Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold and the Twilight of the Euro

Commodities / Gold and Silver 2010 Dec 04, 2010 - 04:02 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleGermany's "swivel-eyed" gold bugs simply show more imagination than journalists, policy-makers and academic economists...

MONEY is always and everywhere a political phenomenon, nowhere more clearly than Germany.


Hitler's first coup attempt, the Munich Beer Hall putsch, came during social chaos of late-1923's Weimar inflation. His 1,000-year Reich (lasting barely a decade) then brought fresh monetary nightmares to life, not least the Lagergeld coupons issued to concentration camp slaves. Amid fresh hyper-inflationary fears and the cigarette-barter economy of mid-1948, the Cold War got started when Ludwig Erhard, then Director of Economics for the occupied zones, launched the Deutsche Mark one Sunday, both wrong-footing the Allies (whose officials, naturally, were enjoying a day at home) and so enraging the Soviets that they blockaded West Berlin. Even today, senior Bundestag policymakers argue in public over how far European monetary union was a French pre-condition for accepting East and West German reunification in 1989.

Now, in late 2010, a possible Eurozone break-up "would throw Europe back by 50 years," says economic historian Barry Eichengreen, speaking this week to Frankfurt's FAZ newspaper.

"I cannot believe that will happen. It is inconceivable," says Eichengreen. But that just shows a lack of imagination. So do a host of Eurozone officials. German households, in contrast, know their history.

The German public has long thought the Euro project might unravel, still holding onto some 13 billion physical Deutsche Marks today – equal to nearly 1% of the 16-nation Eurozone's entire notes and coins now in circulation – despite being able to exchange them at any time in the last decade for full Euro-value.

More telling again, gold investment demand – that outright rejection of central-bank policy – continues at near-record levels, as this chart from Wolfgang Wrzesniok-Rossbach at refining group Heraeus shows.

As you can see, Germany (in green) was and remains the developed-world's No.1 gold bar market. (The Swiss flag also indicates how a large but unknowable chunk of Swiss demand for gold bars in fact comes from Germany, where savers want to hold the metal outside the Eurozone – as they can, for instance, at very low cost using BullionVault.de.)

Nor does the United States hold the monopoly on those "swivel-eyed gold bugs" of popular journalistic imagination, either. Citing the discussion boards at HartGeld.com, finance daily FAZ says that German conspiracy theories are getting "chronically overheated online"...primarily because they keep predicting "Apocalypse" for the Euro. But this week's new Euro-price records in gold point to something, and something awful we guess, for this most fiat of fiat currencies.

At a minimum, the trebling of gold prices from Germany's long stable valuation around €10,000 per kilo (or rather, DM20,000) throws the Euro's "stability pact" into sharp relief yet again. And you don't need to be Jude Wanniski or Alan Greenspan to wonder if the price of gold – used as money for 5,000 years straight – might hold a high information-content regarding the value of what Europeans have come to call money in just the last decade.


Right from the get-go, in fact, the "ghost of the Mark" (as Nobel-winning economist and 'father of the Euro' himself Robert Mundell called it) saw the Euro's strict rules – learnt and applied during 50 years of Teutonic discipline – over-run at every turn.

  • The European Central Bank's own target for money-supply growth was first down-graded to a "reference value" and then ignored outright. Set at 4.5% per year, it hit well over 12% at the height of the banking bubble in 2006-7;
  • Luxembourg excepted, all member states have also breached the Eurozone's government deficit and debt ceilings too – Germany included – leading the governing council in Brussels to impose "special measures" that they've then similarly failed to meet;
  • Barred by its founding treaty from financing government deficits directly, the ECB first bailed-out commercial banks by lending to them against government bonds put up as collateral, and then threw the whole thing over by agreeing to buy and hold government bonds outright – the weaker, the better.

Monetary systems can and do break down, and the ties of cross-border trade cannot guarantee a currency pact which 15 out of its 16 members have breached. No two countries with a McDonald's franchise ever went to war with each other until they did in the Balkans in 1991, and as the last of the Euro's tattered rules are torn up, why should the legal "impossibility" of secession alone be observed?

The likely chaos to follow, of course, is focusing the technocrats' minds as never before. Barry Eichengreen's own warning – of huge and damaging transfer costs, plus a capital flight from the weaker states forcing any new German currency upwards and thus hurting its exports – makes a compelling case for giving the Euro what it's always lacked:

A single sovereign government to back the single currency.

Hell, Aristotle and Plato knew that money is ordained by the sovereign, as did monetary historian Alexander Del Mar 24 centuries later. But the rush to federalize now underway – the "last battle" lampooned by HartGeld.com on Thursday with a photo of Hitler reviewing his pre-teenage troops in Berlin, May 1945...and challenged by such "swivel-eyed" skeptics as the UK's Nigel Farage (he did use to be a London metals trader, after all!) – seeks to create a sovereign in the image of its money, not stamp the latter with the former. Its aim is a super-state willing, eager and able to print Europe out of its debts.

Which would, of course, take us straight back to Weimar.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in