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It Is A Race To The Bottom For Global Currencies And The Winner Will Be Gold

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In 2010, any nation that has a weak currency has a very significant competitive advantage in global trade.  A weak currency means that the products and services produced by that nation will be less expensive for other nations.  Therefore other nations will buy more of those products and services.  When exports go up, employment goes up and more wealth flows into the country.  Alternatively, when the value of a national currency declines, exports do down, unemployment increases and less wealth flows into the country.  Therefore, dozens of exporting nations around the globe have become increasingly determined to keep their national currencies very weak in an attempt to maintain a competitive advantage in the global marketplace.  Essentially what we have is a race to the bottom among global currencies.  Whenever any nation wants to gain a little bit more of an edge in global trade they push the value of their currency down just a little bit more.  So who is the winner in all of this?  Well, that is easy.  Gold, silver and other precious metals will continue to be the winners as fiat currencies all over the globe continue to decline in value. 

Quite a few nations have been openly manipulating their national currencies for many years, but now currency issues are starting to make front page news.  Things are starting to get quite tense out there.  Major importing nations are starting to resent the fact that they have been burned by all of this currency manipulation and major exporting nations are absolutely determined not to lose the economic gains that they have achieved as a result of their currency manipulation.   

In recent months, nation after nation has been taking steps to weaken their national currencies.  Every time another currency gets devalued the hostility in the global marketplace just seems to grow.  In fact, Brazil’s finance minister recently was very honest about the fact that the nations of the world are now engaged in a very open “international currency war”….

“We’re in the midst of an international currency war, a general weakening of currency.”

So where does all of this end?

Well, to some the answer is to adopt a global currency.  But let us hope that never, ever happens because it would be the end of economic sovereignty for every nation on the face of the earth.

To others, the answer is for the nations that are being taken advantage of to stand up and to declare that they are not going to take it anymore.

Perhaps the most glaring example of one nation taking example of another is what China is doing to the United States.

In my recent article entitled “Currency War” I described the effect that currency manipulation by the Chinese government is having on trade between the U.S. and China….

For years, China has kept the value of their currency artificially low.  Even though China has made a few small moves toward a more free-floating currency policy, at this point China’s currency is still pretty much pegged to the U.S. dollar.  It is estimated that the Chinese government is keeping China’s currency at a value about 40 percent lower than what it should be.  This is essentially a de facto subsidy to China’s exporters.

By keeping their currency essentially pegged to the U.S. dollar at such a low value, China is able to flood the U.S. market with incredibly cheap goods and services.  But this has created an absolutely massive trade imbalance.  Today, the United States spends $3.90 on Chinese goods for every $1.00 that the Chinese spend on American goods.  Jobs and wealth are flowing out of the United States and into China at a pace that is almost unimaginable.

The Chinese know that if they let the value of their currency rise substantially it would have a devastating impact on their economy.  Chinese Premier Wen Jiabao was recently quoted in The Telegraph as saying the following about what would happen if the value of Chinese currency was to rise substantially….

“I can’t imagine how many Chinese factories will go bankrupt, how many Chinese workers will lose their jobs.”

So instead American factories get to go bankrupt and millions of American workers get to lose their jobs.

Is that fair?

Meanwhile, other nations around the world are busy debasing their currencies.  For example, Japan recently made a 12 billion dollar move in world currency markets to debase the value of the yen.

Earlier this year, the Swiss National Bank experienced losses equivalent to about 15 billion dollars trying to stop the rapid rise of the Swiss franc.

It truly is a race to the bottom.

So who benefits?

Gold, silver and other precious metals of course.

Gold recently topped $1,300 an ounce. 

Silver has been absolutely soaring.

Exporting nations such as China and India have been gobbling up gold and other precious metals every time there is a little bit of a dip.  They are tired of piling up endless amounts of U.S. dollars and they are seeking to diversify into something more solid.

The trend toward gold and precious metals is so hot that one German firm that installs gold vending machines now has plans to introduce them into the United States later this year.

It seems like everyone wants gold right now.

Not that gold is any more valuable than it ever has been.

It is just that it is not going down in value like all of the fiat paper currencies around the world are.

This is not a good time to have faith in paper currencies – particularly the U.S. dollar.

Already the dollar has been slipping substantially and the Federal Reserve has not really even cranked up the next round of quantitative easing yet.

