I’m writing this over the Atlantic on my way home from Dublin. I’m absolutely convinced that the euro is at the start of its death spiral.
Many of you know that I travel to Ireland about once a month to work with Traders Now and their q algorithm. I love the math, the programming and all the strategizing that goes into developing a fully automated trading system. One of my favorite parts, however, is the Friday night before I leave. Kieran and I play a long game of poker with his buddies.
The first few hands did not treat me kindly. I was busy chewing my sour grapes when Kieran mentioned one tiny, little thing about the euro. The place exploded with rumors and opinions. The poker game stopped entirely for fifteen minutes.
Mind you, this is not a poker table full of financial professionals. It actually seems to be a good cross section of Irish society. We had everyone from a plumber and retired taxi driver to a multimillionaire real estate developer sitting at the table.
The first thing that came up were the rumors of what would happen if the euro did in fact collapse. Two out of the nine players had independently heard rumors of the government printing Irish pounds and stockpiling them. They also mentioned a rumor of plans to completely lock down the country for three days in the event of a collapse. Banks close, businesses close, the airport and ferries close. Life goes into suspended animation.
These are wild rumors, mind you. I’d argue that it’s really not important whether they’re hard facts or bold faced lies. Perception is reality. It’s becoming obvious to me that the foundations of the fiat euro are growing shaky.
Modern currencies depend entirely on faith in the government in order to continue. They are, after all, simply scraps of paper and electronic entries in a bank’s database. The value of the paper itself is negligible. When ordinary Joes are beginning to question the status quo and whether or not the system is viable, the jig is up (Irish pun intended).
As more people question the system, a small percentage of them begin to take real action. The guys at the poker table seemed to like the idea of Swiss francs in spite of the Swiss National Bank’s peg to the euro. They also mentioned the US dollar as a second best option. I don’t necessarily agree with that in the long run, although I’m sure that will be the short term affect.
The small increase in euro selling begets more people worrying about their savings and assets. They see the price moving adversely, which spurns them into taking action, too. The effect is that the rumors and fear cascade into an avalanche of collapse. It takes on exponential growth as anyone with anything of worth tries to offload it in an attempt to protect themselves financially. Actually, it looks just like the bank runs that Latvia recently experienced.
PS: I lost badly at the poker game. 25 hands that never came out on top, combined with players who will never be bet out of the game makes for a bad night. I walked away with EUR 50 loss. Too bad that’s still worth $65.
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