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In the last two weeks we have seen the U.S. dollar move from
$1.2751 to $1.3450 against the Euro. It has also fallen against
the Pound, the Yen and the Swiss Franc. The Japanese government
via the Bank of Japan is weakening the Yen as we write this. The
dollar index has fallen to 0.79 [a 4% drop] and points to a further major
drop still. The breakdown through support is critical and will
incite arguments that the U.S. itself going to weaken the dollar via coming
Quantitative Easing. Meanwhile, the gold price is nudging the
record price of $1,300 and promising much more!
The
argument from the U.S. Treasury that China should let the Yuan rise is now
losing weight in line with the weakening of the U.S.
Dollar. All eyes are on the Fed after the issue
of its statement this week. These pointed downward to deflation
for the economy, despite the general belief that the U.S. still has a
recovery underway.
This
is a major step forward for us in the gold and silver world. The
Fed has indicated that deflation may have to be fought. If this
is correct then the Q.E. we have seen to date is more than
inadequate. More than that, the Fed is aware it may have to
inflate, to give the right financial environment for a ‘real’ recovery
to take place. This means that the value of the Dollar both
inside and outside the U.S. will be lowered, in future. Markets are
discounting deflation expectations right now. Once inflation
appears, only then do we expect equity markets to rise, as the dollar
cheapens.
The
boom-bust history of the last three decades is now over and we are moving to
and into new territory for global economies. The new ground is
dangerous, requiring and facing extreme economic and currency
conditions. We doubt whether the tools in the Fed’s hands
are sufficient to cope with future situations. This is when
government should step in, as President Roosevelt did in the 1930’s
with huge quantitative easing and heavy, ground-level, employment
stimuli.
Unfortunately
we are approaching a time when the U.S. government will be emasculated with
the Administration unable to appoint people to high places, let alone pass
critical legislation to really boost the economy. Global foreign
exchanges have been the first to reflect the true picture on the dollar by
sending it down through critical support levels.
As
inflation [which may not be visible for another couple of months] debauches
debt itself, repayment of debt will make it easier to repay. This could
well propel the consumer from saving into spending.
Consumers
will then turn to durables and other hard assets to protect their savings
boosting the economy, but not in a good way [unless employment takes off to cope
with the demand]. It worked in the 1930’s, but industrial
production was boosted by a supportive Second World War effort.
No
such future exists for us though. Manufacturing will only revive
if protectionism is employed. In fact, the future appears
fraught with potential changes on such a scale that a complete re-vamp of the
global monetary system is needed. That can only happen once
the global pecking order of nations has been re-worked. That
won’t happen without economic strife. We are really
watching the rise of China and the decline of the U.S.
In
such an environment gold is the only common denominator of value, accepted
globally.
As we
saw in the huge gold / foreign currency swaps which the Bank of International
Settlements conducted earlier this year gold can be harnessed to
‘guarantee’ international currency transactions.
Having said this, the problem is, “how do you slot it into a fragmented
global economy in such a way as to back currencies
‘Officially’”. Not for one moment do we think gold
will be used in isolation as international money. It can only
work with paper currencies, with international governmental approval,
for it to be part of the global monetary system again.
As
you can see from the above, the entire future global monetary game plan is
changing. In the current issue of the Gold Forecaster you will
see how we outline potential financial and currency crises that lie ahead.
Julian
D. W. Phillips
Gold/Silver
Forecaster – Global Watch
GoldForecaster.com
Is your
wealth effectively structured to avoid the pernicious effects of the
regulatory climate that we have moved into? It should be and we can help you
to do so professionally and within the law. Please contact us for any help
regarding this at: gold-authenticmoney@iafrica.com.
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