My mood has deteriorated pretty rapidly as this year has progressed – and let’s be candid – it’s not that old yet.

As 2008 closed I at least felt banks were probably safe and we could get on with tackling the other issues of enormous concern within the economy. It’s apparent that this is no longer true. It is now very obvious that for all practical purposes that despite previous interventions the US banking system is bankrupt and dependent for its survival entirely upon the US government. But what is not being said is that this possibility is predicated upon the possibility of the US government continuing to sell debt. This has always proved possible in the past, not least because of the slightly illogical but continuing support provided to it by the Chinese, who have bought US Treasury bills seemingly without there being limit on their financial commitment.

But, I argued last week with colleagues in the US that as the continuing debacles called Citigroup and Bank of America developed, China may not have this capacity forever: it too has financial problems right now, not least because its largest export markets that have provided it with the surplus foreign earnings to invest in such bonds are all in recession. Suppose, I said, that the US Treasury lost the capacity to issue bonds? What then? Would the dollar collapse?

And then came Friday with a further major loss in value amongst UK bank shares – especially the one I consider weakest of all, Barclays. Barclays might say it can see no reason for suffering a 25% fall in its share price but I can. Synthetic finance (in which it is a specialist – and which is simply another form of abusive structure) is to be better regulated and so require greater commitment of capital. Barclays has run out of new routes for raising capital, the last round driving its shareholders to exhaustion and suggesting even those in the Middle East who have supported it to date are aware of the risks they are taking. It now seems to me that a business model so dependent upon regulatory abuse as Barclays’ is is finally bust. To even the most partial of observers it must now be very obviously near the limit of its useful life-cycle. To put it another way, this bank looks to be heading into history in the not too distant future, at least in its current form.

The consequence is that yet again the UK is being asked to bail its banks out, wherever and however their losses might have arisen. It’s sickening that just £200 million is to be supplied to supporting those in mortgage difficulties in the UK, and those partaking in that process will lose their equity, and yet seemingly unlimited funds can be supplied to keep the banks going without any ownership penalty so far on those involved.

But what we now need to ask is is this possible? Will Hutton asked that question in the Observer this weekend. He thinks that the UK is at the end of its credit line: that sometime the capacity to issue debt in sterling, which is fast becoming a relatively devalued non-reserve currency is going to expire and that the UK will itself face bankruptcy. It’s the same hypothesis that I put forward in the US last week.

Hutton’s solution is a simple one and admittedly reflects a position he has held for a long time. He says we must promise that once the current crisis is worked through we will join the Euro and so provide a meaningful prospect of there being value left in which people will be repaid what they loan to us now.

Instinctively I am opposed to this idea: I think that retention of a local currency allows a nation to price its people into work, although there is scant evidence that many share that opinion in the corridors of power. I also, I fully admit, think the market model on which the EU is built is wrong. Its commitment to the free movement of capital looks like the remnant of a failed economics experiment now, whilst having what is in effect a government with monetary but not fiscal powers is just plain mad, especially when those monetary powers are in themselves delegated to a body that is almost beyond control due to the mandate it has been given.

So I have instinctive reservations. Hutton anticipates these. As he says “there will be little appetite for my proposed measures” but that is almost enough by itself to make me ask whether this is the moment to reject my instinctive reaction and reappraise the situation.

There are good reasons for doing this. Instinctively I feel that both the pound and dollar are fundamentally misvalued right now. So many of the supposed assets supposedly denominated in these currencies are likely to prove worthless, and so significant are the loan books in those currencies that are still likely to fail (credit card debt has hardly been touched as yet – but you can be sure it will be) that the only way in which their value can go against the more cautiously managed Euro is down.

Of course there are problems in the Eurozone – I name Ireland, Spain (and Santander in particular) and Greece as problems that are all too obvious – but at its core the economies that drive the Euro have been better regulated and managed than those of the US and UK and this means that a continuing shift in value towards the Euro remains likely at present, which is a change of heart on my part.

There’s a further issue. I can see no way at all that sterling can rid itself of the consequence of so much debt of dubious value being denominated in the currency without substantial inflation to wash it out of the system. There is no other way I can think of that bad money can, effectively, be devalued to the point where what is, in effect, a new currency with the same denominator replacing it bar (and this is the nub of the point I think Hutton is making) the currency itself being replaced. We know though that inflation can bring on disaster. We know it an create instability of international magnitude. I have no answer to that with regard to the US right now. But for the UK Hutton is right: our alternative currency at the end of the cycle of adjustment is already available to us. It is the Euro.

I suggested something like this to a group of Labour MPs last autumn, but then backed away from it (partly in the face of their obvious reaction to the idea) but I return to it now. We cannot give up our currency right now: we have to work through the issues it has given rise to first. But when that is done – two or three years hence we will face a real risk of inflation whatever the current likelihood of deflation might be (and it is high).

In that case I think Hutton has a real point, and one that even those who find such an idea unpalatable now have to give real consideration to. If we cannot find a way out of crisis but by asking someone else (the Eurozone) to underwrite the promise we have to make to those who will accept your debts then shouldn’t we think seriously about how we can secure that guarantee, which we might well need? And wouldn’t it be irresponsible to do otherwise?

I’m expecting vociferous response to this one. But the reality is that we may have proven ourselves unable to regulate value into our currency. That may be why we might lose it.

It’s a scenario that it is too realistic to ignore for two reasons. The first is that the alternative of asking for loans to be repaid by whittling the debt away by inflation is not the most attractive sales pitch, partly because it will also defeat the objective of low interest rates.

The second is he requirement to muse on why this came about. I think the reason is obvious. when you make everything tradeable as a commodity in its own right, including the currency in which all other trades are denominated, you take the risk that everything can at the very least be inappropriately valued, or maybe have no value at all. That is the mess we’re in. Whichever way we look, reclaiming the credibility of our currency and the right of the government to issue it for the benefit of the people of this country is either a prerequisite for change or a right we entirely forgo in exchange for the guarantee that the spread of risk is increased to provide the security we need. In other words, we have to head for monetary and banking reform and exchange controls or join the Euro. Where we are is not sustainable.