March 21, 2012
by mktgeistmike
Posted by Brittany Stepniak - Tuesday, March 20th, 2012
According to Dr. Faber, there are some rather dire unintended consequences associated with the U.S. currency crisis.
Moreover, Marc Faber asserts that downward spiraling inflationary trends all across the globe maintain a direct correlation with the Federal Reserve’s money printing policies.
While we’re all aware of the danger of printing too much fiat money, Faber stresses that the world’s fiat currencies are in greater danger than any of us realize…
Here’s how Faber views inflation:
If you start to print, it has the biggest impact. Then you print more — it has a lesser impact, unless you increase the rate of money printing very significantly. And, the third money-printing has even less impact. And the problem is like the Fed: They printed money because they wanted to lift the housing market, but the housing market is the only asset that didn’t go up substantially.
In general, I think that the purchasing power of money has diminished very significantly over the last ten, twenty, thirty years, and will continue to do so. So being in cash and government bonds is not a protection against this depreciation in the value of money.
Additionally, Faber explains how the Fed can’t possibly forecast the economy with accuracy because they are “academics,” and have “never worked a single day in their lives.”
Essentially, they lack the experience to understand the big picture.
They aren’t businessmen balancing books; they don’t go shopping and spend time at the local pub; they don’t need to sell products or services to make a living for themselves… The are paid by the government and lack an insider’s understanding of the way the U.S. economy truly functions.
Perhaps this is why they print money and their naive idealism lets them believe it will bring wealth back into our nation.
Unfortunately, that’s simply not true. If it were, every country in the world would thrive in prosperity and live happily ever after.
There are no Utopian societies. Printing endless amounts of paper money won’t change that fact.
And the unintended consequences of firing up the printing presses time and again will lead to unprecedented hardships in America — and across the globe.
Again, Marc Faber tackles this issue stating:
We know one unintended consequence, and this is that the middle class and the lower classes of society, say 50% of the US, has rather been hurt by the increase in the quantity of money in the sense that commodity prices in particular food and energy have gone up very substantially. And, since below 50% of income recipients in the US spend a lot, a much larger portion of their income on food and energy than, say, the 10% richest people in America and highest income earners, they have been hurt by monetary policy. In addition, the lower income groups, if they have savings, traditionally they keep them in safe deposits and in cash because they don’t have much money to invest in the first place. So the increase in the value of the S&P hasn’t helped them, but it helped the 5% or 10% or 1% of the population that owns equities. So it’s created a wider wealth inequality, and that is a negative from a society point of view.
Amidst extreme currency devaluation, this crisis has the potential to lead to malinvestment which will, in turn, create asset bubbles that’ll explode in chaos when the bubbles burst.
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BEIJING (Reuters) - China’s yuan could become a reserve currency in future if the country undertakes further economic reform, International Monetary Fund managing director, Christine Lagarde, said in a speech on Sunday.
The IMF chief, speaking to a gathering of leading Chinese policymakers and global business leaders, added that China needed a roadmap for a stronger, more flexible exchange rate system.
China operates a closed capital account system and its yuan currency is tightly controlled, although Beijing has said it wants to increase the international use of the yuan to settle cross border trade and has undertaken a series of reforms in recent years to that end.
(Reporting by Koh Gui Qing; Writing by Nick Edwards; Editing by Jonathan Thatcher)
By Mike Dolan
LONDON | Wed Mar 21, 2012 3:01am EDT
(Reuters) – A counteroffensive of sorts may be underway this year in what has seemed like a one-sided “global currency war” as developing economies slow, western money-printing pauses and the heat comes out of pumped-up emerging marketcurrencies.
The three-year-old “war”, as Brazil dubs the devaluationist policies of developed nations seeking relief from home-grown credit crunches, may well just come full circle and burn itself out as a result.
But the reverse course of emerging currency depreciation carries its own significant risks, from skewing investment decisions to aggravating trade diplomacy.
What’s more, it’s Japan’s success this year in finally weakening its supercharged yen, by fresh rounds of money-printing from its central bank, which may prove pivotal by disturbing the delicate balance in Asia.
Some economists warn the yen’s more than 10 percent retreat since January is already forcing China’s hand on its own controversial policy of yuan capping in a way that could cause consternation in Washington in an election year.
Far from seeing a sharply rising yuan emerge from China’s policy of greater exchange rate flexibility – core U.S. and multilateral demands – the yuan has actually weakened this year as China’s economy and inflation rates slow, its trade account worsens and fears of a “hard landing” there persist.
Even though the tightly-controlled yuan has gained more than 10 percent against world currencies over the past five years, it’s one of the few major emerging market currencies to remain lower against the U.S. dollar so far in 2012. Bouncing back smartly from a dire 2011, Russia’s rouble, India’s rupee, Mexico’s peso and South Africa’s rand are all up 5-10 percent.
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BRIC currencies since 2007: link.reuters.com/guv27s
Currency performance in 2012: link.reuters.com/tak27s
Chinese yuan vs Japan yen: link.reuters.com/raj46s
China trade in deficit: link.reuters.com/gar96s
Japan exports to China vs US: link.reuters.com/daj46s
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China recorded its biggest trade deficit in more than a decade in February and signs of slowing economic activity are mounting in everything from real estate prices to ore demand to foreign direct investment. But if it allowed or engineered a lower yuan, then it’s unlikely the other emerging giants – never mind the west – could ignore that.
Long-term global markets bear and Societe Generale strategist Albert Edwards says it’s vitally important global investors put the possibility of a weaker Chinese yuan on their radars because consensus thinking is disregarding the risk.
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