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Long/short Hedge Fund that invests based on facts and rational ideas. No statements made on this site should be construed as advice given by Obsidian Lightyear. If you don't pay for research and ideas...you are likely to get what you pay for... i.e. terrible advice. Do your own homework!
  • Deutsche Mark: Next reserve currency of the world  8 comments
    Jun 22, 2012 12:57 PM
         The World


         The markets are driven by rumors.  Of the many currently circulating trader's desks is that the Germans will revert back to the Deutsche Mark.  Although this is simply a rumor, we at Obsidian Lightyear Capital would like German decision makers to seriously consider this option.  
         Various German government officials have shown themselves to be among the few sane people in an increasingly insane world.  Germany's experience with hyperinflation in the beginning of the 20th century has continued to resonate with most of the German people and has influenced the rational thinking of some of its officials. 
        It is a fact of economics that money supply in a healthy economy has to be increased.  However, what is not understood by the majority of governments is that money printing is not value creation and you can not simply create value by printing money.  All printing money does is devalue the outstanding currency which during times of recession is simply a tax on the holders of the currency.  The Federal Reserve is the most famous example of a central bank falsely thinking that printing money can kick start an economy.  The Germans were forced to do it in the 20th century and suffered hyperinflation as a result.
        Consequently a reintroduction of the Deutsche Mark would result in the DM to replace the US Dollar as the world's reserve currency.  The Chinese are very astute investors and would quickly jump on the DM as it would be a real alternative to the USD.  (Apologies to any CHF fans, but in the end the Swiss simply do not have a large enough economy to support a reserve currency.  The Germans, on the other hand, do have a large enough economy to support a reserve currency.)
        Although many have commented that Germany's export sector would get hurt, the net effect of becoming the world's reserve currency would be favorable to Germany even with the hit to its export sector.  So once again, we encourage the Germans to seriously think about reintroducing the Deutsche Mark. 











    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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  •  
    With all due respect to Europe's largest economy, it is the 5th largest economy in the world trailing the USA, China, Japan and India. China's renminbi should be replacing the US dollar as the world's reserve currency, if it ever happens. China is the largest US creditor after the Fed. http://on.mktw.net/L2o9wZ All printing more money does is make the money that is in circulation less valuable, and could lead to inflation. The Germans have their hands full with eurozone debt crisis with Greece, Italy, Portugal and Spain. I don't think the reserve currency should be something that should be on their plate, until the mess in the EU is taken care of.
    23 Jun 2012, 02:18 AM Reply Like
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    China's currency is not fully convertible which prohibits it from becoming the world's reserve currency.

    More disturbing is the lack of rule of fair laws in China. There have been numerous cases recently exposing Chinese companies as having defrauded investors by blatantly lying on their disclosures. To date, no significant consequences have been suffered by those Chinese "businessmen" who committed the crimes.

    I absolutely agree with the consensus view that China will be largest economy in the world in 50 years BUT I disagree with the view that China will allow foreign entities to dominate their economy. This is the biggest point everyone misses. The Chinese don't have very strong laws when it comes to protecting foreign capital from Chinese swindlers.
    23 Jun 2012, 07:09 PM Reply Like
  •  
    What about Japan or India? I know Japan has a lot of problems, while India is an emerging economic powerhouse. If China had another form of government, I'm not sure these problems go away. For example, Japan is also problematic, because of the influence of the Yakuza, the Japanese mafia. They might be even more influential in the Japanese economy, than their American peers are in the US economy. As for India, there's corruption, but probably not to the extent in other economies. India was for years plagued by a socialist government, which may have helped the poor, but was a hindrance to private competitors, domestic or foreign. Corruption also has existed with Swiss banks, which is another reason not to have CHF as the world's reserve currency.
    24 Jun 2012, 12:43 AM Reply Like
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    Every country has criminal elements so having a mafia does not preclude a country from being the next reserve currency. Their huge debt load and use of "QE" (ie printing money) makes them a worse choice than Germany.

    As for India, their laws are a Frankenstein amalgamation of laws passed for special interests to a degree found no where else on Earth (yes, even the United States). India still doesn't allow unencumbered competition in the retail industry of all things.
    24 Jun 2012, 10:35 PM Reply Like
  •  
    Interesting, but Germany is almost certainly not large enough to become the world reserve currency. Thought a separate DM would probably help in an overall basket of currencies and provide some alternative to the dollar.
    24 Jun 2012, 01:11 AM Reply Like
  •  
    What use is a currency except to buy things with it? Having the currency of a country with goods and services that don't interest you is pretty useless. (one of many reasons Zimbabwe's currency can't find as much demand as the USD even though both countries engage in massive money printing)

    Germany produces most goods and services any modern human could possibly want to purchase.

    As for Germany not being big enough, I disagree. Additionally, as a DM transition occurs then Germany's evolution would continue and its economy would grow simply due to a transition to using the DM as a reserve currency.

    The value of being the world's reserve currency truly can not be understated. There is a reason the English had the world's reserve currency and dominated the world before America.
    24 Jun 2012, 10:42 PM Reply Like
  •  
    You see, this is a ruse. what happens to the 'euro' if germany pulls out is the issue. not what happens to germany. germany will be fine either way. and europe will not either way.

    if 'germany' is the only thing stopping the euro from devaluing itself, with france and italy at the lead of this pack of money printers ----what will be the result when france and italy start printing?

    france will benefit far and away the most. but what will they benefit from?
    From a system which allows massive amounts of spending and borrowing to ACCELERATE. the euro will still be doomed if germany leaves FIRST. the only difference is that in the next few years of massive devaluation until its inevitable breakup, the euro will provide france with the most financial benefit for its exports. other than this. Germany Leaves, France prints, the Piggy's EAT and then the Markets crush their Treasuries and France gets upset, cycle continues until France stops allowing the Piggy's to eat.

    GERMANY has an essential point, which is that , at some point you need to have all countries on the same budget page. there must be a common planning (fiscal) mechanism for a union of states. The piggys' cannot be unrestrained forever.

    the same thing happens to europe OVER AND OVER AGAIN. and the idea that this can be avoided ONLY if Germany pulls out of the Euro and goes back to the Deutchmark is a fantasy.

    HOWEVER-----if you look down the road a bit. maybe if Germany pulls out of the Euro, eventually France will have to be the 'bad guy' of the Euro when it is once more ready to fall apart perhaps in 2019 or 2020. and by then the rest of Europe will be so weak and so angry at France, that Germany can then 'come back' and use its military power to force a full political union of whatever is left of europe.

    war is inevitable. people are too attached to their notion of 'independence' ---paradoxically----when what they really are upset about is that they lost their pensions.
    25 Jun 2012, 11:49 AM Reply Like
  •  
    War in NOT inevitable. Bankruptcies don't lead to war necessarily.

    The "PIIGS" will get hurt the most if a Euro break up occurs but I would wager a lot of money that they won't militarily attack Germany or France.
    25 Jun 2012, 12:19 PM Reply Like
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