The nine headed HYDRA

 
Following the need for Europe, and the rest of the world, to rid themselves of the strangling tentacles of USD hegemony, German Chancellor Angela Merkel struck the first blow last night.

The bleating of market participants was loud and clear as per this quote from Bloomberg: “The market sees an inadequate policy such as this as an act of desperation and a refusal to address the fundamental problems at hand,”. 

Guess what - the fundamental problems at hand are caused by market fundamentalism which "places unwarranted faith in the mythical self-correcting power of unregulated markets driven solely by the no-holds-barred, winner-takes-all self-interest of unruly market participants risking other people’s money for private profit." (C.K. Liu: Global Post-Crisis Economic Outlook - MUST READ).  

This nine headed Hydra, under the guise of the Washington Consensus, has now been exposed and it is going to take a Herculean effort to exterminate by decapitating each of its nine heads, one by one.

A government, elected by its people to look after their interests, will not willingly subjugate this interest to some hotshot sitting behind a trading desk somewhere.  The U.S. government of course is happy to do so but other governments, having been fooled once by the entrancing songs of globalisation, may not choose to feed another time from the poison cup of market fundamentalism.

The Europeans are probably sitting there wondering how did it come to this?  We have some bonus hungry cowboy naked selling our debt and forcing us, a sovereign nation, to have to make our aged workers work longer years so that this guy can buy a new Porsche.

As with all catastrophes we go through the emotions of fear, anger, determination and hope.  We had the fear in 2008, the anger just recently in Greece, the determination is now just starting to creep in in Europe first and soon to be followed by the hope of creating a world outside of the rapacious, greedy and essentially useless derivative laden financial construct that we have fallen into over the last thirty years.

This new world order will come about after the adoption (with or without the U.S.) of something like a World Outstanding Debt Cancellation Agreement (WODCA).  This will be done in conjunction with the removal of the USD as the reserve currency and the establishment of genuine trade weighted currency valuations.

Derivatives will be gradually dismantled and banned.  What purpose do they serve apart from providing a venue for a punt?  Have you had a close look at what a synthetic CDO is?  Can you believe that billions were laid on the line on the construct of someone's imagination and then paid for in full by the hapless U.S. tax payer when, of course, the bet went wrong.

As I have written over the last few days, the world outside of the U.S. has existed purely and simply to kowtow to the fiat USD.  Merkel's move last night was the first head of the nine headed Hydra lopped off. 

This may well be the bottom of the Euro because any resistance to the USD hegemony must provide support to other currencies.

I'm long EURUSD now.

Frank