6/7/2012 5:36 PM ET|
Tear up your paper money
Modern currency is nothing without trust that governments that use it will back it. And if the once-strong euro can break, what is safe?
So what is it about money that the leaders of the eurozone don't get?
Money has been around for a while, and it's not terribly complicated.
The key element is trust. That was true when money was a piece of metal that you could bite or bounce. Now that money is just a piece of paper, it's even truer. Today's money is nothing but trust.
That's why the euro crisis is so bizarre. The euro is, in theory, one of the world's great currencies. And yet, as this crisis has demonstrated, nobody actually stands behind it. There is no lender of last resort. There is no "full faith and credit." There's nobody on the other end of the promise.
And it's as if the leaders of the eurozone wanted to go out of their way to prove it. They've taken us up to the velvet curtain and then themselves, with a self-satisfied smile, pulled it aside to show us that there is no Great Oz.
And in the process they've done major, and perhaps irretrievable, damage to their own currency and to the very idea of money in our time. If you can't trust the euro, what paper can you trust?
As solid as the solidus?
The idea of money may never have been grasped more clearly than in the Byzantine Empire, the great Roman Empire of the East.
From the time Constantine the Great minted the first gold solidus in 312 until the final coin was minted by Basil II, the Bulgar Slayer, around 1020, the solidus was minted at a steady rate of 72 coins to a Roman pound of gold, or 4.48 grams of gold per coin. When coins came back to the imperial treasury -- all taxes had to be paid in solidi -- they were melted down and restruck. No wonder most Byzantine emperors were proud to put their own images on the solidus.
And it's clear that the Byzantine emperors understood the power that owning a trusted currency gave them in the world. One of the first acts of the empire after recovering from the chaos caused by the attacks of the Seljuk Turks in Asia Minor and the Normans in Italy in the 11th century was to reverse the debasement of the currency that had begun in 1042.
By 1080 the solidus was down to 10% gold, as embattled emperors melted down older coins, diluted the gold with silver and then attempted to pay their mercenaries with cheaper money. The empire's own troops, however, refused to accept the solidus, which had been the most respected coin and the medium of exchange from India to the Baltic, as payment. In 1092, once order was restored in the empire, Emperor Alexios I Komnenos replaced the debased coins with the hyperpyron, a new coin of 20.5-carat gold. The new coins contained 4.45 grams of gold.
That's a steady currency. A drop of 0.03 grams of gold per coin in roughly 800 years.
The euro is no hyperpyron
Contrast that to the euro.
The currency was created as if it would be a monument to stability. That's why there are no provisions in the treaties that created the euro for a country to leave the monetary union and go back to its own currency.
But the reality is that the euro is way more leveraged than the solidus, even at its worst. After all, even the debased solidus still contained 10% gold.
Start with the European Central Bank. The bank has official equity capital of just 6.5 billion euros, roughly $8.2 billion. That tiny bit of capital supports a balance sheet that now totals 3 trillion euros -- about $3.8 trillion.
How is this possible? It's possible because the European Central Bank is essentially owned by the national central banks of Europe. They have contributed the bank's capital in exchange for ownership stakes in the bank. Through that structure, the European Central Bank has a claim on these national central banks.
It you think of it structurally, each national central bank owns a share of the European Central Bank's balance sheet. All those Spanish, Greek and Italian government bonds, all those mortgage-backed assets, all those loans to French and German corporations that European banks have used as collateral for loans from the European Central Bank ultimately belong, for better or worse, to national central banks.
More from MoneyShow.com:
VIDEO ON MSN MONEY
The USA dollar was a proposed form of currency, given to Congress by a couple bankers, when there were less than 20 people in the chamber at the time, that would give said bankers control over the US currency in the early 1900s... The paper costs approximately 7 cents to make, regardless of the number that's printed on it. It is no longer backed by gold because there is not enough gold to back it. It's value decreases with every passing year as more and more of it is printed before even a tenth of that which is printed has been cycled it out (ie, no equal exchange is taking place now).
My friends this is what happens when you let banks control your money. If you have gold, sell 10% of it as needed, but save up the rest. Because the economy is going to collapse very soon. Either President Obama, or President-Hopeful Romney will help this along by continuing the asinine approach of "Spend what doesn't exist." Ron Paul was right 30 years ago and he's right now. It's sad you'd rather elect a picture-esque fool instead of a "been there done that" old geezer.
go back to silver or gold backed notes.
Trust means expecting your government (or it's corrupted central banks) won't double the money supply almost overnight to pay for bloated government programs and pet projects of the politicians that the government should never have started or expanded to unreasonable scope.
In America we should be seeing massive inflation except that the Euro and other currencies were also massively devalued at the same time. This is why gold and other precious metals went through the roof while the Dollar maintained or improved its value against other currencies.
The Fed claims not to profit on the money it issues to the US government, but that is a bunch of bunk because what they mean is the owners take out as salaries all the profit and salaries are an expanse. The Fed is the largest financial parasite the World has ever known.
The FACT that the politicians have ignored their Constitutionally imposed DUTY to "Coin Money and regulate the value thereof" is the problem in the US! Our "monetary policy" would be solid if they had adhered to their Constitutional Duty instead of selling out (un-Constitutionally) to the banking cartels.
Our economy would have NEVER suffered the issues we have over the past 100 years if we had kept to the Constitutionally sound monetary principles the founders set out. Instead, we live in a world were there is NO financial stability because we cannot keep from reaching back into the well, The Private Corporation Central Bank - The Federal Reserve.
All the "Fed" and the European Central Banks are interested in is controlling the people and siphoning off the wealth of the people into the hands of the bankers. And our politicians have been willing accomplices.
The incredibly naive and misguided notion of "it could never happen here" will ensure it most certainly will. The vast majority will never see it coming, much less prepare. Now would be a really, really good time to divest oneself of dollar-denominated equities, and buy hard commodities, food storage staples, and precious metals. It's not the end of the world per se, but it will seem like it to those who don't take steps now.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The stock market finished an upbeat week on a mixed note. The S&P 500 shed less than a point, ending the week higher by 1.3%, while the Dow Jones Industrial Average (+0.1%) cemented a 1.7% advance for the week. High-beta names underperformed, which weighed on the Nasdaq Composite (-0.3%) and the Russell 2000 (-1.3%).
Equity indices displayed strength in the early going with the S&P 500 tagging the 2,019 level during the opening 30 minutes of the action. However, ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|