One of the easiest things to do when there are economic problems in a nation is to pump more paper money into the economy.  More paper money gives people something to spend, it spurs economic activity, it helps exports (as described above), and it helps put people back to work. 

Of course it also destroys the value of the currency, but we will get to that in a minute.

With millions upon millions of Americans out of work, and with millions of homes being foreclosed, and with poverty statistics soaring into uncharted territory, it is very tempting for our politicians in Washington to borrow even more paper money and to pump it into the economy in an attempt to get things going again.  But right now an election is coming up and the Tea Party has raised such a ruckus about government debt that there isn’t much appetite for more “stimulus packages” right now.

Of course the truth is that “stimulus packages” never solve any of our long-term problems anyway.  The reality is that they just give our economy a short-term “high” and make our long-term debt problems even worse.

Not that the U.S. government is not quietly up to some monkey business.  On Friday, federal regulators announced a 30 billion dollar bailout of the nation’s wholesale credit union system.

Another bailout?

Just what we need, eh?

But in general, the U.S. government is not doing a whole lot more reckless spending right now.

However, the Federal Reserve can inject more paper money into the economy without the help of Congress.  Under the guise of “quantitative easing”, the Federal Reserve makes up money out of thin air and pumps it into the economy by buying up U.S. Treasuries, mortgage-backed securities or anything else that they feel like buying.

So is this going to happen again any time soon?

There are all kinds of whispers on Wall Street that this is exactly what the Fed is going to do and that it is going to be massive.

And quantitative easing would probably stimulate the U.S. economy in the short-term.

However, it would also seriously damage the value of the U.S. dollar.

You see, the truth is that when more dollars are introduced into the system, the value of each existing dollar goes down.

It is called inflation, and it is a hidden tax on all of us. 

Think of it this way.  If you put five dollars away today and you anticipate that you will be able to buy two loaves of bread with it three years from now, you will be greatly disappointed if when that day arrives a loaf of bread now costs five dollars and you can only purchase one loaf.

When the purchasing power of the dollar declines, it is a tax on every single dollar in every single wallet and bank account in the United States.

Since 1913, the U.S. dollar has lost over 96 percent of its value.  Unfortunately, as ever increasing mountains of paper money continue to be required to keep our financial system solvent, the rate of decline of the value of the dollar is only going to increase in the years ahead.

So when you are watching the news and you hear that the Federal Reserve has announced some more “quantitative easing”, you might want to watch your wallet because you are about to be taxed.  Your dollars will still be there – they just won’t go as far as they used to.

But in the twisted global economic system that our politicians have created, if the U.S. does not devalue the dollar we will lose factories, jobs and wealth at an even faster pace. 

How sick is that?

So do not put your trust in the U.S. dollar.  In the end, it will fail.

So what do all of you think?  Feel free to leave a comment with your opinion (sane of otherwise) below….

  • mbabsit

    One should acquire precious metals for investment purposes, but you don’t state WHY. Gold is wealth storage. In the book of Genesis, God commanded Abraham to acquire gold, silver, land, and cattle. Since the time of Abraham, gold has been for WEALTH STORAGE. Should there be a societal breakdown, you cannot buy a loaf of bread with a Canadian Maple Leaf. But, you can buy the bakery. Silver, on the other hand, is for trade. That has also been so for thousands of years. However, if you are like some people and buy silver bars, you really can’t do anything with it. But, if you had pre-1965 “junk” silver coins… The new silver dollars are nice, but for real trade, NOTHING takes the place of silver dimes, quarters, and to lesser extent, halves. Other precious metals I would not even bother to buy, as most people do not know what they are, and trade with these would be well-nigh impossible.

  • Pangea

    So if the value of the dollar is going down, how can home prices go up? Can anyone explain this, because I know several people who believe housing has bottomed, and prices will be rising. I just don’t get it. Thanks!

  • Patriot One

    You would get a lot more comments if you get rid of the captcha code. I can’t count the number of time I lost the comments I spent time writing on this site, just to have wiped out by your captcha error.

  • mark mcbee

    Japan, Brazil, Peru, Chile, Taiwan, Singapore, Vietnam, China and South Korea are entering currency war against the U.S. dollar because of its world reserve currency. You must run deficit when you have the world reserve currency.

  • Tom

    The GOP destoryed the currency with the war spending. When money is spent on us, they object but they were thrilled to use trillions to lose 2 wars and ruin our economy.

