-- Europe's 'nuclear option'
Responding to postings in the "30-Apr-10 News-Politicians assign
blame/euro crisis deepens" thread.viewtopic.php?f=4&t=327
OLD1953 wrote:> Could Germany simply guarantee the interest payments? It would be
> a terrible deal in the long run, and they'd quit doing it
> eventually, but short term fixes are what the world is all about
The proposed aid package is essentially nothing more than that. It
doesn't pay off any debt, but it makes the minimum payments on
Greece's credit cards for three years.
browner55 wrote:> I must say that I am a "deflationist" through and
> through. However, isn't monetizing debt extremely inflationary?
> What if they did this? What if the US decided to monetize state
> debt in the same manner? I still think the gold bugs will be
> wrong, but at the same time these types of actions certainly add
> fodder to the argument against fiat currency. Actually, if the ECB
> did this it would certainly break the union. I am not sure what it
> would mean for ours if the Feds monetized state debt. I know you
> have addressed the inflation/deflation debate to the point of
> overkill, but you have to admit that it is fascinating.
Maybe it's my obsession speaking, but I will unhesitatingly admit to
When I've talked about deflation, I've always emphasized that the
dollar is the international reserve currency, which makes a big
difference. The same arguments don't apply to other currencies,
including the euro.
I frequently use the word "momentum" in my writings. This is an
important concept in Generational Dynamics, since the reason that
momentum matters is because we're usually talking about a population
of hundreds of millions of people, or even billions. People think
that all you have to do is convince President Obama or some other
politician of something, and changes occur right away. That's like
saying that all you have to do is tell the captain of the Titanic to
turn the ship around, and the ship turns around instantly. That
didn't happen with the Titanic, as we know, and it won't happen with
The dollar currency carries a great deal of momentum, having been an
international reserve currency for a long time.
The euro currency is only ten years old, and has very little momentum
on its side. I can easily imagine scenarios where it might
The Fed has already exercised the "nuclear option," in the sense that
it has a couple of trillion dollars worth of assets on its balance
sheets, and yet there are no signs of inflation. If the Fed bails out
a state or two, I doubt that it would change much.
If the ECB employs the "nuclear option" and bails out all the PIIGS
countries, what would happen to the euro currency? I don't know, but
I would at least expect it to weaken considerably against the dollar
and the yen.