As the Eurozone continues to crumble, it would be wise not to forget that we are not any better off here in the United States. We have the benefit of being the reserve currency of the world. This let’s us print money until a $1,000,000 won’t buy you a cup of coffee. Certainly, if you think the act of printing money is going to solve economic problems, you’d also find no problem with a million dollar cup of coffee. For the rest of us–sane individuals–we know this is no good.

There is no historical evidence to suggest that money printing has ever done anything except destroy economies. Just ask the people of Zimbabwe.

We’ve already enacted bailouts in the tune of trillions with no upturn in the economy. Unemployment remains high. There is no recovery without employment. The idea that unemployment is a “lagging indicator” is ridiculous. It isn’t a lagging indicator, it’s the only indicator. The stock market can go as high as it wants. A high nominal value is meaningless. As much as the stock market has “recovered”, how stable is it? When the Dow Jones can drop 1000 points in a matter of minutes, we know we aren’t standing on solid ground.

This is volatility like we’ve never seen.

Bye Bye EU

There is an excellent chance the Euro won’t be around for much longer. It was an idiot’s idea to begin with. Who has it actually helped? No offense to any of the member nations of the EU but, the only really productive nation is Germany. The rest of you are–more or less–freeloaders. Ultimately, the EU has been great for the rest of you who do very little while Germany carries your asses.

That might be okay with you but, let’s not forget how the Euro has killed tourism. It is just too damn expensive for people to travel to Europe. Especially the big spenders from America. It’s lovely that you have a “stronger” currency–for now. But, what good has it done for your economy? Imposing a strong currency on a weak economy is economically unnatural. You become dependent on the entity that imposed this currency. Example: Greece.

The Greeks are rioting. They are burning buildings. Killing people. I do not support any of it but, the Greeks will do what they do. I am glad we haven’t resorted to that here in the United States. Force isn’t the answer. We can still accomplish what we need with peace.

But, can you blame the Greeks for rioting? The EU wants to impose austerity on Greece. Sounds like a nice word. But, what does it mean? It means the Greek people are going to suffer a drastically reduced standard of living. How happy would you be if some foreign entity forcefully made you poorer? I do mean foreign. The EU is not Greece.

None of this were the fault of the Greek people. It was the European Central Bank that kept interest rates too low for too long that allowed the bubble in the Eurozone to grow. This bubble is most devastating to weaker economies like Greece, Spain, Portugal, and Ireland. This should be to no one’s surprise but, those same nations are all in trouble. At this point, it’s just a matter of time.

The EuroBubble

Anyone with any sense could have seen that this arrangement with the EU was only going to end terribly. With the ECB, the Greek government no longer had to raise taxes on the people to fund their idiotic projects. They just had to create bonds, sell it to the ECB, and voila! brand new spanking Euros! This is the same arrangement the US Treasury has with the Federal Reserve.

Low and behold, Greek never had the capacity to pay all the bonds they created! And now Greece is where they are now: about to default. But we can’t have that! Those holding Greek bonds would lose a boatload of money. And apparently, those holders have friends in high places. I have no idea who owns Greek bonds but, I would not be surprised if some of our financial wizards on Wall St owned some. These are the same geniuses that bet on mortgage-backed derivatives so, it isn’t a far stretch.

On Mother’s Day, May 9th, 2010, the Federal Reserve agreed to be one of the handful of central banks to provide for the almost $1 trillion EU bailout. Great. American taxpayers are going to be on the hook for economic crises in Europe too. We really must be rich!

But, no. We aren’t. Our economy is still in the toilet. There are now a record number of Americans on food stamps. Yea, shit hasn’t gotten better.

The Last Straw

Our involvement in the EU bailout isn’t going to implode what remains of our economy. In the bigger picture, our involvement in the EU is negligible. This doesn’t mean we should be involved. We surely should not be.

The implosion of our economy was ensured as we enacted our own bailouts and increased the national debt to over 90% of GDP. It is going to go over 100% of GDP in no time with the gigantic budget deficits–bigger than the GDP of Canada. But even that wouldn’t necessarily result in armageddon. Japan’s debt is 200% of GDP and they’re still around. Granted, they have a zombie economy. But even a zombie is still “alive”–reanimated, whatever.

The last straw is going to be when interest rates go up. They have to. Either interest rates stay low and we suffer from massive inflation or we raise interest rates, the interest payments on the national debt becomes sky high, so we print money to pay it, and suffer from massive inflation anyway. No matter what, inflation is coming. And it’s going to destroy what remains of the US economy.

I won’t even include the $60 trillion of unfunded liabilities from Social Security and Medicare. No matter how slowly those unfunded liabilities become funded, inflation is unavoidable. It would take some magical free market ingenuity to create a bunch of Apple’s and Google’s for the economy to “grow” its way out of this.

This is highly unlikely. It would be more likely that you win the lottery tomorrow than it would be for a crippled and handicapped free market to create an army of companies like Apple and Google within the next decade. But, this is what the people in government are hoping for! Cross your fingers!

