When will the currency wars end?

Bloomberg reports:

Finance chiefs from South Korea to South Africa signaled they may act to slow gains in their currencies, just four days after the Group of 20 vowed to soothe trade tensions in the $4 trillion-a-day foreign-exchange market.

Asian currencies fell to a one-week low after Bank of Korea Governor Kim Choong Soo said today that measures to mitigate capital flows could be “useful.” Hours later, the rand dropped as South African Finance Minister Pravin Gordhan said his government will use part of higher-than-expected tax revenue to build foreign reserves as it attempts to weaken the currency.

The shifts suggest G-20 members will keep trying to defend their economies from the slide of the dollar and capital inflows even after the group promised Oct. 23 to refrain from “competitive devaluation” and to increasingly embrace market- determined currencies.

This is politics-as-usual.  As the central banks of the world engage in a race to the bottom, you should protect your wealth with investments that are racing the other way.

Did the Cream Rise to the Top - or Something Else?

Economics has been called the “dismal science” for over 150 years.  This is unfair.  Outside of the Austrian school, economics, in parroting the methodology of the hard sciences, has forfeited its claim to being “scientific.” [here, here, and here] Since World War II especially, economists have been mostly apologists for government growth and propagandists for more of the same. [Also here, here, and here]

A panel of distinguished economists recently deadpanned that the recession ended in June, 2009.   And it did end, if you believe in the power of free lunches and consumption multipliers.

Just don’t count the unemployed and underemployed and people who have given up trying to get employed - or the long-employed incubating ulcers about pink slips.  Don’t get upset with the legions of college graduates who have moved back in with their parents or are waiting tables while a staggering student loan hangs over their heads.

Never mind that the world is running out of suckers to buy government debt.  Pay no attention to the decade-long rise in the price of gold, forget that Alan Greenspan told a meeting at the CFR that "Our choice is not between good and bad. It's between terrible and worse,” and that gold’s rise in price is like the dead canary in the coal mine, signaling “a problem with respect to currency markets globally,” forget that currencies will continue their plunge because new Fed policymaker Janet Yellen is yet another believer in the power of quantitative easing, that in terms of real debt the U.S. is the most insolvent nation among developed Western nations, that according to John Williams of ShadowStats.com, on the basis of Generally Accepted Accounting Principles, “total federal obligations as of September 30, 2009, stood at $70.7 trillion“ - nearly five times the GDP reported for fiscal 2009.

Never mind all this.  If we want to be part of the Establishment’s solution, we need to embrace the Keynesian belief that national politicians can create prosperity with more easing and spending.   

What might be the outcome of a continuation of government and Fed salvos?  Making it easier for people to spend money will likely get them spending money.  As retail sales pick up more temps will be hired.  GDP figures will expand, and the government will issue assurances about possible controls should prices rise too much.  The economy will flash like a hypernova, and Krugman and his Keynesian allies will glitter for awhile.

As shelf prices begin to shoot up, the government will threaten selected wealth producers about various cards it could play, none of them pleasant for such a small voting bloc.  Backstage at the local market, highly depreciated federal reserve notes will be swapped for whatever people can get their hands on.  Spending, in other words, will become a desperate act of saving.  There will be arguments in the media about whether we’re experiencing inflation or mass inflation, with general agreement that other than the usual loons, no one saw it coming because the Fed is doing what it pledged it would do, create more inflation, which is not the same as real inflation or mass inflation.

Bargain stress-relief solutions will thrive as more people feel poverty closing in on them.  Fat-cat federal spokespeople will deplore the spike in street crime.  International tensions will increase as governments continue playing beggar thy neighbor or in some cases bully thy neighbor.  The CIA might even start another war.  The usual suspects will get blamed for everything.  Throughout all this the do-something gang will be undeterred because whatever losses they might suffer are discounted by the fact that they’re still in charge.  And the “experts” who never see a crisis coming will tell us we must once again abandon free market principles to save the free market system.

What form will the abandonment take?  Whatever is politically expedient.  Americans could end up shackled to a one-world super-bank manufacturing meal tickets at will, though with everyone looking for a free lunch the meals might become indistinguishable from the tickets themselves.

Of course, none of this has to happen.

Kris Kringle? No, Ben Bernanke

Kris Kringle?  No, Ben Bernanke

SATIRE by

George F. Smith

What will Ben Bernanke do to restore economic growth?  He’s probably wondering the same thing.  Since he holds our future in his hands, it can be helpful to think through some of the politically-acceptable options he has, to see where they might lead. 

