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Currencies in Devaluation Race


Nations take their mark, get set, go for bottom.


The race toward competitive devaluations is on. Countries are desperate to make themselves "cheaper" relative to other countries, and currencies are their only weapon. The EU, courtesy of the Frankenstein creation called the Euro, is in the deepest pile of problems, with bureaucrats trying to figure out how to prop up Italy, Portugal and Spain - without letting them have an "unfair" advantage over Germany and France.

Hint: not going to happen.

  • Eastern European countries are on the verge of collapsing, 1990s Asia-style.

  • If they go, countries like Austria are likely to follow - and just look at Austrian
    sovereign CDS rates if you don't believe me.

  • Trichet and the Bank of England are hinting at "non-traditional" monetary measures, which we can safely interpret as "quantitative easing / monetization."

  • In the US, we're in full monetization mode.

  • The UK is exploring entering the Euro, which in effect would cause an instant devaluation of its currency.

  • Japan continues its decade-long faceplant, and you can rest assured that they're not going to sit idle and watch the yen strengthen.

  • Russia needs to borrow $25 billion from China in exchange for oil.

  • As of 5 minutes ago Fannie (FNM) and Freddie (FRE) have sucked another $400 billion out of our pockets. Poof, just like that, by edict.

Gold is telling a story. It's not an inflationary story per se, rather the story of the impending demise of fiat currencies. The only instrument countries cannot manipulate are their currencies. Currencies are governments' IOUs - which by definition, exist only to the extent that users of those currencies believe that those IOUs have some kind of credibility and value. Both credibility and value of paper money are vanishing as fast as the currencies are being printed.

And so the race to the bottom is on.

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No positions in stocks mentioned.
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