Monday, May 10, 2010

In for a penny

If future historians regard this period as marking the demise of fiat currencies, then today will be a key date of recognition. With Europe's nearly $1 trillion bailout of countries and banks, plus the onset of Euro printing by the ECB, the final obstacle to unabated global monetary excess has been removed. The German memory of hyperinflation was our last hope, but their politicians bowed to external pressure instead of the desires of their own electorate.

I'm disappointed, but not surprised by what Europe has done this weekend. Socialism and easy money go hand in hand, and it stood to reason that Europe would follow the US, Japan, UK, and China down this road. Now every world government of enough size to change anything has placed their bets. In order to thwart the opinion of free markets, they went all in. This is not the sort of bet where you can later cut your losses and walk away. Unfortunately, it's a bluff. They have an unwinnable hand and the ironclad laws of economics are sitting on the other side of the table. The time for debating the fine points of policy are past. Future government decisions will revolve around how much to print and who gets the handouts. This won't stop, can't stop because the debt loads will only get worse.

Smart individuals around the world will begin to fully divest themselves of fiat currency savings. That process is already underway, it's been driving equity markets and precious metals and commodities. Within the next few years flight from fiat will accelerate. When it does, governments will up the ante again and start monetizing their debts en masse. In for a penny, in for a pound.

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