Race to the Bottom: Competitive Devaluations Across the G7

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Includes: FXE, FXY, GLD, UDN, UUP
by: Perry D.

For the past two years, the Federal Reserve has tried to prop up the increasingly uncompetitive and defective U.S. economy and has tried to blunt a necessary adjustment from the bubble years with what essentially amounts to money printing -- hoping that doing so will not stoke inflation. And another round of massive money-printing from the Fed might be on its way.

With the Bank of Japan on Tuesday essentially calling out the Federal Reserve with its bigest round of yen money-printing in six years -- to prop up Japan's own flagging economy -- we might be approaching a new dangerous round of competitive devaluations and stagnation across the industrialized world. Maybe the final one before full-blown inflation.

If Europe -- also under pressure to take the easy way out of its malaise -- joins the game, in more earnest than it already has (the UK is openly talking about it), we'll be in an all-out race to the bottom, to export economic depression and inflation -- stagflation -- to one another. Combined with growing protectionist sentiment and repeated stock market head-fakes, this mess is looking more like the early stages and negative feedback loops of the Great Depression.

The emerging race to the bottom is clearly bolstering gold prices. The price of gold -- which is behaving more and more like a virtual alternative to G7 currencies -- posted its biggest increase in nearly four months, with the GLD ETF surging at the fastest pace since May.

It's great that more people are sounding the alarm about this, among them economist Peter Schiff and blogger ZeroHedge, while the U.S. government continues to avoid taking the painful steps necessary to make the U.S. a real economy again.

Disclosure: Author holds a position in GLD