European leaders have enjoyed a period of respite from financial turmoil since last summer with ECB President Mario Draghi’s bold (and fruitless move) to plunder our savings and retirement money by his OMT measures and low interest policy. But the euro remains vulnerable. Interest rates are etching up because of Bernanke. The total balance sheet of the monetary and financial sector in the eurozone stood at €26.7tn in April this year. A lot of this is under water state debt which sits in Europes banks. Mario Draghi’s Bluff will be called. Portuguese bond yields raised this week as the ruling coalition fractured. Ireland’s economy has contracted for three quarters in a row. The size of the recap fund, like the overall ESM, is woefully inadequate for the scale of the banking system hole.  Looking at the countries that have already restructured their banking system, losses of 10 percent or more are common; apply that to Europe’s roughly 27 trillion euro balance sheet, as others like  the FT have, and it’s easy to be pessimistic in the downside scenario. The euro’s fragility is underlined by a new study by Michael Bordo of Rutgers University and Harold James of Princeton University. The two economic historians look at the flaws in another supposedly impregnable international monetary regime, the gold standard, as flaw of the single currency in the EU: Euro Trilema.

Those tensions, they argue, emerged from a trio of “trilemmas”, each a set of three choices of which any two options together are feasible but not all three.

The “impossible trinity” of fixed rates, free movement of capital and an independent monetary policy.

As everybody nows now losing the ability to adjust  exchange rates, countries must alter their relative domestic prices and wages when they become misaligned. In short that is the austerity an recipe for deflation today and 1932. Unfortunately the euro resembles the flawed interwar version of the gold standard rather than the classical pre-war model. A similarly harsh deflationary process is now under way in peripheral euro-zone countries like Greece like it was under the way in Germany. Making matters worse for Germany, at the end of the second decade the global depression hit after the black Friday 1929. Hjalmar Schacht President of the Reichsbank again and Minister of Economics, implemented the so-called ’New Plan’ which included policies of redevelopment, reindustrialization, and economic “autarky defending to debt slavery to international lenders. Neo-liberal economists everywhere seven decades later have yet to acknowledge that employment is all that counts and living wages are the key to national prosperity. Any economic policy that does not lead to full employment is self-deceiving counterproductive, and any policy that permits international wage arbitrage is treasonous. German economic policies between 1930 and 1932 were brutally deflationary (as they are now in Greece). But today they are also inflationary (in Germany).

The incompatibility of fixed exchange rates and capital mobility with financial stability.

Under the gold standard a strong state could support wobbly banks and investors. But a weak state could easily forfeit investors’ confidence, as happened to Argentina in its 1890 debt-and-banking crisis. That same story has been repeated in the brief history of the euro. Money cascaded into peripheral Europe, causing banking booms and
housing bubbles followed by a bust.

The potential incompatibility of fixed exchange rates and free movement of capital with democracy.

Germany was able to rejoin the gold standard after the first world war thanks to the confidence-boosting Dawes Plan in 1924 dealing with reparation payments. But the harsh fiscal medicine administered during the Depression in its effort to stay on gold from Brüning contributed to the rise of the Nazis and Communists. Britain left gold in 1931,presaging the end of the gold standard, because the austerity it required had become unbearable. So did Hjalmar Schacht who made a pact with the devil and was ultimately thrown in the concentration camp.

The “banking syndicate” has wrested control of our future from us, (the people of Europe and the US) thoroughly corrupted it, and now points the finger of blame again at Germany which should pay for their and the EU nomenclature’s failure. Sailing on a ship of fools steered by today’s German so called “elite”, it is worth to learn about Dr. Hjalmar Horace Greeley Schacht, a German economist, banker and liberal politician in the 1920s and 1930s. If ever there was a financier who could have helped to change the course of German economic politics, it were Schacht. Remember that the current Financial Crisis (2008 until whenever) and the Euro crises (according to G&S irreversible), has been used to extract money from tax payers to keep the banks going. It is highly recommended to take a cynical view of the methods used in banking and politics because main stream media or the education industries worldwide are now propaganda machines.  Read for yourself. Think for yourself. Decide for yourself.

Hjalmar Schacht