Saturday, November 12, 2011

Euro Double-Bind: Both Paths Lead to Disintegration

The euro's handlers are in a double-bind: whatever path they choose, Germany has no choice but to renounce the euro as an act of self-preservation.

Is there anything that hasn't already been said about the Eurozone's structural flaws and the absurdity of the half-baked "solutions" tossed together by its frenzied, fumbling leadership? Perhaps not, but we can fruitfully boil the mess down to a simple double-bind.

The double-bind can be stated thusly:

1. If the European Central Bank (ECB) tries to save the private banks and bondholders by printing trillions of euros to buy up the mountain of hopelessly impaired sovereign bonds, then Germany will rebel and renounce the euro as an act of self-preservation.

Germany knows that money-printing robs savers and the productive via the stealth theft of inflation, and its people will not stand idly by while their wealth is destroyed by ECB euro-printing.

2. If the ECB renounces money-printing, then the only economy solvent enough to fund the 3-trillion-euro bailout with actual cash is Germany, which will rebel against this debt-serfdom by renouncing the euro.

There are only two paths, and they both lead to the same end-state: dissolution of the euro and the EU's monetary union. The situation is truly binary; there are no other real solutions. The half-life of theatrical, fantasy "solutions" is shrinking fast; where a meeting, a resolution or a vote once sparked a three-month rally, now it powers a meager three-day rally at best.

Soon the rumor-fantasy-"solution" rallies will last three hours, not three days. Once the zero line is reached, then rallies invert to crashes, and the markets will go critical, i.e. implode. This is the nature of intrinsically unstable systems.

The only real question left is when the criticality occurs. Can it be staved off until 2012? How long will it take for Germany and the rest of Europe to grasp the end-state of this simple double-bind? Months? Or will it be weeks or even days?

Once you realize the only two paths left both end at the same destination, then the only rational action is to move your cash out of euros and the doomed banks, and liquidate your euro-denominated assets into some other currency as fast and as furiously as possible.

Meanwhile, the Status Quo is issuing calls for euro 1.40 and a year-end rally to beat all rallies. Anything's possible, but the double-bind is real and cannot be massaged away. How much longer can fantasy be substituted for reality?

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