Best of the Week
Most Popular
1.Stock Market Continues Defying Gravity, Dow New All Time High - Nadeem_Walayat
2.America Superpower 2016 - Ian Bremmer
3.The US Dollar and the Precious Metals Complex - Rambus_Chartology
4.UK Immigration Crisis Could Prompt BREXIT, Propelling Britain Out of EU Despite German Factor - Nadeem_Walayat
5.The “Real Flash Crash” Will Scare You to Death - Shah Gilani
6.Gold Price Trend Forecast - Bob_Louka
7.UK Deflation Warning - Bank of England Economic Propaganda to Print and Inflate Debt - Nadeem_Walayat
8.Gold Lifeboat to Global Economies “Titanic Problem” Warn HSBC - GoldCore
9.Will Interest Rates Ever Rise? - BATR
10.Who’s Killing the Stock Market? - Shah Gilani
Last 5 days
Stock Markets Buy and Hold is Back! - 28th May 15
We're Now Frighteningly Vulnerable to a Bond Market Crash - 28th May 15
Austerity, Economics and Religion - 28th May 15
National Holidays London and the Magic of Legoland UK Review - 27th May 15
Imminent Stocks Bear Market Signaled by Dow Theory ... - 27th May 15
Gold Price Has Bottomed – More Evidence - 27th May 15
Three Reasons You Shouldn’t Try to Invest Like Warren Buffett - 27th May 15
Gold Is “100% Guarantee from Legal and Political Risks” States Russian Central Bank - 27th May 15
Don't Drown in the Sea of Global Debt - 27th May 15
Three Reasons Why Carl Icahn Is Wrong About Apple Stock - 27th May 15
Crude Oil Price Stochastic Signals - 26th May 15
Why the Stock Market Will Crash - 26th May 15
GDP, Inflation, Employment Economic Statistics: It’s All a Lie - 26th May 15
Introduction to Peak Food - 26th May 15
Should We Dump the Euro? - 26th May 15
A Geopolitical Net Assessment of Europe - 26th May 15
Stock Market Top in Place? - 26th May 15
Best Cash ISA SBI 2.3% - 2.8 Year Fix, UK Interest Rates 2016 - 26th May 15
China Sets Up Gold Bullion Fund For Central Banks - 25th May 15
Is The Silver Trade Getting Crowded? - 25th May 15
Money Murder Mystery: Who Killed the Stock Market? - 25th May 15
Why Do We Celebrate Rising U.S. House Prices? - 24th May 15
Mario Draghi’s Slippery Downward Slope - 24th May 15
Gold : Truth is Stranger than Fiction - 24th May 15
Facebook Stock Price Forecast - 24th May 15
Make a Killing on the Coming Energy "Debt Bubble" - 24th May 15
Stock Market SPX Uptrend Inflection Point - 23rd May 15
What You Know for Certain - Huge Demand for Gold And Silver - 23rd May 15
Are We in Another Credit Bubble? And Is It Different than Before? - 23rd May 15
The “Real Flash Crash” Will Scare You to Death - 23rd May 15
Venezuela: No Rule of Law, Bad Money - 23rd May 15
Robots That Can Beat the Market by 100% - 23rd May 15
Why Shake Shack Stock Is a Bad Investment - 23rd May 15
Gold Price Primary Driver Bullish - 23rd May 15
Time To Get Real About China - 22nd May 15
Gold Lifeboat to Global Economies “Titanic Problem” Warn HSBC - 22nd May 15
One Investment Could Save Two Generations' Retirements - 22nd May 15
Investing is About Identifying Gifted and Talented Camps - 22nd May 15
One of Europe's Latest Debt Nightmares - 22nd May 15
UK Immigration Crisis Could Prompt BREXIT, Propelling Britain Out of EU Despite German Factor - 22nd May 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Biggest Debt Bomb in History

Politicization, Currencies & Gold: The Lost Battle of Central Banks

Commodities / Gold and Silver 2013 Feb 06, 2013 - 08:44 AM GMT

By: GoldSilver

Commodities

Central banks have many losing battles ahead.

The world finds itself immersed in the depths of an economic crisis. This crisis however, is unlike any other experienced in recent history. What is at stake is the very foundation of our monetary system, the currency.

