Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Currency Collapse - Where Now ?

Currencies / Fiat Currency Aug 24, 2011 - 02:52 AM GMT

By: Andrew_McKillop

Currencies

Best Financial Markets Analysis ArticleOne thing is sure and certain. Permanent avoidance of economic, financial and monetary reality has resulted in the USA, European Union and Japan facing unmanageable and self-reinforcing debt spirals that - logically - should lead to currency collapse. By political decision, the "only solution" is to decree harsh austerity plans cutting economic growth and government tax revenues, and paper over the problem with massive amounts of newly printed currency. The only logical result is a stampede into gold and other precious metals. Occasionally, and without conviction, there will be a partial selloff in gold and some dip buying of eroding and fragile equities.


In a process of declining confidence, even though currencies are no longer "gold backed" and are printed like share certificates or government bonds, they are increasingly being "redeemed" for gold in the marketplace.

The political and economic process destroying confidence dates from four decades in the past. The 40th anniversary of Richard Nixon's decision to "close the gold window" and terminate automatic convertibility of the US dollar to gold was on 15 August. For decades, we have had a pernicious form of laisser aller-laisser faire reflected in the sad and dangerous spectacle of the USA, nearly all European countries and Japan becoming so economically stagnant, deficit riddled and indebted their national budgets can almost never logically or conventionally return to balance -  without the 'soft option' of constantly debasing their currencies.

FROM LEHMAN BROS TO STANDARD & POORS
Political wrangling in Washington has certainly damaged the financial credibility of the United States, but similar wrangling, inertia and refusal to decide has allowed the same zero sum game to emerge in the other developed countries. The long overdue US debt downgrade by ratings house Standard & Poor's is often given the same 'shock and awe' media treatment as the Sept 2008 collapse of investment bank and broker Lehman Bros, but this debt downgrade is no more unwarranted than similar downgrades, by S&P and other ratings houses, for the sovereign debt of Europe's PIIGS countries. The underlying reality is the same in all cases, but the S&P debt downgrade of the USA more specifically weakens a fundamental pillar supporting the dollar as the de facto global reserve money.

In Europe, which for essentially political reasons created and launched the euro currency in 17 countries, the unwillingness of politicians to face the fatal structural defects of the euro system and Eurozone is now driving a gathering storm cloud, with global impacts. One of these is the impossibility of the euro to in any way replace the US dollar. Another is the simple and proven effect of high levels of sovereign debt driving economic recession, generating more and larger sovereign debt defaults, repeating the European banking crisis of 2008-2009, and laying the basis for a euro currency collapse. The euro's former and supposed "bright potential" of replacing the dollar as the global reserve currency has disappeared in the space of 9 months.

In exactly the same way as US, European and Japanese banks, insurers and financial players "piled in" to the US subprime mortgage finance bubble, with Lehman Bros only one of the most glaring and public examples of insolvency when the bubble collapsed, European (and international) commercial banks repeated the same fatal errors, this time with sovereign debt in the Eurozone: since early summer 2011 they are correctly seen by analysts as vulnerable to further EU sovereign debt defaults.

Of course, exactly like the George W Bush regime, Obama regime and Japanese deciders, the German-French political axis controlling the EU, Merkel and Sarkozy, will act when sufficiently prodded by market panic to transfer toxic bank assets to increase already massive debt in the public domain. This will further raise sovereign debts, and further erode euro credibility - which however may stay fixed at the "market rational" exchange rate of around 1.4 US dollar for 1 euro, only underlying the sad reality that both moneys have no credibility.

Both moneys will continue to devalue or depreciate, against gold, other precious metals, food commodities and oil, for as long as the global economy does not collapse into recession. Even more dangerous, and possible, we can fear these real assets could continue to appreciate against the paper moneys even in recession, intensifying a potential global economic collapse.

ALTERNATE MONEYS
China's yuan - relative to the dollar, euro or yen - has strong fundamentals, but also has what can be called "counterpart risk and liabilities". These are in fact immense, ranging from the political and geopolitical, to the economic and monetary, making it unlikely the yuan could "go global". More prosaically, any large appreciation of the yuan against the dollar and euro would have instant and massive negative impacts on China's trade surplus, which is the pillar of yuan credibility.

This in turn helps explain why in recent weeks we see gold prices able to rise in $20 or $30 leaps per day, with only small corrections, but of course generating a storm of gold price collapse warnings and sightings !  Private investors and central banks are turning to the monetary instrument that they always turn to when confronted by reality: bullion gold. Its rise in price only "measures" the loss of credibility and confidence in the dollar and euro - and almost all other fiat moneys.

We can be sure this threat is well known and understood by political deciders. Their only two "weapons" or responses are in fact fantastically schizophrenic: printing more money, and setting harsh austerity cures. Regarding the second, the results of IMF-dictated austerity cures for Third World debtors of the 1980s and 1990s are apparently "unknown" to OECD deciders of today applying exactly the same cures. The net result can only be inflationary - although massive effort will be given to covering up this  inconvenient truth. And it can only be recessionary - with the same obsession applied to denying this second reality. We are not faced by stagflation, but "recession-flation".

The outlook is for monetary inflation and economic recession which can be considered more or less the worst-possible and most incompetent-possible outcome. Underlining this conclusion, the potential for the "conventional solution" of print-and-forget, and austerity being durable or sustainable must be considered close to zero. At present we have almost no admittance of this risk and this outcome.

This raises the potential for entirely unexpected, therefore unprecedented real world results from the presently uncharted process that is operating, which tends towards the creation of new or alternative moneys as the only logical conclusion.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2011 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in