Three months ago it looked like the world had finally settled down and a worldwide meltdown had finally been averted. Europe appeared to have agreed upon a method to reform their sovereign debt crisis that did not require the break of the currency union. The US economy appeared to be slowly picking up steam. The equity markets were holding their own, despite the relaxing of quantitative easing (free money) by the Fed.

Now we see this. The Greeks are in revolt. The French are not too far behind. Spain and Italy are nearing the precipice of fiscal collapse. The US economy has slowed. Everything is suddenly going the other direction. There is the very real possibility that we are heading to another world financial crisis as Europe seizes up.

What happens if Europe does collapse?

Imagine a world without credit. At least imagine one without consumer credit. This is the world that existed until a short time ago. Until the post war period, credit cards, car loans, education loans, boat loans and personal lines of credit were unheard of in this country. Only the rich could sign their name and walk away with something. Everyone else paid cash. Even thirty years ago, carrying a credit card was not common for most people.

That’s where we are headed in all of this. Borrowing has run its course. The result is debt that can never be repaid. Once that is accepted, the debt is wiped out. What comes next is a return to the old rules of banking and credit to insure “it never happens again.”  Heck, we may even see the return of hard money in some form or another. Probably not a true gold standard, but something close to what we saw in the 50’s and 60’s.