26 September 2013

The Financial States of America and Why the European Union Is Inherently Unstable

I am including this because it shows the economic diversity in growth and wealth amongst the States.

And they all function under a common currency. Why does this work whereas the Eurozone is having such problems?

That is because with a common currency union, a political and fiscal union are required as well. This is a hard lesson from monetary theory and history.

When you have a fiat system with a central authority setting policy according to economic conditions over a geographic area in which there is diversity, there must be fiscal policy and transfer payments to 'even out' the effects of that monetary policy.

That is why the European Union is inherently unsustainable, because it is a monetary union without a public policy and fiscal union.

The EU cannot possibly create the appropriate single government, without undue hardship. So they must consider allowing the individual countries or regions to conduct their own monetary policy and have their own currency and exchange rates.

Source: Financial States of America

This chart is from Moneychoice.org.  They are responsible for the data and the figures.