Goodbye, Euro: Jim Rogers is 7X too optimistic

My top prediction for 2009 is the collapse of the Euro. I think it is a near certainty that within three years, the Euro will no longer exist in any real form, though its shadow may linger on.

The reason is simple: A currency is backed by a social contract ("the full faith and credit of the United States government", for instance) and there are wildly disparate social contracts within the Eurozone. As modern and emerging economies come under great stress, they will react differently according to their own social contracts -- and they will diverge, breaking the Euro. I broadly consider Europe to consist of four different social contracts:

1) Modern social democratic states: Germany, France, Belgium, Denmark
2) Feudal profitable states: Italy and Greece - ungovernable, despite being productive; little of their commerce is captured in their tax base, and their social contract is written at the local and regional level, not as a true nation-state
3) Emerging states with aspirations: Poland, Czech, Hungary
4) "Failure to launch" states: Ireland and Spain, whose economies rocketed from penury to prosperity over the past 20 years, but who are now being exposed as children of the bubble.

A rare public claim that the Euro will break apart came from Jim Rogers today; but his suggestion that it will take 20 years is lengthy bordering on the ludicrous. The Euro has only existed for 10 years; if you think it's under threat now, why would you possible imagine that its remaining life is twice its history? I think that less than half is more likely, and an implosion during 2009 is genuinely possible. I am told by a reliable source that there is already divergence in the debt terms and pricing available for different Eurozone banks, reflecting the early stages of this process. This trend is something to watch closely.

Bizarrely, having created this crisis, America may continue to benefit in an enormous theater of the absurd; there's simply no other plausible choice as a global reserve currency than the dollar in the short term, so despite our foolish and spendthrift ways, the dollar will continue to strengthen.

The problem with partial transparency

Kevin Drum posted an interesting piece about the somewhat creepy public mapping of California Prop. 8 donors:

This sort of thing has been possible for quite a long time, of course, but it was inherently limited in scope because of the time and money it took. Technology has changed that: it probably required little more than a few hours of coding to create a map that identified every Prop 8 donor in the state. And that map isn't only in the hands of the folks who created it. It's out on the internet where it's practically begging to be abused by some nutball... I remain a bit of a privacy crank who hasn't yet been reconciled to the inevitability of David Brin's "Transparent Society."

In demonstration of his point, one of his commentators posted an even more creepy follow-up:

I'm in San Diego, and went poking around my neighborhood. Its San Diego, so sure enough there's a a handful of 500 and 1000 donations by various folks. But, there is one very large one. I thought that odd, so I saw the guys employer, googled him and sure enough, he went to BYU. Now he might not be a [Mormon], but all signs point to yes. In other words, prop 8 passed because [The Mormon church] got its members in Utah and elsewhere to pony over large sums of money.

As a guy whose political donation history and incredibly detailed personal information can readily be found by Googling my name, this sends a shiver down my spine. We joke about 'cyber stalking' and Googling our dates, but a lot of new social infrastructure has yet to be created to make this emerging transparent society work.

Most particularly, the entire point of Brin's great and prescient essay is that a transparent society only works if it's bilateral. In addition to the searcher being able to see you, you can see the searcher. I would be a lot more comfortable with the ease of access to this information, if it was equally easy for me to see that Joe Smith at 123 Main Street, Anytown USA, has been doing hundreds of searches on people in a particular geographic area.



That searcher information is quite trackable today (by Google) but it isn't public without a lengthy and expensive process of law enforcement powers and subpoena or search warrant, whereas the Prop. 8 and other political donor information is both highly trackable and very public.

That lack of symmetry needs to be addressed for a transparent social compact to work.