Blog : The Double-Standard Currency War
by Peter Leeds on August 18th, 2015
Most people blame China for the rising currency war, or any of dozens of other nations which have been creating excessive amounts of money out of thin air. Really, we should be looking to ourselves. See our thoughts on the currency war and the State of the Markets.
America has quadrupled the amount of money in circulation in a few short years. So theoretically, what cost $12 a decade ago might now cost as much as $60. This is just an accelerated example of our own long term effort to water down the value of the dollar. Since 1900, the purchasing power has dropped 95%.
A house which used to be worth $40,000 might now sell for $800,000. The home hasn't increased in value - it just requires more dollars to buy it. A $100 basket of goods from 1913 now costs $2,400.
The entire world is now in the money-creation game, and as one country lowers the value of their money, others nations have to respond or else face economic hardships. It will be a race to the bottom, but we have a serious head start since we've always been doing it.
Each nation is printing more of their own currencies in an effort to bring the value down. A cheaper dollar makes their exports less expensive for other countries to buy. This involves many nations, from Japan to Canada to Australia to Sweden to... the list goes on. As well, the European Central Bank is just going wild with all their new Euros.
You may remember that we were in a financial crisis when Obama took office. The President, in addressing the strategy to lift America out, mentioned that, "we'll grow our way out." He meant money printing.
The Federal Reserve responded by printing American dollars by the trillions and trillions. In many ways, this has helped. Unfortunately, it certainly hasn't been close to as effective as Ben Bernanke and Janet Yellen of the Federal Reserve believed it might.
Like a smoker or drug addict, we can stop any time. The only problem is that when we do, our cushy way of life comes to an end. No more 2 car and 4 TV households. We would have to operate on money we produced, rather than money we just printed and added to out debt load.
Fortunately, the US dollar has been very strong over the last year. Very, very strong. This is a case of money flowing into our currency because it appears "safe" compared to all the other worse options out there. The US dollar is the best of a lot of bad choices.
Don't bother blaming China. They really don't have much choice except to drop the value of their own currency, and it is not our place to decide what they should and shouldn't be doing.
Their entire economy is predicated on the concept that their currency is valued much lower than the US dollar.
Our stock pick today is going to take advantage of the current waves in the global order. The right company can enrich it's shareholders because of and during the current events.
As of January 2017 we no longer publish the blog and it has been removed from the webiste menu.
You are reading this old blog entry because we still like to reference it. :-)
You are reading this old blog entry because we still like to reference it. :-)
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