Italy is going to the polls. How they vote on this referendum could spell the end to the Euro and the European Union. There's a populist push in Italy and if they pull out of the Euro it could be the beginning of the end.

Well, not the beginning. You could look at Brexit or even other previous events. What happens in Italy could certainly speed things along. I bet, incorrectly, that Greece would have been the first to drop the Euro as it probably makes a lot of sense for them to do so. To prevent that from happening the will of the voters was thwarted. The average Greek has little faith in the normal political process these days.

Maybe some more duck tape and spit could hold the union together, for a while. My guess is that it will eventually fracture into several regional blocks that have enough in common to make an alliance worthwhile. Most likely there will still be NATO or something like it.

When the Euro falls there may be a short term bump in the dollar. However, the dollar will be just the best of a bad lot. Fundamental weaknesses may cause fiat currencies to tumble -which is all of them. That, boys and girls, is what we call currency collapse.

If we are lucky it will happen fast. Why is fast better than slow? We've had a slow collapse. Middle class wages have been losing ground in real terms since the 1970s. A lifestyle that once could be sustained by one blue collar job now takes two or three. One spouse could work while the other took care of the house and children. Now both spouses have to work and often one or both must work two or more jobs. That's what slow collapse looks like.

In a fast collapse nobody has any money. It's pretty horrible as with no money few goods and services are exchanged. That will be a time of hardship.

How is that better than a slow collapse? In a slow collapse the bottom gets eaten up. Middle class become poor. The poor disappear. Wealth is concentrated in a few hands. Everyone else has nothing. That's the path we are on now. In a fast collapse nobody is going to take your house away. The banks will disappear or if they do survive they won't be able to do anything about your house. There will be nobody to sell it to.

The smart way to handle a fast collapse is to clear up all the unpayable debt: mortgages, student debt, derivatives -everything. The stores, factories, houses, and businesses are still standing. All they need is a new financial framework to make it all work. Wise leadership could get ahead of the problems and restart the economy. If they don't a couple of different things could happen. One is that everything freezes, falls apart, and it takes decades for recovery -if it ever happens at all.

Another thing that could happen is that a financial system could build from the ground up, starting with barter and moving onto some other medium of exchange later. Governments and central bankers could even be cut out of that system so expect official resistance. They'd rather have a broken system they are in control of rather than a functional one that's independent. Of course, it will only work if they have something real to pay the cops with.

So keep an eye on Italy and see what happens next.

-Sixbears