Everyone is speculating on QE2 - Quantitative Easing Two.  Will he or won’t he, and if he will, how will he implement it - all at once or gradually?  The financial press is convinced QE2 is a done deal in some form.  They’re probably right -- aren’t they usually? -- but if I were Ben Bernanke, I would think about it extra hard.  QE1 was not an American success story.  You don’t improve a gross blunder by repeating it.  The monetary base is at an all-time high, banks are risk-averse, corporations are loaded with cash, and the mortgage industry is in trouble again because of sloppy or fraudulent foreclosure practices.  Pouring more fiat money into the banking system, therefore, would have the same effect as setting the stuff on fire.  Bernanke would seem to be trapped.  He can print money all he wants but if the usual beneficiaries sit on it, what good will it do? 

According to my understanding of Keynesian theory, Bernanke has to get the money into the pockets of people who will spend it.  He needs to identify the spenders and make sure they go to their favorite retail outlets and buy things.

Who are the spenders?  You and me.  But Americans are too much in debt, and there’s always the chance that if he writes them a check they will use most or all of it to pay creditors.  How can he get people spending on stuff that’s sitting on store shelves?

How about a free Christmas - for starters?

The holidays are almost here, and people won’t be paying down debt for the next two months.  They will spend, but they will be frugal.  Frugality is a mortal sin in the Keynesian religion.  Frugality belongs to the same family as hoarding, and hoarding is public enemy number one to central planners.

Some people think of Bernanke in a helicopter dropping money on the masses to get them to spend.  He would probably enjoy doing it - after scattering the loot, he could hover overhead and watch the action.  He would be witnessing one of those rare moments in the life of a leading economist, the confluence of theory and reality.  It would sure beat watching a rat navigate a maze.  Moreover, he could attach sales fliers to the money, to further reinforce the idea of spending it.  Imagine: From his perch low above the ground he could see unsold inventories gathering dust, then watch those inventories being whisked away in a cloud of dust as consumers went on a spree.

Would this work?  Maybe, but while we wait for the econometric models to tell us for sure, we can dream up other possibilities.

In my opinion, Bernanke needs to think like the father of teenage daughters.  What is their ideal world?  One or more credit cards with astronomical spending limits -- credit cards that daddy takes care of when the bills come due.  Bernanke could issue Fed credit cards and scatter them over the American landscape.  Take a card to Macy’s, buy what you want, and Macy’s sends the receipts to the Fed.  Drawing on his capacity to produce digits and dollar signs with a few keystrokes, Bernanke prints Macy’s a check, Macy’s orders more inventory, and the cycle begins anew.  As the Mogambo Guru might say, “Whee!  This economics stuff is easy!”

You say, fine, but who would do the work in this scenario?  Who would produce the goods, and who would man the stores to sell them?  We already know the answer to the first part - foreigners would make the goods.  We’re still the world’s only superpower, right?  As for retail clerks and such, Bernanke could call on the military or hustle up prison inmates.  Soldiers would be well-suited to instill order in a frenzied crowd of shoppers, and prisoners would welcome a break from their confinement, while it would help acclimate them to rational society.

Not only will massive spending boost GDP, it will eliminate the nagging unemployment problem by bringing new meaning to the idea of work.  Inflation fears?  Who cares about inflation when you have unlimited credit?  Crime would plummet because there would be no need for private citizens to rob or steal.  People would have their faith restored - yes, indeed, there is a Santa Claus.  And that bad ol’ government that libertarians love to skewer - why, they’re wrong, it truly is our servant.  Man of the Year?  Ben Bernanke would be a shoo-in for the White House.

We don’t need another QE.  We need Fed credit cards.  If the Fed is generous enough, Christmas 2010 will be the best, and quite possibly the last, on record.   

Are we destined for Third World status?

We will only reach Third World status if we don't stop the planners and spenders who rule us.  It is up to you, it is up to me.  The Left-Right agenda of big government has brought us close to collapse, and there are no indications of a trend reversal.  On the contrary, the government acts as if everything else is the problem, as it spends and regulates us into oblivion. ActivistPost.com documents: 10 Signs The U.S. is Becoming a Third World Country.

"Keep Quiet About Your Gold"

Let's say you've purchased some physical gold and/or silver.  You paid for it in cash from a local dealer who doesn't know you, thereby assuring your privacy.  You bring it home and then . . . you do what with it?

Jeff Clark of Casey Research offers some suggestions.

