The Euro Crisis and Us
Detlev S. Schlichter, a former investment manager, is best known for his critiques of the unsustainability of countries that use fiat currencies. The Austrian school economist is the author of Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown (John Wiley & Sons). reason asked Schlichter for three things Americans should know about the euro crisis.
1 It is not about the euro. The euro crisis is the European version of a global crisis. Worldwide, problems are identical. Forty years of unprecedented money creation have left us with massive imbalances: excess levels of debt, overextended banks, inflated asset prices, and governments addicted to debt, not just in Greece but everywhere. All major central banks now keep rates close to zero to sustain the unsustainable.
2 The proposed “solutions” won’t solve anything. “Euro exit” is nonsense. Would it be sensible for California to exit the “dollar zone” if its government defaulted? And who would want to hold new paper currencies issued specifically for the purpose of devaluation? Then there is fiscal union, which means Germany bails out the others. This is impossible. It would bankrupt Germany instantly.
3 The choices are identical for Europe and America. Only two outcomes are feasible. Stop printing money, default on much of the public debt, and allow asset prices to fall. Or continue underwriting everything with the printing press, which must end in loss of confidence, inflation, and currency collapse.