Friday, January 8, 2010

Nations Play Whack-a-Mole With their Currencies: Folks in Race to See Whose Ship Sinks to the Bottom Quickest

Looks like no country wants to be left out of the currency debasement party. Take Japan for instance. A Financial Times report cited Naoto Kan, Japan's newly appointed foreign minister expressing explicit support for a weaker yen and further stimulus measures (read more government spending and borrowing) to revive Japan's economic health.
Naoto Kan, abruptly reversed his predecessor’s currency strategy immediately on taking office on Thursday, with his call for a weaker yen provoking an immediate sell-off in global markets. “It would be good if the yen would weaken a little more,” said Mr Kan. His comments are likely to be welcomed by the business community, which relies heavily on exports.
The yen, which rose to a high of Y86 against the dollar in late November, on Thursday weakened on Mr Kan’s comments, slipping at one point to Y92.90 against the US dollar. Mr Kan noted that many in the business community believed an appropriate level for the yen was about Y95 to the US dollar. Mr Kan also suggested there would be pressure on the central bank to ease monetary policy further should the yen strengthen.
So look for more quantitative easing from Japan and rock bottom interest rates to continue. On the other side of the globe Nicholas Sarkozy, Frances president is making similar noises calling for a weaker euro against the dollar. The Financial Times reports that:
Sarkozy stepped up his attack on global exchange rate imbalances saying “monetary disorder” had become “unacceptable”. Mr Sarkozy has long railed against Chinese “monetary dumping” and the dominance of the dollar, but has sharpened his criticism in recent days reflecting concern in Paris that a balanced economic recovery in the eurozone could be choked off by an overvalued currency. With a large trade deficit and with exports that are more price-sensitive than Germany’s, France feels more susceptible to exchange-rate movements than its neighbour across the Rhine.
“We can’t increase the competitiveness of our businesses in Europe and have the dollar lose 50 per cent of its value against the euro,” Mr Sarkozy said. “When we produce in the eurozone and sell in the dollar zone, are we supposed to just give up selling?”
So there you have it folks. The Fed is not raising rates anytime soon, and with the massive amounts of money printing the dollar is set to weaken further. But the currency game is relative. Other nations particularly the Eurozone, Japan and even China are not going to sit idle, they will try their level best to whack their currencies down the chute to prevent a rapid appreciation from choking off their export engine.
This is a hopeless circle where everyone is running around chasing each others tail. In such an environment gold appreciation is a given (although the U.S. Fed will try its darnedest to slow the rate of appreciation). Gold is an absolute currency which no one can print. Also watch out for substantially higher commodity and food prices as the investor class rushes out of worthless paper currency into tangible assets (in a repeat performance of 2008). In a bizzare game of death, food grains are now classified as an "asset class and investment diversification vehicle" so that speculators can make money off of the starving masses - famine and hunger are not far behind.
Now, in light of the AIG disclosure that Timmy G. tried to prevent AIG from disclosing critical information regarding the 100% payout of billion of dollars in its CDS trades - one can safely extrapolate and conclude that the Fed in all probability has played a similar information suppression con game, but of 1000x magnitude. Which is why it is absolutely critical to have an honest audit of the Fed. Bernanke and his banking buddies are taking the country and the world down a dangerous spiral of currency debasement which could easily evolve into a total world wide currency collapse. 2012 may no longer just be a prophecy, Bernanke is hell bent on making it reality.

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