1.  Put it in a safety deposit box - This is the easiest method, but it compromises your privacy.  Plus, with a safety deposit box you don't have access to your metals 24/7.

2.  Bury it - Advantages: "You don’t have to worry about losing your gold to a burglar or having it damaged in a fire. A lot can happen in the world that won’t disturb buried gold."  Be sure to bury it someplace inconspicuous where you can get to it easily.  Also, put it in a protective container first.

3.  Hide it in your house or put it in a home safe - Don't hide it anyplace obvious, and consider storing it in a home safe, preferably a floor safe that can't be easily moved.  I know someone who stores his valuables in a 700-pound safe he keeps in the basement.

However you store your gold, let exactly one person know the details. It needs to be someone in whose honesty and discretion you have complete confidence. It will be that person’s job to access the gold if you are incapacitated or die. If you are using a safe deposit box, his or her name should be included in the box registration, and they should know where to go to get the key.

Tell one person, but only one. No one else should know. This is especially important if you are using home storage. You don’t want to come home someday to find your house turned upside down because someone heard you’re living in a treasure chest. Even worse would be to come home and find your friendly local looter waiting to have a chat with you.

There’s just no other way to say it: keep quiet about your gold.

Stronger Yuan No Threat to Gold

Last week China said it would boost the lending rate on the yuan by 25 basis points.  Contrary to expectations the dollar got stronger.  What does this mean for gold?  Rick Ackerman writes:

Gold and silver came down because speculators believe that China, the world’s remaining economic engine, will continue to tighten in the months ahead. That would be deflationary, the thinking goes, and bullion prices should ease in anticipation.

The thinking is wrong, however, for the simple reason that the move toward fiscal austerity around the world, especially in euroland, is no match for the rampant monetary stimulus that is being used to counter the worst global recession since the 1930s. Beggaring-thy-neighbor via currrency devaluations is not merely in vogue, it is the Tulip-o-mania of these times.

If this trend is capable of causing the price of gold and silver to fall, then pigs can fly and the world is entering a period of unprecedented peace, prosperity, harmony, with high-paying jobs for everyone.  If you believe this, then you should be hoarding all the paper money you can get your hands on, stuffing it in your mattress, and in Treasury Bills and Notes that yield almost nothing.

For our part, we’ll put out trust in gold and silver, which for the last decade have steadily climbed in value no matter what investment story was in vogue; regardless of whether it was inflation or deflation that we feared; and even as the world’s financial system has edged toward the deepest imaginable abyss.

Gold-to-Go coming to US

A hostess in Berlin buys gold from an ATM

From the Sidney Morning Herald, October 23, 2010:

Apart from the gold-plated exterior - and the fact that they are bulletproof - they seem much like any other vending machine. But instead of chocolate bars, a network of ''gold-to-go'' machines dispenses 24-carat bullion.

Originally designed as a marketing device for an online gold trading business, the machines have become such a success that their inventor plans to build a global network, installing them everywhere from fitness centres to cruise ships.

The German businessman behind the machines, Thomas Geissler, said their success was the result of a rush on gold, the price of which has risen from $US250 an ounce in 1999 to about $US1330 an ounce.

''Ordinary people are starting to see its real value,'' he said.

Since the first machine was installed in May, in the lobby of Dubai's Burj Khalifa hotel, 20 gold-to-go machines have been installed across Europe. Next month the first machines will open in the US.

Mr Geissler is also meeting representatives of Harrods department store in London to discuss launching the first British machine. He plans to have launched 45 worldwide by the end of the year.

''We notice the sales peak whenever there are signs that the markets are wobbling. When the Greek crisis was revealed in its entirety, our sales went up tenfold. With the current troubles in currency markets, gold becomes even more attractive.''

It was no accident that the machines had taken off so well in Germany. ''Germans are still traumatised by the hyperinflation [of the 1920s], when people walked around with wheelbarrows full of notes, while Americans are still traumatised about the Depression.''

Mr Geissler said most customers of the vending machines were women, who tended to buy in smaller amounts. The larger pieces - it is possible to buy up to 250 grams for about €8,000 ($11,350) - are bought by ''well-off men, of on average 55 years of age''. The bullion are sold in smart presentation boxes.

The machines are monitored from Geissler's company headquarters in Reutlingen, Germany, and the price of the gold is updated every 10 minutes, according to the market price.

The company says its gold is cheaper than that available from the banks because its overheads are lower and the machine gold is available immediately, unlike at banks where customers have to wait for days.