A Ray of Sunlight

This is a terribly dark future. But, there is some good to all of this. Granted, it would be much better if we never bailed out Wall St and we didn’t grow government to the size it has become but, too late for that. We have what we have and there’s no sign that we can change course in time.

If we can cut the size of government drastically and alleviate the tax burden drastically, there is some hope that the worse won’t happen. But again, this is about as likely as “growing” our way out of the problem.

The only likely ray of sunlight is the fresh start we all get when the US Dollar collapses. It won’t be fun to get there but, at least the end of the rainbow will be a pot of gold.

In February of 2009, there was only one country without any national debt: Zimbabwe. They had a fresh start. Super markets with empty shelves as price controls were enacted by the government are once again plentiful.

Ultimately, this is not going to be fun. The other bright side is that all the technology we have are still going to be here. Economic destruction doesn’t just make these leaps in civilization disappear. It will never be as bad as the Great Depression or the Dark Ages. We have better technology. Humanity has improved virtually everything we do. Even Kings never had air conditioners or computers.

No matter the shit storm, it could always be–and has been–worse.

I submit a lot of what I write to Associated Content. They are a more sure-fire means for my content to be read by more people. I have not created that strong of delivery system but, I am creating the content. So, I will borrow the delivery system of AC–makes sense to me.

While I was looking through what other content producers on AC have written, I came across an article about helping the US economy recover. The article‘s title is How You Too Can Help the US Economy Get Better: Really, It’s Not that Difficult. The title alone was rather intriguing–mostly because of its length and use of mostly single syllable words. I’m a big fan of using as few and as low syllable words as possible when I am seriously editing my writing. There is something elegant about sentences being short, simple, and to the point.

The title didn’t give away the author’s prescription for saving the ailing US economy so I had to read the article. I consider myself a student of the Austrian School of Economics. I read articles on Mises.org and LewRockwell.com daily. I have a few books on the subject as well but, most of what I’ve learned have come from the articles, videos, and podcasts on Mises.org.

The author’s prescription to the illness is this: spend more. I had to laugh as the idea of spending the economy into prosperity is a misguided Keynesian pipe-dream. The mainstream media is also advocating that we should spend more and that a decrease in consumer spending is bad news.

It was recently reported the consumer borrowing dropped by $7.94 billion dollars in November. That was really good news as this means Americans are saving and paying down debt. The media reported it as bad news and a bad sign for the economy. The truth is, this is good for the economy.

The idea that we can have a sustainable economy by spending like drunken sailors is wishful thinking. The reason for our economic problems is because we were spending too much. The average savings rate was effectively below zero when debt was calculated. It is not possible to have growth without capital and capital can only be obtained through savings. Printing money through various stimulus packages or bailouts is only going to make the problem worse.

All of the businesses or business investments–also known as risks–that are not able to stay afloat should be allowed to disappear. If consumers–you and me–are not willing to spend money on an item then maybe we don’t need it. The idea that everyone is doing stop spending money is absurd. We still need to buy food, clothes, groceries, and other necessities.

Money will be spent. It is just a matter of whether or not businesses are selling things of value. We are no longer going to waste money on things we don’t need or don’t value enough to trade money for. By not saving, and spending as the author of the AC article suggests, we are only going to dig ourselves into a deeper hole. The first step in getting out of a hole is to stop digging.

Economics tells us that the sooner we can free up capital being used in non-productive areas, the quicker it can be used by more productive and creative people to create products and industries that never existed before. The way to do this is not by spending money with companies who are not offering things we find valuable. That is only going to reinforce the false idea that we value what they are selling.

There is no good reason to just randomly spend money on things in the name of “improving the economy”. I have often joked with friends that I or they are propping up the US economy when we go on a spending spree–this was when things weren’t as bad.

The most atrocious part of the AC article was about investing. The author suggests we put money into the stock market because the panic and fear as caused everyone to leave and therefore stocks are undervalued. This may or may not be the case but, there is no clear or even half-vague indication that the stock market has hit a bottom. The Austrian theory of the business cycle will tell you that we far from a bottom with all the recent government intervention.

With the amount of inflation that we will be experiencing, the safest “investment” to make is in commodities–look up Jim Rogers for his interviews on the topic. If there is one thing that the US economy and the world economy is going to be short on, it will be things of real value like agriculture and metals.

If you really want to make an investment, invest in your future by paying down your loans–student loans, car loans, mortgages, credit cards, etc. The stock market is not the best place for just anyone to jump in right now.

The author points out that what goes down must come up eventually. That may be true but, it is the time it takes for the market to come back up that is the problem. It could take years or decades. What are the opportunity costs of that?

The real means of helping the US economy recover is to stop spending and start saving and paying down debt. If the secret to global prosperity was to simply spend every dollar we made, poverty would have been eliminated a long time ago.