As previously reported and predicted by this examiner, the Fiscal Cliff pales when contrasted with the current global currency war. This war is not just starting up, as implied by some of the ‘Johnny come latelies’ (journalists), it is ongoing around the globe and heating up. And, it is unlikely to end anytime soon. Even Bloomberg and Reuters are finally beginning to publicly recognize and acknowledge this now with multiple related news articles emerging within the last 12 hours.
So, who really started debasing? First of all, history shows that debasing is not new to the world and is as old as the use of minted coin, but it has certainly been considered as a criminal act by most governments, including England and the U.S. But despite the negative view held towards debasing, the world engaged in a currency war in the 1930’s as countries began to abandon the gold standard. More recently (2007) Japan admitted that it used a fiscal policy of debasing (QE) to deal with the emerging global financial crisis but recently announced a few days ago that it will aggressively continue its QE-like fiscal policy. In 2010, the Brazilian Finance Minister, Guido Mantega, raised the alarm about the ‘currency war’ and again in 2011 stated that the currency war was far from over. Russia’s Putin called Bernanke a hooligan in 2011 for America’s printing scheme. After President Barack Obama was elected president in 2008, the Federal Reserve Bank began QE1 and over a trillion dollars later is currently at QE4 with the Obama administration doing nothing to end it—in fact there is no end in sight.
There are telltale signs that some countries are getting the jitters as the negative impacts of this most recent currency war ripple around the globe. Just a few days ago, Germany (Bundesbank) announced its plans to repatriate some 674 metric tons of Gold in an attempt to restore public confidence in its reserves as well as to secure against the negative effects this current global currency war is having knowing full well its inevitable end. Germany is not alone as other countries repatriate gold and their central banks aggressively buy up tons of gold to shore up their reserves.
Most G-7 members are up to their arm pits in guilt. Japan and Russia are heavily engaged in their own destabilizing devaluation schemes trying to keep pace with the Fed, the EU, China and Brazil. The justification for these massive currency printing schemes that debase the public’s currency values is that it supposedly helps involved governments inflate their way out of old debt, acquire new low-interest refinanced debt and bolster exports that keep their economies going and growing. It further helps debasers to buy up real assets in unsuspecting countries. But the supposed benefits are only temporary: it is not a win-win scenario. And, if debasing is the ‘last resort’ fiscal policy approach to prevent the inevitable then the hand writing is truly on the wall. Global economic collapse is no longer if, but when and is looming closer than ever. This currency war is unlike the currency wars of the past. The inevitable end of this war will be very ugly and will destroy most economies around the world given the modern structure of the International Monetary Fund, and Bank of International Settlements.
What other choice is available to competing countries who want to stall economic collapse in their own country but to follow suit? Perhaps none, but this is where repatriation of gold comes into play. While there is time left, some countries are attempting to prevent total disaster by repatriating their Gold as well as buying up more hard currency—gold. This is also a true indicator that not only is there a growing distrust among central banks but that the currency wars will only heat up and will precipitate its inevitable end—global economic collapse.
What is America doing about it? They are busy arguing about the Fiscal Cliff and other decoy issues but fiscal cliffs are basically politics as usual: debasing on the other hand is a global concern and far more serious. Obama’s administration continues to compound the problem by allowing the Fed to ‘illegally’ forge full steam ahead with its own money printing policy—now up to QE 4 with no end in sight. The question is how will Bernanke face the others in the G20 as the all-out very real currency war issue sits on the table?