So says an article* posted at theeconomiccollapseblog.com
In recent months, nation after nation has been taking steps to weaken their national currencies. Every time another currencies gets devalued the hostility in the global marketplace just seems to grow.
How Will This War of Currencies End?
a) 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.
b) 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 [advantage] of another is what China is doing to the United States… 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?
Other nations around the world are [also] busy debasing their currencies.
a) Japan recently made a 12 billion dollar move in world currency markets to debase the value of the yen.
b) 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.
What Assets are Benefiting From This War Between Currencies?
It is a race to the bottom and it is gold, silver and other precious metals that are benefiting. Gold [has almost reached] $1,400 an ounce and 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.
Why Will Gold Win Over Currencies?
It seems like everyone wants gold right now not that gold is any more valuable than it ever has been but 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. 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.
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…[and] there are whispers on Wall Street that this is exactly what the Fed is going to do and that it is going to be massive.[While it is true that] quantitative easing would probably stimulate the U.S. economy in the short term it would also seriously damage the value of the U.S. dollar because 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.
Conclusion[The next time] 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.
Unfortunately, in the twisted global economic system that our politicians have created, if the U.S. does not keep pace in devaluing its dollar along with other world currencies we will lose factories, jobs and wealth at an even faster pace.
Do not put your trust in the U.S. dollar. In the end, it will fail.