Posted on 06/03/2012 10:18:06 PM PDT by bruinbirdman
Nicely done.
Pournelle has taken to quoting from that quite a bit in the last several years.
Yes. The way I see it, if there was never a Euro, the EU was/would be basically a trade pact using individual currencies. Now that the currencies are all combined, and then fall apart, there must be new trade agreements based in individual currencies, since I do not think that, say, France and Germany will continue to use the Euro and the rest of the countries will revert to their traditional currencies. The reason why all the Euroistas are bending over backward to save the Euro is complex, but I know there are large deals for large goods such as ships, cars, and military equipment, etc., and if the Euro goes down all those deals/agreements go down with it. Everything will have to be redone, which gives no one the benefit of keeping the Euro and IMO the EU will splinter based on currency valuations.
I have read that the Bankruptcy Code does not contemplate the bankruptcy of a State. If true, the Code should be amended to do so. The short term problem created by such a change would be an immediate increase in the borrowing costs of California, Illinois and other irresponsible States. The long term benefit would be a solution to the fiscal problems that have been created by the unionization of public employees and the consequent corruption of the means by which their compensation is determined.
It works until the state can’t pay the pensions and everyone else has to bail them out like Europe has bailed out Greece.
It’s just back to multi-currency bookkeping, which is what it is. Sometimes there is a gain on currency translation, sometimes a loss.
Germany’s marks would generally be appreciating relative to the other currencies.
The long-term limit on Germany’s export businesses would simply be the poorness of other nations.
One must remember sovereign debt in considering what’s been going on for the past few decades, and much more so in the past 10 years. National governments (including the U.S.) issue bonds, selling them for cash that they spend. This is government borrowing. That money is spent in the economy now by government employees, recipients of benefits and vendors who sell products and services to the governments. Government borrowing has increased to fund more spending to the point where the U.S. government borrows about half what it spends.
These bonds must all be paid back by future tax revenue.
The U.S., if every dollar of taxes went to paying off government bonds and not one penny for spending, would take 8 years to pay off all the bonds outstanding.
So companies that sell ships, cars, etc. - as well as everyone else - have been transacting business in an economy that is pumped full of cash that was borrowed against the government’s future tax revenues. Future tax revenues must pay back the bonds, or new bonds have to be issued to pay the current ones, or the government will default on the bonds.
If $16 trillion was not invested in those U.S. Treasury bonds - it would ultimately be invested in businesses. The Investors would buy corporate bonds, real estate, shares of stock, commodities, deposit the cash in a bank, etc. Somehow or another those dollars would be invested in business operations. But instead those dollars are invested, literally, in future taxes.
This same scenario is true in Europe.
Wow, mind-boggling.
If the Euro goes away, if BMW wants to sell cars outside of Germany, they will be selling to customers who need to earn their own cheap currency that has to get exchanged for expensive Deutschmarks in order to buy the cars.
If a major German chemical supplier sells to U.S. companies, they will simply need to exchange Dollars for Deutschmarks instead of exchanging Dollars for Euros. If any contracts have to be amended to effect that change, it could be done very quickly.
The contractual wordings aren’t really the problem. It’s the long-term problem of trying to sell SAP software, Mercedes cars and trucks, BASF products, etc., to Spain, France, Italy, etc., where they would find the products very expensive without incessant government borrowing to put cash into their local economies.
Due to American freedoms (rapidly disappearing), we still turn out to be the marketplace in the world where one can get the most for the goods and services one wants to sell. It’s quite simple why: America, more than any nation in history, protects the right of her citizens to embark on their own business enterprises. When the freedoms disappear (such as requiring small businesses to cater to protected classes of people when hiring, etc., or face lawsuits), small business will disappear and the prosperity will disappear.
To put the magnitude of the European problem in perspective:
(in trillions)
Country________Total_GDP______Exports
U.S.______________USD 15_______UDS 1.5
Germany_________EUR 2.57____EUR 1.29
About half of Germany’s GDP is exports !
For the U.S., only about 10% of GDP is exports.
That means Germany wants it’s customers in other countries to be able to buy their products and services.
However, if the German government is lending to the governments of the other nations for them to be able to afford to buy, it makes no sense, because German taxes on it’s citizens are then ultimately funding sales of German exports.
This is really the headwind that American exporters face: the other nations of the world are too poor to afford to buy our exports.
Ergo, the leadership of American big business, inasmuch as they rely on exports, tends to be globalist and want to have U.S. foreign policy send U.S. tax dollars to poor countries to increase their standard of living. Trouble is, such use of tax dollars does not create fundamentally sound economies, only true Biblical morality creates the freedoms and ethics which are needed to create sustainable prosperity.
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