the Euro.
To a man and woman they will say that a weak lira is preferable, much like the Chinese yuan being artifically tied to the dollar.
The exception would be when they are going to the US for vacation. Which now, due to the doubling of prices at home, few can afford.
The restriction of the EURO handicaps the "local" economies who are now forced to make reforms without latitude, which in the long run may or may not work in their case.
Another simple analogy would be putting a Double A baseball team in the majors. Its not going to be pretty.
And yes the EU will live or die with this arrangement due to the one way path of entering the Euro. (Exiting would be suicide at this point).
One point I am making is, there has been an accelerated pricing "shock" to the public due to the monetary standard being raised to higher standards, which may be obtainable by some, but not by all.
The other point is that the SEPARATE member states CANNOT form a monetary union and hope for success in the long run. Unless they all give up their sovreignty in the process. Which will never happen.
Bottom line we agree, more than we disagree.