Thursday, March 25, 2010

The euro is becoming more of a joke every day!

The euro is becoming more of a joke every day. Why it fetches anything in foreign exchange markets is beyond me.

Today Germany's Chancellor, Andrea Merkel, said that the IMF would be needed as part of a Greek bailout.

The IMF!!!

Wasn't that the organization that was brought in time and again to inflict suffering and destroy small, emerging economies with its ridiculous austerity plans?

The sight of the Eurozone, with a total economic output larger than the U.S. calling in the IMF to help one of its neighbors would be like America turning to the IMF to bail out California. Americans would go livid at the very idea!

Yet that is the stupidity that is currnetly going on and, yet, the euro is still amazingly 30% stronger than the US dollar. (Whoever said markets were rational??)

Think about it...what is the total balance sheet of the IMF anyway? Possibly $500 billion, if that? And it's being asked for help when the Eurozone has a $15 trillion economy!!!

Moreover, the IMF is not a currency issuer. I cannot "print" euros as the ECB can to help member states. The whole thing is getting to be like a Marx Brothers comedy.

ANYONE who reads this blog is INFINITELY more informed and capable of solving Europe's problems than the current leadership over there. (That's why you'll never get the job!)

Here's the problem, though. The same, idiotic mentality is pervasive in the U.S. I've even heard some lawmakers talk about America possibly needing help from the IMF. (Maybe that dope, Judd Gregg.)

Two things are for sure:

1. Unless Europe gets its head out of its ass soon, the euro will be worthless. (See how you can make money on that, here.)

2. Things are not likey to get materially better in the U.S. anytime soon.


Mike Sandifer said...


I like the fact that you're one of the few economists who seem to know what's actually going on in the world.

You say the Euro will be worthless. Is that in the long or short run? My concern is that much of Europe will face disinflation and perhaps even deflation, with Yen-like curency "appreciation" indicative of its failure to properly stimulate its economy. That is, at least over the next decade.

Of course, then with such anemic growth, the Euro may be worth less in the long term that it would otherwise be.

By the way, I also like the fact that you are pointing out real examples of market irrationality.

Mike Norman said...

Nowadays things tend to happen pretty quickly. Look at how rapid the collapse in subprime took place once people realized what was going on. I think the euro at this level is the short of a lifetime.

Good point on the Japan analogy, however, I see the Eurozone breaking up. Maybe the euro won't go to "zero," however a breakup would cause a big revaluation, I think.

bernardchan1 said...

Dear Mike,

If the Eurozone does break up, wouldn't it be likely that only the strong(est) countries are left in the coalition, and therefore, there might be a massive revaluation on the positive side?