Quote from: Limetless on June 25, 2012, 07:56 pmOk basically I will sum up why the euro crisis is going on but there are some fundamental truths that you HAVE TO ACCEPT when you think about this. Economics is actually quite a difficult subject and a lot of the time you either get it or you don't. It's like business, you either get it or you don't and to teach it is extremely difficult. Truth 1. Value is completely subjective and it is applied to anything by humans. By that alone value is distorted and fallible. Truth 2. The problem with humans is that they are extremely susceptible to pack mentality. This is the major reason the true value (if such a thing exists) is often distorted by speculation. Truth 3. When the value of something is distorted to the point where it cannot be traded with liquid fluidity it will lose value and/or become worthless. This is how economic bubbles work. Truth 4. Debt that cannot be repaid or is worthless. If the amount of worthless debt overtakes positive debt (debt that can be repaid) then becomes widespread the damage has a cannon effect. Now the reason why the euro crisis exists is because the faults in the system that caused the crash in the 80s was not resolved. There was actually a sub-prime crisis before and it took down one firm that dealt with them exclusively when they were rare back in the day. This was relatively minor and people thought that they could re-do it and make the sub-prime bonds work. They did do this for a while but then the market got so convoluted because everyone went in on it and the bonds that were being traded were being falsely approved by the rating agencies which meant that everyone thought they were buying positive debt when actually it was worthless. People started to see this as a huge market thus a bubble was created on the sub-prime bond market which, when people realized the debt in the sub-prime bonds were worthless they were devalued overnight (the bubble burst). Countries that were effected the most were the ones that had the most debt in proportion with their GDP.When this happened governments basically went one of two ways. A) Implement austerity measures (reducing the state, reducing spending, making people work longer, raising tax etc) which is the correct thing or B) Borrow more to try and spend your way out of the being in the red because the profit supposedly makes up the difference. Option B is the dumb-ass method because you are basically trying to solve debt by getting into debt and whilst it can work occasionally with businesses it never works with countries. Countries like the U.K, the U.S, Germany, France etc chose to do this immediately or almost immediately however countries like Spain, Greece and Italy (although I think Italy flipped rapidly on this) either ignored it or tried to spend their way out of it. Ignoring it has just compounded the problem because now Spain and Greece have even more debt to deal with than they would have had if they had stopped implemented austerity measures straight away. Given that they have even more bad debt their economy has lost value to the point in Greece where they are pretty much bankrupt and they are now exasperating this because if they choose to default on their debt and go back to the Drachma there will be no confidence in them and thus their economy will be worth nothing. This is just a nutshell perspective, it's a lot more complex than this but I can't really be arsed to explain properly how a sub-prime bond works because it's long and it's a bit of a concept and not just something that exists. I hope this helps.LimAn excellent and cogent analysis, thanks Lim.Of course some of the naysayers made similar observations about the Bitcoin economy - which heavily hinges on Truth # 1 i.e there will always be a demand for fast, anonymous transfers of money.I have been receiving weekly newsletters from an organisation keen to implement a Single Global Currency - they think (rather naively) that this would rid us all of inflation - I don't see this as a foregone conclusion although naturally interest rates would be much easier to control. They also think it would protect countries from leveraging of other currencies without understanding the positive role this can play in an economy.I did see an old gent reading "The Sun" on the weekend where it said "Greece Exit Euro" in screaming headlines. Seems they were only talking about football, but give it time... :-)V.