Home » Economy, Gold, Headline, Inflation, Politics

Race To The Bottom

3 November 2011 22 Comments

Those of us who criticize “fiat currency” are familiar with the term “race to the bottom”. It refers to the competitive devaluing of currencies around the world. Essentially countries want lower currencies priced against other currencies in order to stimulate exports. Of course if your exports are cheaper for other countries, then stuff is also more expensive for your own people, but that’s irrelevant, right? Well, what happens when EVERYONE is devaluing against eachother trying to all stimulate exports? Well, you have all currencies losing value. This is why it’s stupid to compare the dollar to the Euro. Or the dollar to the Yen. They’re all losing value. Losing value against what? Well, real things. The most obvious one being gold. Try and find a chart of the gold priced in the top 20 currencies in the world over the last ten years and you’ll see what I’m talking about.

It’s a race to the bottom.

As I mentioned recently, the Europe situation is no where near to being fixed no matter what the PR representatives (politicians) tell you in order to attempt to calm the markets.

This week, it all went to hell again (what’s new)…

From Beacon Equity:

Greek Prime Minister George Papandreou is resigning; now, he’s not—just a rumor. Referendum scheduled for the Greek people; now, it’s not.

Berlusconi cannot leave his underage tarts for a day to prepare for a G-20 meeting. Italian bonds are on life support from the ECB from a near blowout Tuesday of more than 450 basis points to the German 10-year bund. 

Dexia collapses. Who knows what counter-party risk is stuffed?

The new ECB chief Mario Draghi surprises the market with a 25 basis points cut at its ‘marginal lending facility’. Portugal, Spain and Ireland salivate over getting a similar deal given to Greece, teetering banks in France and German. Now French banks are under severe pressure in a circle-jerk default scenario throughout the EU.

Japan, Switzerland, UK, and China are trashing their currencies to bits along with the euro—and the result of all of this Argentina-style mayhem? The USDX drops!

In fact, the rally from the 73.42 low of Jul. 28 to 76.92, as of Thursday, is a whopping 4.8 percent. That’s the extent of the rally into the ‘safety’ trade. CNBC calls US Treasuries the ‘safety trade’, yet calls gold a bubble trade after the yellow metal corrected back to the planet Uranus following its trip to Pluto.

Ignore the minute by minute noise. Focus on the big picture.

The big picture is that there is way, way more total debt in the world with regards to global GDP than in years past. There has to be massive restructurings. Yes this will really rattle the markets and there will be times that it is really ugly. But things will survive, and our politicians will probably replace the current system with another system that will be inherently unsustainable.

Expect standards of living and purchasing power to drop across the board.

For example, the Greeks think they are choosing between austerity measures associated with staying in the European Union and going on their own and not having austerity. Either way they will have a drop in their standard of living. If they stayin the Euro, they have massive austerity. If they leave they’ll have massive inflation with the Drachma or whatever it is called. Either way their standard of living goes down. Politicians can hold off market forces for a time or a season, but eventually it’s impossible to hold them off.

It’s hard to find a better asset to hold during such a time than gold.


  • Rhyscurrency said:

    A thoughtful analysis. In the end, the true game-changer from the U.S. military cuts will be not the fewer dollars and cents spent, but the ability to project power and defend U.S. interests. Should this ability erode, then Anne's comment (above) makes all the sense.

  • satrap said:

    You are right in that one should look at the bigger picture and not focus on minuet by minute happenings. However, it seems like even the bigger picture is looking not so good. As if Greece's situation want enough, now Italy's situation is worsening. It seems like we are going to be in this hole for a while.

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    It implies there exists a competition to have the lowest dirt cheap slave labor at once to increase earnings. The third world countries tend to be the most tyrannized which are violated and are the prize targets in this race. They should attend millionaire mind seminar in which they could improve their selves and financial status without stepping on other people.

  • Karen Millen said:

    well, this is really a nice post.I really like the way you start and conclude your thoughts.

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