Friday was a momentous day for the grand currency experiment known as the euro. Two explosive pieces of news, both relating to Germany, hit the forex markets hard (and sent the euro tumbling lower). Equities were slammed again too -- on Friday afternoon, the Dow is down 300 points as I write. Europe's problems are the world's problems now. The first shock development, broken by Reuters, was a high-level resignation at the European Central Bank (ECB). Juergen Stark, the "top German official" at the ECB, confirmed he would leave his post before the end of the year. Stark's departure would come almost three years before his official term expires (May 2014). And his reason for leaving?

A disagreement over "euro bonds" -- the printing press crisis solution in which Europe binds itself together financially, by way of the German checkbook. The new uncertainty sent the euro plummeting.   We have written at length about euro bonds in these pages, and the need for a drastic solution to the sovereign debt crisis. In declaring "Europe must become like the U.S.," we were ahead of the curve, with numerous highly placed officials, including former German Chancellor Gerhard Schroeder, talking about a "United States of Europe" not long afterward. That piece stirred up some anger, however, leading to "Germany's Terrible Choice" -- a clarification of the fact that Germany must either "embrace the euro fully and pay its neighbors' bills, or break up the currency to catastrophic near-term result." In other words: Federalization and monetization (via euro bonds) is not the only way to go.

Adopting a more unified monetary regime does not have to be Europe's destiny. But it is the only way to avoid mayhem in the here and now. UBS, a large investment bank, has even warned of trade collapse, domestic banking collapse, and the threat of civil war as a possible cost of break-up. The second piece of news to hit Friday, fueling a record rise in credit-default-swap values, was Chancellor Angela Merkel's plan to "shore up German banks" in the event that Greece defaults. Via Bloomberg: The emergency plan involves measures to help [German] banks and insurers that face a possible 50 percent loss on their Greek bonds if the next tranche of Greece's bailout is withheld, said the people, who spoke on condition of anonymity because the deliberations are being held in private. "The euro cannot be allowed to fail, it won't fail," says Chancellor Merkel. Yet behind closed doors, that possibility is being considered.

There is no telling where a Greek default might lead -- and confirmation of such could be possible by the time you read this. Macro Trader subscribers were given the green light to short the euro early last week (before the major meltdown happened). The euro has been stuck in a congested range against the $USD since May 2011," we wrote. "We have been standing aside waiting for that range to end, and now there are signs of resolution." So what happens next? The smart money is still on some form of printing press outcome, in which the European Central Bank gives up its "hard money" ways and takes a page from the Federal Reserve. The Swiss tried to shoulder the pain of a too-strong currency, but eventually threw in the towel.

The European Central Bank likewise hates inflation, but they may hate the prospect of a 1931 Credit-Anstalt-style financial collapse even more. A banking meltdown and the threat of eurozone depression cannot be written off. All of this suggests the "core" countries will be dragged, kicking and screaming, to the forced embrace of a printing press solution... to the long-run result of a much lower euro.  

 It is not what they say, but how they say it. We've translated the latest musings from the Federal Reserve.

When I was in my early 20s, I worked in the Far East. Part of my job was to take Japanese business material and write it in a way to make it be more palatable to English speakers.

My title was that of translator. As inflated as that description is, what I really did was learn how to convey meaning without ever using the English language in a precise way.

My Asian boss explained that it was all very "Japanese." He explained that using direct language was fine in technical manuals, but everything else needed to be very opaque.

 A frequent reader of mine wrote in with a question. He asks:

With the latest drop in the equity market, presumably because of the U.S. debit, why doesn't the Federal Reserve sell off some of its gold reserves? I understand that it has +/- 7,000 tonnes in stock. Could it not also settle its debts with China where the demand for gold is on the rise?

Am I correct in saying that everyone who is reputed to be in gold decided to sell at the same time there is not enough gold in stock to meet all the claims?

Didn't that happen some years ago when a person tried to buy up all the silver in the world?

 The credit downgrade and debt ceiling aftermath highlight a much more serious problem -- a jobs and wages problem -- that Mr. Market is finally waking up to.

It's been a violent week on both sides of the Atlantic.

In the United Kingdom, rioters are looting shops and causing mayhem seemingly at random. The worst is in London, but has since spread to five major UK cities. Two Croydon women, who had been drinking all night, told a BBC reporter it was about showing police and "the rich" that "we can do what we want."

On the finance side, violence has come in the form of cratering markets.