Peace will come to earth when the people
have more to do with each other
and governments less.

At the People’s Pledge Congress today, I appeared on a panel discussing the political implications of the Eurozone crisis. I would have loved to focus on democracy, freedom and the rule of law but the cause of the crisis was the key theme.

As ever, I blamed our statist, inflationary monetary arrangements for creating the incentives and institutions which supported such dreadful behaviour and outcomes. I went on Russia Today (who asked) to discuss the campaign afterwards.

You can find my speaking notes here.

For more, see especially Philipp Bagus, The Tragedy of the Euro and this primer.

Update: Appearance on Russia Today:

I’ll blog shortly about the Independent Commission on Banking’s Interim Report but, as I see Spain is thought by some to be next for a bailout, this quote from Mises’ Causes of the Economic Crisis seems apt:

In discussing the situation as it developed under the expansionist pressure on trade created by years of cheap interest rates policy, one must be fully aware of the fact that the termination of this policy will make visible the havoc it has spread. The incorrigible inflationists will cry out against alleged deflation and will advertise again their patent medicine, inflation, rebaptizing it re-deflation. What generates the evils is the expansionist policy. Its termination only makes the evils visible. This termination must at any rate come sooner or later, and the later it comes, the more severe are the damages which the artificial boom has caused. As things are now, after a long period of artificially low interest rates, the question is not how to avoid the hardships of the process of recovery altogether, but how to reduce them to a minimum. If one does not terminate the expansionist policy in time by a return to balanced budgets, by abstaining from government borrowing from the commercial banks and by letting the market determine the height of interest rates, one chooses the German way of 1923.

It’s my view that the fundamental cause of the crisis has been Governments’ use, over the last 40 years, of our institutionally-inflationary financial system to bankroll politician’s promises. Sooner or later, it must and it will end.

The challenge of our time is to stop this statism, this fantasy that we can consume without producing, before the social and political consequences are too grave.

Via Embrace Default! » The Cobden Centre:

There is a myth circulating, and I am not sure whether it has its origin in sloppy thinking or devious manipulation. It is this: sovereign default in the euro-area is the biggest threat to the euro’s survival.

Really? Why?

The euro is a form of paper money, just as the dollar, the pound and the yen is paper money. Paper money is backed by – nothing. It is an irredeemable piece of paper. It is not as if you could take your paper money to the central bank and demand to get something material in exchange for it –such as gold.

The solvency of the states that print paper money and make it legal tender is completely irrelevant for paper money’s use as a medium of exchange. The risk to a paper currency’s continuous acceptance in trade is over-issuance of the paper money, not sovereign insolvency.

Historically, paper monies have died – and sooner or later they have all died – not because the government went bust but because the government went bust and did not want to acknowledge that it was bust. It wanted to keep on operating. It wanted to keep on spending. It wanted to keep on bestowing privileges on those whose services or support it needed. So it kept on printing money. That has always been the reason for paper money’s ultimate demise. And it will be the reason for the demise of the euro.

And the dollar.

And the pound.

An honest government that declares itself insolvent when it is insolvent, and that declares its banks insolvent when they are insolvent, is no threat to the survival of its money. A government that does ‘whatever it takes’ to save its banks and bond investors, and keep on spending, is a massive threat to its paper money.

The biggest risk to the euro is not insolvency of states and banks. Keeping states and banks going by printing euros is the risk to the euro. Whether the ECB hikes on Thursday or not is irrelevant. The ECB will not be allowed under any circumstances to meaningfully tighten monetary policy, to drain liquidity from the system and – to shrink its balance sheet. Its balance sheet has to keep growing. And those of other central banks as well.

Why? Here is why. The ECB keeps rates low and keeps on printing euros to keep the banks in business. The ECB also keeps rates low and keeps on printing euros to keep various states in business. And the states are kept in business so that the banks – which are fractional-reserve banks and lend money by creating money, of which they lend a lot to the state – are kept in business so that they –- keep on lending money to the state.

This will continue until the euro is worthless. Ditto for the dollar, ditto for the pound. When the public fully wakes up to it things can unravel quickly.

Not convinced? I recommend Ludwig von Mises’ Causes of the Economic Crisis and Other Essays Before and After the Great Depression…

As a student of the Austrian School, I find myself surveying unfolding events with a sense of weary inevitability. I happened today on a collection of quotes I posted in 2008: they are just as relevant today as the tight nexus of states and their institutionally inflationary, centrally-planned, monopoly money systems continues its decay.

Thankfully, the Governor of the Bank of England has now said (PDF),

Of all the many ways of organising banking, the worst is the one we have today.

And since I arrived in Parliament, Douglas Carswell MP has begun advocating the cause of money reform. I see that Michael Meacher MP is aware of the fundamental issues and has today advocated the end of socialism for the banks.

There’s hope.

Via Note from Her Majesty’s Treasury on EMU (Novembre 1989):

The European Council agreed at its meeting in Madrid in June to launch the first Stage of economic and monetary union (EMU) on 1 July 1990. The Council also confirmed the objective of the progressive realisation of EMU but did not specify how that objective was to be realised. By common consent the next steps in economic and monetary integration of the twelve Member States will be crucial to the future economic development of the European Community. That development must be based on firm and durable foundations which reflect both the diversity and the unity of the economic and monetary situation in the Community. This paper suggests how such sound foundations should be laid in a way which avoids the pitfalls of other approaches now under consideration.

Follow the link above for details of how Britain thought competing European currencies would have been a better alternative to Delors’ Euro.

Via British taxpayers ordered to bail out euro – Telegraph:

All 27 EU finance ministers have been summoned to Brussels on Sunday to sign up to a “European stabilisation mechanism. Britain will be unable to veto this as it will be put through under the “qualified majority voting” system.

And the mandate for a Labour Chancellor to sign up to this is what?

Interested readers may wish to see The Cobden Centre’s posts on Greece and my serialisation of The Theory of Money and Credit (start at the bottom of the page). Also my precis of Huerta de Soto’s explanation of the fundamental problem.

Update: you may enjoy my other economics posts and in particular Eamonn Butler’s Mises Primer published by the IEA with a foreword by yours truly.

Via the Guardian: Alistair Darling rules out British support for euro