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The Currency War: Who’s the Enemy?

Nov. 30, 2010 3:50 PM ETGLD, GOLD, SLV, PSLV1 Comment
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Attention Citizens: Though most of you have not yet realized it, war has been declared by the U.S. Government and the Federal Reserve! “On whom?” you may ask, scratching your head wondering if you’ve missed the breaking news story. The answer is us, every single red-blooded American from the blue collar union welder to the white collar executive. From the newly graduated college student to the retired school teacher; no victim will be left unhindered in this absolute onslaught against the American civilian.
Don’t go running to your TV expecting the regularly scheduled network programming to be interrupted for a special breaking news report. Instead you’ll probably find yourself muddling through the normal evening news drivel. Sure, you’ll hear the phrase ‘currency war’ thrown around by pundits and politicians but they’re most likely referring to the unique dynamic that exists today between the U.S. and most other emerging countries.
In the name of ‘stimulus’ and ‘quantitative easing’, the U.S. has embarked on a monetary policy that has left the dollar bruised and battered. American citizens will soon be feeling the same. By printing trillions of dollars and running enormous budget deficits, the dollar index has plunged more than 20% in the past year. Since most countries employ a dollar peg, they are required to adopt the same monetary policies as the U.S. to keep their currency stable. So as the U.S. creates more dollars, China must issue its own currency and buy dollars to its exchange rate from rising. While the media spins this as China trying to manipulate its currency to its own benefit, what most people fail to see is that China’s action is merely the effect of America’s cause.
It appears that Obama is performing the art of misdirection - a classic war technique that distracts your real enemy by attacking another. While he and Timothy Geithner parade through Asia blaming China and other creditor nations for our problems, other leaders of the G-20 nations ponder their real motives. What Obama and Geithner fail to see is that China’s policies have allowed us to build more debt to preserve our bloated standard of living. China is doing itself a huge disservice by allowing this dynamic to continue.
As the U.S. economy continues to slog along, the Treasury is auctioning billion of bonds per month to fund our ever increasing deficit. Our creditors, who are mostly foreign central banks, are becoming less and less enthusiastic about buying our debt at current interest rates. To replace our discouraged creditors, the Federal Reserve has swooped in to pick up the slack to the tune of 600 billion. The question is - who will provide the money to fund our profligate spending?
As any good politician knows, raising taxes is no way to get reelected. With spending cuts almost as equally unpopular, instead of owning up to our debts and restructuring them, the Government has turned to inflation to solve our problems. While you can be jailed for not paying the IRS, inflation is a tax that is much more stealthily enforced. Instead of holding a gun to your head and demanding your wallet, inflation is more like a thief that sneaks in your house while you sleep and robs your piggy bank.
Inflation seeks to attack the money sitting in savings accounts and bonds. Most people can understand that if you create more of something it is worth less. So, as new money is created, the value of every existing dollar is diminished. As a result, the savings that many Americans will count on in hard times and retirement will have a fraction of the purchasing power it has today.
As the government continues to lay siege on the hard earned wealth of all Americans, don’t let the political diversion fool you. Americans are under attack. Fight this war by getting your money out of the US dollar by investing in commodities and assets denominated in other currencies. If you don’t, you can surely count on becoming a casualty in this vicious war.


Disclosure: Long Gold, Gold Stocks, Silver, Silver Stocks and numerous foreign shares.

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