Breaking up the Euro?

November 9, 2011 by · Leave a Comment
Filed under: Opinion 

Watching Bloomberg TV today and it looks like they are seriously considering breaking the European Union (EU) up via the monetary zone.  This news was received with a very negative reaction from market sending down all indexes over 3% in a single trading session.

What I think this was a wake-up call that the financial crisis has never left us and all we did was create more debt (stimulus) to try and start a recovery.  The problem is the same problem from the beginning.  It is a debt problem, as in too much debt then what could be sustainably taken and still meet their debt service obligation and grow.

Now that we are talking about breaking up the Euro means that we are now realizing the only thing we can do to solve a debt problem of this scale is DEFAULT.   You can never solve a real debt crisis with creating more debt.   You have to default or restructure with serious cuts in the principle owed and this will harm the lenders and that means many banks are just as insolvent as they were in 2007.   We need to face this fact and take the pain.

The whole reason I started this blog was to bring focus to the growing foreclosure problem and these macroeconomic problems we are dealing with.  I am not saying this because I want to be a pessimist, I am saying this because it is the truth and the “real” path to a recovery in this country.  After this we have to tackle the U.S. unemployment problem and that will solve the housing problem.  Sorry to say that the solution to that does involve a measure of protectionism in America and that will  be a good thing.   People can not be allowed to dump on our markets while sending jobs to countries you are paying $1 a day in wages and have no real environmental protections.

That is the bottom-line and these so-called experts need to get a grasp on this and acknowledge the problem.  Free-trade dogma has run its course and we now see what happens when you take it to this extreme.  I am not saying we go back to the 1930’s on the protection front, but we do need to protect American jobs because we do have the most valuable market in the world to sell in and because of that, it is a privilege to sell goods here just like we are treated when we go in their markets (ie China).

We need to focus on all countries building their own domestics markets and help them create jobs locally to serve their own market first and foremost, then you do your trading between partners.   We need jobs period, if you do not have jobs then you put people on public assistance and over time that will drag down your economy.    Just think about the latest figure that 51% of eligible Americans are now on some sort of public assistance.  This could be the tipping point of no-return without major structural changes.  I believe it is.

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