  • Ernest Spano

    There is no exit to this nightmare that is leading most Americans to the gates of hell. For those with monetary life savings,their paper money will become worthless unless gold, silver or other commodities are purchased.In other words, the government will make us speculators whether we like it or not in order to survive.For those without savings, I have no idea how they will survive.

  • Gold and especially silver are surely undervalued. But don’t underestimate the nefarious forces inside our government AND the fed. They may outlaw or move against gold buyers in some way such as a tax. The criminal, traitorous FDR did it. Obama is even worse.

  • Save the Republic


    Before entering the captcha code, highlight your text and do a CTRL and C button together. Then if you lose the text, put your cursor in the text box and type CTRL and V button together. Your text will be restored. Just enter the new captcha code and you should be good. Not as good as it just working the first time, but still will save you time and frustration.

  • Gidget

    @ mbabsit, it really doesn’t matter what form or shape the silver is in as long as it is .999 silver.

  • Lennie Pike

    Just saw for the first time something new – a commercial on t.v. from Visa. It was a new type of card for cashless electronic money. Since only a few people possess gold and silver, every one will accept whatever solution to intentionally destroyed currencies that the rulers come up with. Gold and silver might increase in value, but only until the day the solution is introduced. Hopefully owners of gold and silver will time their sales just right, but it won’t matter that much. It’s not going to be a life that the type of people that precious metal owners are will enjoy living very much.

  • Suetonious

    There’s no question that the precious metals will be skyrocketing, assuming that we have an intact financial system after all the scheduled mayhem over the next several months (check the webbots for details). Their value will skyrocket nonetheless, even in a society akin to Mad Max’s.

    I am always amused though, at the simplistic reasons given for gold and silver’s rise over the last decade. Many commentators state that the rise of the precious metals merely reflects the loss of purchasing power of the fiat currencies. No more, no less. This is false based on its own premise. If that were true – gold would be above $2500 and silver would be over $100 based on the governments own downtoned BS figures for inflation (Gold peaked at $850 and silver at $50+ in the early ’80’s).

    Naah, something else has been at work for quite some time – and that is Manipulation with a biiiiiggg “M”. The Central Banks, counterfeiters by definition, have been relentlessly naked shorting both gold and silver to defeat their roles as objective barometers of the value of the steadily decreasing currencies they peddle. Without their criminal manipulations – both would be much higher, and I thank them for their criminality and the obtuseness of the common clueness Keynesian in the street, as it is allowing me to accummulate much more bullion than a pauper like me should reasonably be able to acquire.

    As the currencies fail, the dollar in particular, people won’t just sidle over to gold and silver, it will be a Larry, Curly and Moe moment in a door jam, as investors and sovereigns dump currencies en masse for the safety and security of gold and silver. Ever observed a deeply submerged beach ball surface? Does it just “sidle” up to the surface? Nu-uhh – it bursts out and skies over the surface before settling down to an equilibrium, and so it will be with the PM’s.

    As for the usefulness of gold and silver, and the fact that you can’t eat them, well you can’t eat paper either, although I imagine many victims of the Weimar Republic got some roughage out of it. Gold and silver have been valuable for thousands of years. Why? Who knows? If you’re really out there, you may think it’s because as apes we were genetically engineered by the Annunakai to value the stuff, so we didn’t toss any away when we took a leak during breaks at the South African mines a hundred thousand years ago. Whatever. The fact is, humans value it, and have valued it for thousands of years just as lumps of metal. And one can bitch and moan at this long-running irrationality, but as any market player knows, “the market can remain ‘irrational’ longer than you can remain solvent”, even as one ritualistically fingers all those “rationally valuable” pieces of inked paper.

    Got Gold?

  • HnH

    Unfortunately, this fate is not only reserved for the US. While the security net is much tighter in Europe, all western countries feel the strain of this global depression.

    I don’t know what will happen, but one thing is certain: after the main events have played out, the Western World -and the US in particular- will have lost their dominance.

  • jimmy

    Gold in the heart is worth more than gold in the hand. I would rather know how to obtain clean drinking water and nutritious food if the supply chain breaks down than have 500 ounces of gold. I cant eat it, cant drink it, and it wont keep me warm.

  • Mr Carpenter

    More and more, it is becoming obvious that we’re in for a world of hurt and very soon.

