On April 13 I sent out a brief letter on the Greek crisis. Here is my view of the crisis and the EU actions as of today.

WHO WILL SAVE THE COUNTRIES?

WHO WILL SAVE THE CURRENCIES?

The banks seemed a problem (actually most still are) but there were countries, governments and tax payers who gave the banks access to unlimited cash in a multitude of packages. It almost worked!

There is no world government, world Fed or world taxation system to help the countries – let alone the economic blocs. Most currencies – certainly the most circulated ones are in a competition to become worth less in terms of each other – in fact they are quickly becoming worth less in terms of what they can buy, a frightening precursor to inflation without growth (Stagflation).

It is all becoming evident as the Euro currency zone falls into disarray. Not only the “Southern” countries are in trouble but also the Northern countries; France is at the most risk (well obfuscated as only the French can do). Germany is not exactly healthy other than savings rates (internal financing) and some advantage (short-lived) to its exports. The Euro currency zone will experience a series of sovereign and corporate defaults. If the Euro currency zone is to stay intact there is no choice but selective default! In the interim the Euro will be under pressure as to goods, at least, and perhaps as to other currencies. The perhaps is only because there are other currency zones in similar or worse situations – the dollar, for example – which are in the currency devaluation competition.

Only emerging countries and perhaps Norway and Switzerland will maintain some semblance of consistent buying power of their currencies. The European cycle will take time. Europe will look more like a combination of the 30’s and/or the Weimar Republic rather than like Japan of the last 15 years. Probably we will experience an extreme resemblance to the 70’s in most of the rest of the developed world.

There is no SUPREME DONOR to save the economic blocs, or the sovereign nations. Medium term stagnation with product price inflation will be the result.