Currency Wars - It’s On

Posted: Sep 22, 2012 12:01 AM

The euro gained back some ground against the dollar in overnight trading as the world woke up to a new round of global currency wars. 

Gold was up $4.01 in early trading to $1,773.06 and silver was up $0.02 to $34.63, leaving the silver/gold ratio steady at 51.2. 

Starting last year I warned readers that the Federal Reserve would be forced into quantitative easing in order to protect American jobs.  When the European Central Bank and Japan both announced they were going to print virtually unlimited quantities of cash in order to address the current economic slowdown, it was only a matter of time before the Fed would be forced to follow or watch jobs move overseas. 

Now Brazilian Finance Minister Guido Mantega is blaming the Fed for kicking off a new round of currency wars.  This move highlights that the world is trapped in a race to the bottom on currency valuations.

Before you start wagging fingers at the Fed, they didn’t really have any choice.  The options were additional easing or start watching manufacturing jobs move back overseas.  For decades other countries magnified their job growth at our expense.  The people at the top were still making money because those jobs stayed here; too bad for all those plant workers.   

The U.S. economy is so large it could absorb most of those workers being laid off and the government subsidized the layoffs by assuming the company pension obligations when manufacturing assets were shipped overseas.  Unfortunately, after 20 years of gutting America, we don’t have any jobs to spare. 

We can no longer afford to let other countries keep taking our jobs, so the options are either massive fines and taxes on companies moving jobs overseas, a move some people would label “protectionist”, or we have to periodically devalue our currency, just like the Swiss were forced to do last year.  Pick your poison. 

What we’re stuck with is now a world that has to play the currency game or lose exports, but print enough money and pretty soon bread is $3,000 a loaf. 

This is probably the most compelling reason I know for keeping part of your wealth in gold and silver.  The global race to the bottom on currency valuations is going to continue and inflation will not be denied indefinitely.  Your insurance against inflation are the hard assets in your portfolio. 

Chris Poindexter, Senior Writer, National Gold Group, Inc