Today's unbacked fiat currency experiment is at the very root of an emerging global monetary problem. While the talk of "recovery" in recent months now populates headlines, the desperate actions of politicians and central bankers show the contrary.



More than ever, this saying applies: "Do not believe what they say, rather observe the actions of those who say it".

Since the onset of the "Great Recession", we have witnessed a spectacular 'dead cat bounce' in everything from stocks to real estate markets. This is undoubtedly attributable to the unprecedented currency debasement (currency expansion) launched by central banks, in addition to an explosion in government spending aimed at counter-acting the inevitable.

Since 2008, the Federal Reserve has more than tripled its balance sheet, while the US national debt has just about doubled in the same time frame. As central banks attempt to provide life support to an ailing system, the eventual outcome is evident. A system based on the unsustainable cannot be spared, as the problem itself lies in the medium of exchange which facilitates all economic activity: the unbacked fiat currency.

Recently, surfacing evidence of decelerating growth in the United States, the permanent tensions in the Eurozone, and Japan's deteriorating economic environment are but a few examples of the events that have triggered governments to move beyond their traditional spheres of influence and into the business of monetary policy. A flashing indicator that the so called 'recovery' is all but real.

Central banks across the globe have come under the influence of their respective governments like never before.

To be clear, these institutions are under siege in a battle that, by definition, they tend to lose : the battle of politicization.

Under a political methodology, a policy conflicting with government interests must be quickly altered. In today's environment, central bank mandates are falling under question by political forces who pose a short-minded resolution through limitless credit expansion (currency debasement), without thought to long-term consequences (rapid price inflation).

The latest victim of this reckless mindset was the Bank of Japan (BoJ).

Just weeks ago, the newly elected Japanese prime minister (Shinzo Abe) threatened the Bank of Japan's autonomy unless they alter their mandate by doubling their inflation target and committing to unlimited printing.

Consequently the BoJ recently announced a more aggressive stance focusing on open-ended asset purchases without a specified limit, a close reflection of the Federal Reserve's QE4 program launched in December 2012. Japan took this even further, and unlike the Fed, did not set specific parameters as to when to stop easing. Thus, it seems that Shinzo Abe's intent of limitless currency creation was accomplished without much struggle.

The Bank of Japan however, is not alone.

Jens Weidmann, President of Germany's central bank (The Bundesbank), has recently warned of the dangers of central bank politicization, claiming that this will eventually trigger a currency war (Race to Debase). Under such a scenario, every nation (claiming price 'competitiveness' as a justification) prints as fast as possible, increasing demand for its exports, while crushing the purchasing power of fiat currency savers and citizens at home.

This is nothing new to the global economy, but the tendency will accelerate with governments putting more pressure on central banks. As history proves, short-term minded politicians typically wreck an economy's long term prospects, as their visibility rarely goes beyond their election cycle.

Weidmann's statements note that among the reasons for Germany recently repatriating their gold from Paris and New York, the Bundesbank has considered the costs and implications of a currency war. It is all too clear to the German central bank that whether they like it or not, currency debasement quickly becomes a game of forced participation. One by one, they will fall like a domino effect.

This will be a significant price and demand catalyst for gold and silver.

Just like Germany did, it is just a matter of time before more and more countries demand the return of their gold bullion. No one wants to be left behind in the Race to Debase, much less in another very important race: the rush for monetary assets (gold & silver). Central banks know this very well.

A physical supply shock will eventually cause gold and silver prices to sky rocket as physical shortages are exposed and chains of re-hypothecated gold and silver collapse (via ETFs, pools, certificates, and paper gold / paper silver accounts).

Take note, today central banks face a series of lost battles ahead.

The politicization of currency and gold will offset an increasing set of consequences for paper fiat currencies.  The consequences of this will be substantial, transferring wealth away from those who have not yet protected themselves with physical gold and silver bullion.

http://goldsilver.com

Mike Maloney is the owner and founder of GoldSilver.com, an online precious metals dealership that specializes in delivery of gold and silver to a customer's doorstep, arranges for special secured storage, or for placement in one's IRA account. Additionally, GoldSilver.com provides invaluable research and commentary for its clients, assisting them in their wealth building endeavors.

© 2013 Copyright  GoldSilver - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History