  • El Pollo de Oro

    When all is said and done, the U.S. dollar (official currency of The Banana Republic of America, previously known as the USA) will be right up there with the Guatemalan quetzal and the Moroccan dirham. In other words, it will be a Third World currency–which makes sense because the former USA is looking more and more like a Third World country these days. And when the U.S. dollar goes into full cardiac arrest, all hell is going to break loose. Things are going to get very ugly in the BRA.

    Neocons, the ex-Trotskyists turned far-right nutjobs who got us into this horrible mess, will cling to their imperialist empire fantasies. But the reality is that empires are unsustainable, especially when your currency is knock, knock, knocking on heaven’s door.

    In the words of Gerald Celente, our electronic currency isn’t even worth the paper that it’s not printed on.

  • Vito Caputo

    Patriots scare me – keep the captcha code.

  • All of our financial mess can be blamed on one man and his administration…George W Bush.
    He spent 8 years destroying finanacial regualtion on Wall Street and timed the whole fiasco to crash and burn just as he was leaving office, so he and his buddies could clean out the treasury and leave the American taxpayer holding the bag.

    The worst thing Bill Clinton did when he left office was to remove the W on all the typwriters in the oval office.

  • Richard

    “In fact, I point out that all the conspiracies in history – especially during the last 5000 years – is actually different aspects of the same conspiracy. Some people fixed on one aspect of the conspiracy, and say this is the problem, others say another thing, but the thing is all the conspirators work together. All the conspirators are part of the same operation. And this is what people find very reluctant.” – Eustace Mullins

  • Rebootd

    It’s not what form the wealth takes (paper, gold, sticks), it is WHO controls the supply. Private banksters? Or the public/people(elected reps)?

    The Secret of Oz folks say it much better than I ever could. While I personally remain a gold bug because I don’t think our PTB will ever catch a clue and because the banksters have a stranglehold on our financial system now, this (long, two hours) movie is profoundly worth watching:

  • we are going to have hyperinflation in the BRA(USA), it is going to be realy bad!!!. It’s going to make Zimbabwa to like chicken feed, because it is going to effect the WHOLE World.
    What you can buy for a Dollar today willin two years will take $1 x 18 to 29 digits to buy the same item…..($1,000,000,000,000,000,000,000.00)
    Why do you think Buffet & Gates talk about giving away momey…., because it is going to be worth less than nothing?!…
    Yhese rich people always know more the than the average person and they have heads up on everthing..

  • Pappy

    Highlight and copy your replies. When the captcha code causes it to disappear you can right click and paste it back into the reply box and try again. It might take three or four tries but you will eventually be able to make your point. After losing much of what I’ve spent time writing (here and at other sites) this strategy has saved me much frustration.

  • tim

    how about a bread revolt?

  • Prairie Dog

    For years the US policy on the dollar was “It’s our dollar but your problem”.

    Now it’s “It’s our Yuan but your problem!”

    Unfortunately what goes around comes around.

    Our politicians have been digging our hole wide and deep.

  • marty

    If history repeats itself, like it always has, we will not have a mad max scenario. The worst that can be expected is hyperinflation. Hyperinflation can last as long as the citizenry will put up with it. As soon as the citizenry puts it’s foot down, we will go back on a commodity based currency, as has happened repeatedly through history. The system will almost certainly be gold backed. What I would expect is some sort of egold type system for the minor purchases such as a meal, or a pair of shoes. Larger purchases could be made by actual exchange of gold coin. This would be particularly true at first, until people became confident in the egold system.
    A dual metal system like the one that the US had previous to the 1960s is inherently antimarket, since the pegging of exchange rates between different metals is arbitrary. In the case of silver, you also distort the market price of an important industrial metal unnecessarily. As long as people believe they can convert grams of gold in their electronic account into physical grams of gold, small change is made unnecessary. If you really want to buy your bubble gum with a physical coin, you can buy it by the gross. Presumably many businesses would offer a store card, that value could be added or debited to gain sales, and to capture transaction costs that would otherwise go to the company that handled the transactions.

  • NomoreWTO

    A trade war is too politically incorrect so they gotta have a currency war instead?

  • Spot on. Love the article. Gold = wealth storage. Gold Stocks= wealth building. In an environment where it’s a raise to the bottom to devalue currencies, all types of debt instruments, including those pegged to “official” inflation numbers are a horrible, horrible investment.

    To Sound Investing,

Finca Bayano

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