The world is
taking a dangerous and rocky path to universal monetary collapse. Japan is now following the United States's Federal Reserve in devaluing its currency ... in order to give its economy a shot
in the arm, see: CNBC Story. The U.S. Fed’s Chairman, Ben Bernanke,
has been pushing “quantitative easing” (QE) for the last three years in order to
sop up all the debt that this country is forced to issue to cover it’s fire-hose
federal spending … to the point where it has expanded our money supply (and
its balance sheet) by $3 trillion. And,
in order to keep this crushing debt burden from sinking things further, it has
kept generic interest rates artificially low with its banking muscle. It has been able to run the monetary printing
presses night and day without setting off crushing inflation because our
economy is still so weak … reflected in our
poor employment and wage-increase statistics.
But one
economic “benefit” of this monetary expansion is a weak U.S. dollar which tends
to help export markets and crimp importers.
Given how poor the U.S.
balance of payments actually is … image what a disaster it would be without the Fed’s
dollar deflationary measures? However,
our trading partners are losing patience with us and, as indicated in the
referenced article, are now mimicking Bernanke’s strategy. The European Central Bank (ECB), China, Great Britain, Japan,
and even Switzerland
(for heaven’s sake) are falling over one another to try to devalue their currencies with their own QEs. A U.S. Dollar slide
begets a Chinese Yuan slide which begets an Euro slide which begets a Japanese Yen
slide which begets a British Pound slide which begets a Swiss Pound slide. This is all a very dangerous race to the
bottom.
How will
this end? With all this quantitative
easing, the world will be, in short order, awash in money. The balance sheets of the central banks will
have reached unsustainable levels … probably the ECB first; and the only way
out will be for them to let the dogs out … allow inflation to reduce the carrying-cost
pain of their excessive debts. And, this
time, run-away inflation will not be as localized as it was in Germany in the
1920s. It will be world-wide and will
engender political upheavals that are likely to be quite painful. (At this point Bernanke will not look quite
so angelic.) So be forewarned and be prepared
… own real hard assets (not cash) and owe lots of money … and live in an area of relative
political sanity.
