A currency war is a battle, supposedly an economic policy to cheapen a country’s currency compared to that of others, to promote exports but the real reason, the one that’s less talked about, is that countries actually want to import inflation – a way of creating monetary ease and importing inflation. Let me explain.
The above edited excerpts, and the paraphrased comments below, are from an article by Jim Rickards for internationalman.com entitled A Brief History of Currency Wars which can be read in its entirety HERE.
There have been three currency wars in the past one hundred years.
- Currency War I covered the period from 1921 to 1936. It started with the Weimar hyperinflation in 1921 in Germany followed by France, Belgium and others in 1925.
- Currency War II raged from 1967 to 1987. The seminal event in the middle of this war was Nixon’s taking the U.S., and ultimately the world, off the gold standard on August 15, 1971.
- Currency War III began in 2010 when the U.S. tore up the deal to maintain the purchasing power of the dollar and have its trading partners link to the dollar or some peg to the dollar.
The lesson of currency wars is that they don’t produce the results you expect which are increased exports and jobs and some growth. What they produce is extreme deflation, extreme inflation, recession, depression or economic catastrophe.
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We believe that we are in the “competitive devaluation” stage presently [see graph below] as country after country is printing money in order to lower rates and doing whatever possible to devalue their currency – to have the fastest currency in the…race to the bottom – in order to export their goods and services. [The next stage will be protectionism and tariffs. This article gives an update on the race to debase.]
There is an increasingly disorderly currency war going on out there, and the advantage of gold is clear– they can’t print it, they can’t default on it, and there will always be demand for it. Simply put, in the global currency wars, owning gold is like abandoning the battlefield altogether. Words: 270; Charts; 2
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