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Austrian Defense of the Euro

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No2statism Posted: Fri, Apr 5 2013 7:05 AM

In An-Austrian-Defense-of-the-Euro (link), is he saying that centralized monetary policy combined with decentralized fiscal policy is beneficial?  I don't understand what he's trying to say because I'm just dumb.

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Merlin replied on Fri, Apr 5 2013 7:58 AM

As far as I understand, the point is just that the Euro is stronger than the former currencies of most Eurozone countries, and thus has been beneficial to them. I would not construe his argument into saying that, in general, joint monetary policy yet independent fiscal policies are beneficial. It just so happens with the Euro, and even that for the time being. The thing could always hyperinflate tomorrow.

The Regression theorem is a memetic equivalent of the Theory of Evolution. To say that the former precludes the free emergence of fiat currencies makes no more sense that to hold that the latter precludes the natural emergence of multicellular organisms.
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http://mises.org/community/forums/p/22022/389871.aspx

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It's easy to refute an argument if you first misrepresent it. William Keizer

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Kakugo replied on Fri, Apr 5 2013 9:33 AM

It must be understood that Huerta de Soto writes from a theoretical point of view. He imagines an European Central Bank free from political control which refuses to cater to bureaucrats' and politicians' whims.

While it's beyond any doubt the ECB has not acted as the old Italian or Spanish central banks, the reality is different. The ECB has not refrained from inflation: in fact during the last year real consumer's prices have increased by something over 7% "at the margins" (Italy, Spain etc) and near 4% "at the core" (Germany, The Netherlands etc). The ECB inflates both directly (by directly purchasing government bonds, something their leadership admitted to only recently) and indirectly (by providing "unlimited liquidity" at next to zero interest rates to banks who offer government bonds as collaterals).

Also Huerta de Soto commits a capital sin by thinking parliaments can be forced by the electorate into some measure of fiscal responsibility. It's obvious the Italian and French voters don't like tax hikes and fiscal irresponsibility but so far they haven't punished their representitives. There are no street riots and the principle of "free capital movement" inside the EU has been killed in cold blood without anybody objecting in the least. Why?

Because he grossly overestimates democracy. Democracy is not about holding representitives responsible. Democracy is about promising to hand out wealth confiscated at the point of a gun in return for votes. As easy as that. Italian and French taxpayers may like the idea of lower taxes but they want, and desperately so, their pensions, their "social security net", cushy government jobs for their sons and daughters and rich subsidies for their failed economical activities. You cannot detox them with "fiscal responsibility" because they are so desperate for these freebies they will do anything and believe anybody to keep them. They wouldn't see the truth even if it hit them in the face with sledgehammer. They live in a fairytale world where all it takes to change things is putting a cross on a slip of paper.

You can have a measure of how desperately ignorant they are: in most European countries the last few years saw a boom in gold shops. These shops will buy gold (coins, jewels, watches... anything), sell the coins to other merchants, send the rest to be smelted and pocket the difference. This gold, of course, is going straight to Asia, especially India. This year these shop owners started to exhibit signs "We also buy silver". Why? A local newspaper recently interviewed one of these shop owners. He said "People here have sold over 75% of their gold. Silver is nowhere near as profitable but we have to keep working and that's people have left now".

Together we go unsung... together we go down with our people
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It was always inevitable that the Euro would eventually be the most inflated currency.  It's just a matter of time.  That is the entire purpose of it to begin with.  Does anyone honestly believe that the EU/EEC was created to reduce transaction costs?  Oviously not.  It was created to eliminate the problem of exit and competition so that the monolithic state can act with relative impunity, including self-destruction by inflation.

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