Here Comes the ScrewO

Richard Russell, in an attempt to get his subscribers out of the market warns: “… the analysts, the economists, the politicians and the so-called “experts” hypnotize each other with fantasies, hopes and guesses regarding “the coming good times.” As far as the stock market is concerned, the politicians and economists don’t have a clue as to what is happening and what it means. And if they do have a suspicion, they remain in denial — all the while spouting their latest rosy economic forecasts.”

While I believe that Russell is correct in his stock market advice, there is an event possibly coming that would be much more devastating than a stock market crash. A stock market crash would wipe out significant portions of wealth. This other event would likely produce a stock market crash plus wipe out savings, pensions, etc. Ordinary citizens with nothing in the stock market would be harmed.

This horrific event would be the introduction of a new world currency.

Within the past few days I provided some advice to a reader regarding how to protect herself. One of the cautions I noted was the growing instability of the fiat currency system and the inability for western democracies to service their debt. One must believe that if I can spot these problems, world leaders as represented by the G20 certainly can.

Here is where it gets interesting.

There is a growing faction of the world that recognizes that the US dollar has had an enormous advantage as the world’s currency. As the condition of the US deteriorates, so does the dollar and its ability to continue to serve as a world currency. There is no other currency to replace it. The Yuan might be a reasonable alternative in several years, but not today or the foreseeable future.

There is another faction of the world, call them One-Worlders, who have been lusting after the opportunity to implement a single world currency. Their interests, which would be dramatically advanced under such an arrangement, is a one-world government.

Finally, there is a faction that recognizes that it is mathematically impossible to service the debt of the developed world. All western socialized democracies are heading unavoidably toward bankruptcy. Yes, the US is included in that category.

In my opinion, the introduction of a world currency would be disastrous for living standards and peaceful conditions. No matter, politicians see it as an escape from the hole they have put themselves in. Statists have lusted for this event for a very long time.

Statists everywhere look at it as an improvement. It provides a means of instant devaluation, enabling simultaneous sovereign defaults of debt (with no single country responsible because it is being done to “save the world”). Debts can be devalued by whatever amount desired by the Global authority merely by setting the exchange rate between the old currency and the new one which we will refer to as the “ScrewO.” If you wanted to walk away from 50% of US government obligations, exchange provide 2 ScrewOs for one dollar. The old obligations would be the same, that is if you were owed $100,000 on a loan, now you would be owed 100,000 ScrewOs.

Of course, the ScrewO would only approximate 50% of the value of a dollar, so anyone owed a fixed obligation would lose. He would be “screwed” in plain English.

While nominal amounts would remain the same, real amounts would be lowered. In effect, this move would enable countries to renege, at least on their real obligations like debt, social obligations, etc.

Madness, yes! Desperation, yes! Seems like a perfect plan for governments that have no other way out.

It is especially ironic that the concept of the Euro, which is blamed as the cause of problems between Southern and Northern European countries, may be applied on a world-wide scale. If you think that Greece and Germany have need for a different monetary policy, how would you feel about the US and Zimbabwe?

Adam Brochert describes the potential event as the nuclear option:

That nuclear option is to change the rules of the monetary system. This rule change will wipe out the traditional prudent savers who used paper debt tickets as a store of wealth. Do you doubt it will happen?

Do you deny that it happened in the 1930s and then again in the 1970s? Do you deny that a 40 year cycle of monetary destruction is set to recur in the 2010s? The traditional prudent saver has fallen for the paperbug promise and will be pulled into the black hole of insolvency right along with the squalid debtors!

How probable is this event? There have been factions pushing for it for decades. As the world realizes that there is likely no other way out, I am beginning to think it is becoming more and more probable.

The beneficiaries, to the extent there are any, will be determined politically behind closed doors. The new monetary system will be no different than the Euro on steroids. It cannot succeed, but will relieve some pressures for a few years. It will eventually fail, but might do so slowly, over decades, much like every monetary system since the gold standard was abandoned.

The immediate effect, if history is any guide to these types of political agreements, is that the haves will be protected, at least initially. Over time, World Government will become stronger. The tendencies of redistribution will increase, with funds taken from those that produce and provided to those that don’t.

World government will look much like the UN, with all of its ineffectiveness and corruption. The welfare state will have been reconstituted but on a global basis. While not the primary purpose, a massive wealth transfer opportunity is too important to pass up for the statists of the world.

Of course, none of the underlying problems will be solved. Governments will continue to spend money they don’t have. That will, assuming something else doesn’t happen first, return us to the same same point in a matter of time. Except now, the ability to revert back to free markets will be further impaired. Now the official corruption levels will have escalated.

More likely something will happen before this deterioration — likely world-wide WAR! The richer countries, harmed the most, will want to leave the monetary union. No International agency will be capable of stopping them, but that doesn’t mean it won’t be tried.