The Race to the Bottom:

I recently wrote a three-part series entitled “The Skin of the Gods” a very unprofessional attempt to trace, down through the ages, the folly of debasing currency by the unwarranted printing of specie.

Well my friends it now looks as though Armageddon is approaching, in the form of massive and pervasive attempts to re inflate the economies of the E.U. Japan and of course the U.S.

The form of battle appears to be low or sub-zero rates of interest and action by the Central Banks to force liquidity, or create ‘asset bubbles’  by the purchase of, mostly government, debt with ‘funny money’, sometimes referred to as  “quantitative easing”. Central  Bankers are, therefore in a race to the bottom  by following a course that can only devalue their currencies,  in terms  of other paper currencies and, of course gold and other ‘hard’ assets.

The losers in all of this will be the holders of these Y.E.D. (Yen Euro Dollar) currencies, the biggest by far, being the Chinese, who are ‘long’ massive amounts of these currencies due to their export driven economy.  This, no doubt, is why the Chinese  central planners continue to subsidize the purchase of gold, mostly in the form of concentrates containing Arsenic and other impurities, scorned by most industrial nations. The Chinese are also exporting Silver, a non-reserve currency, and importing Gold, a reserve currency, as are the Swiss,  who are going one step further, and actually repatriating gold held by the Federal Reserve Bank of New York.

It is no surprise that China encourages its S.O.E.’s (State Owned Enterprises) to make massive investments in far corners of the globe in liberated Y.E.D. Currencies. The planned US $ 2 billion Paradise Island Gambling Resort in the Bahamas, thought to be the largest civil project in the World, is a typical example. Apparently the country risk, being that of a small independent Island Nation, at almost constant war with the US Treasury, is insufficient to offset the urgent need to place fast depreciating paper currency with hard revenue generating assets.

This is the strange new World that follows the collapse of the Breton Woods Monetary System in August 1971. This is when the  pledge of convertibility of the mighty US Dollar into gold was abrogated in favor of the ‘dirty float’ a term that no one understands or adheres to.

It might well be that the Central Bankers or the Presidents of the Federal Reserve System in the US now are the sole determinants when it comes to the trading ranges of the major currencies. They do so however without any reference to gold or any other reserves. Rather they blather on about percentage s of debt to GDP (gross domestic product) as being the correct measuring stick. This policy smacks of the adage of ‘the blind leading the blind’ and ‘it must be alright because everyone goes along with it’. But  we all know what will happen if just one influential player or creditor  breaks ranks and refuses to accept a currency as settlement for trade.

Will this happen? and if so when? My guess is sooner rather than later. Most likely after the 2016 Presidential Election in the US, or maybe when a major player such as France breaks ranks with the EU Monetary Union. Then we will once again have a new world order based upon a basket of currencies and commodities to which all the major Western countries will swear allegiance, for a little while anyway.


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