The Austrian School of Economics

The EU is currently entering uncharted waters by trying to boost demand by zero or minus interest bank rates. Sweden’s Riksbank has also done this (Riksbanken is the oldest sovereign bank in the world, by a long chalk). The Austrian School of Economics is represented by the Mises Institute. This is their view of Greece’s problem. They believe Greece will have to choose Grexit, as the debts that has been built up after long years of inaction by the European Central Bank have now made it inevitable.

More interesting is Mises Institute’s view of the gold standard.

“Gold has many drawbacks, but gold’s primary advantage lies in the fact that it constrains current and future governments from using the printing presses to finance government expenditures. Once the tie to the euro is broken, Greece should then fix its new currency to gold. Even though Greece has no significant gold reserves, it can follow the example of Germany in 1923 when a broke Germany slowly returned to a gold standard by first fixing its money to non-gold commodities (i.e., rye bread in the German case).

By instituting true austerity and freeing the banking sector from the euro and the EU, Greece could go from being the example to avoid to the example to emulate in a relatively short period of time. With such a financial structure, Greece would benefit from long-term financial and economic stability. It would force Greece to make hard choices up front, thus avoiding later problems in the first place.” http://mises.org/library/five-steps-fixing-greece’s-debt-problem

For anyone interested in Mises, see the following websites/blogs: http://www.acting-man.com and Vienna Capitalist. But a word of warning: I stress again that we are in uncharted waters here. No-one has ever tried to do negative interest rates consciously. It is an EU experiment, that has spread to other sovereign banks, notably Sweden and Switzerland, both of which follow suite with the EU just because the ECB is so ridiculously powerful.

Note also that the USA does not do this. Instead it has got the United Arab Emirate to boost petrol production and so boost the US Dollar upon which all else in the world depends, quite simply because of US Global Hegemony.

Why is the US doing this? Because US sovereign debt is record high, but in the short-term this will be masked by low oil prices, while for other countries, and especially Russia, it is exacerbated. Sweden is also affected because its iron ore and copper production are such an important part of Sweden’s exports.

So all this is a combination of EU blundering in the way the euro was first constructed and the US attempt to punish Russia. However, Russia’s large gold reserves make the Rubel the strongest currency in the world. Also the fact that the US seized some 20 tons of gold from Ukraine helps keep the strength of the dollar up. Same applies to the NATO destruction of the Gaddafi Regime which made Libya so prosperous, the Libyan treasure was seized by the US.

It’s a fascinating situation, so go figure. And good luck!

 

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