QUESTION: Hi Martin
You said, that the creation of the Euro was the second worst act. “That undermined the entire European banking system and has led to a serious undermining of the entire global economy.” How has this undermined the entire European banking system. Could you explain this?
Thanks so much!
ANSWER: The problem of the Euro was the fear that consolidating all the debts at the outset would have created the image that they were federalizing Europe, which was the original intent. Therefore, they left each country with its own debt and only created a single currency driven by an amalgamation of governments. They then used euro bonds of each member state as the RESERVE of the banking system. As the disparity among the member states cracked the system in 2010 starting in Greece, they undermined the banking system within Europe as a whole. The Brussels politicians now argue the only way to save the Euro is to federalize Europe and to save the banking system people have to give up at least 10% of their assets.
This is like creating a vaccine to prevent a disease (world war), and then when you are taken ill because of a bad vaccine, they argue you need a new version. This is not my opinion – just fact. They sent the commission to create the Euro to our World Economic Conference in London. I have first hand knowledge of what was being created from the outset and warned them the lack of a national consolidated debt would doom the Euro. This was not clairvoyance – it is simple economics.
The European banking system has been doomed from the outset. While bankers are to blame for proprietary trading, they are NOT to blame for the poor design of the euro. The success of the USA was mistakenly assumed to be a single currency. It was also a national debt and a single language (albeit now diverting to Spanish in Southern and Western USA that is bad trend long-term for it prevents a single economy as does the varied cultures within Europe. You do not migrate to China and then demand they speak your language).
The Hamiltonian Model worked in the USA because he consolidated the debts of all states at the outset. We submitted this design back then as the ONLY successful model and why it succeeded. Had the USA not moved to a consolidated debt and the banking reserves would have relied upon state debt, they would have collapsed as states defaulted in the 1840s not so dissimilar from the collapse in Europe today.
The economies of Greece, Italy and Spain may attract the attention, but the time bomb is France. The French rely upon government intently, whereas in Southern Europe they have traditionally ignored government. When France goes, so will the Euro.