Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21
Bitcoin Halvings Price Forecast and Stock to Flow Analysis - 18th Jul 21
Dell S3220DGF Unboxing and Stand Assembly - 32 Inch 165hz Curved Gaming Monitor Amazon Discount - 18th Jul 21
What Does The Fed Mean By “Transitory Inflation” And Why Is It Important To Understand? - 18th Jul 21
Will the US stock market’s worsening breadth matter? - 18th Jul 21
Bitcoin Halving's Price Projection Forecasts Trend Trajectory - 18th Jul 21
Dell S3220DGF Price CRASH to £305! 32 Inch 165hz Curved Gaming Monitor Amazon Bargain - 16th Jul 21
Google, Amazon and Netflix are Scrambling For This Rare Gas - 16th Jul 21
Sheffield Millhouses Park New Children's Play Area July 2021 Vs Old Play Area - Better or Worse? - 16th Jul 21
Inflation Soars, Powell Remains Unmoved. What about Gold? - 16th Jul 21
Goldrunner: Gold Could Jump To $1,900-$2,100 In Next 30 days – Here’s Why - 15th Jul 21
Tips For Finding The Right Influencers - 15th Jul 21
ECB Changed Monetary Strategy. Will It Alter Gold’s Course? - 15th Jul 21
NASA And Big Tech Are Facing Off Over This Rare Gas - 15th Jul 21
Will the U.S. Dollar Lose Momentum In the Second Half of 2021? - 15th Jul 21
Bitcoin Stock to Flow Model Forecasts Infinity and Beyond! - 14th Jul 21
Proteomics: The Next Truly Massive Investing Opportunity - 14th Jul 21
Massive Solar Storm to Hit Earth 2025, Coronal Mass Ejection (CME) Danger and Protection Solutions - 14th Jul 21
Is This The Best Way To Play The Coming Helium Boom? - 14th Jul 21
Meet SuperMania and its Ever-Present Sidekick, SuperMeltdown - 14th Jul 21
How NFTs Are Shaking Up Arts Trading - 14th Jul 21
Gold: High Time to Move Out of the Penthouse - 13th Jul 21
Climb Aboard! Silver Should Run Up To $38 In Next 30 Days - 13th Jul 21
How Will Remote Work Impact the U.K. economy? - 13th Jul 21
Why Helium Stocks Are Set To Soar in 2021 - 13th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Inflation Waves of 2011

Economics / Inflation Dec 23, 2010 - 12:46 AM GMT

By: John_Browne

Economics

One of the founding myths of the modern global financial system was that governments, especially of the developed democracies, could borrow endlessly without consequence. But, with sovereign debt crises erupting across the globe, it appears that the umbrella of perceived safety has gotten smaller, exposing some benighted countries, like Greece and Ireland, to severely rough weather.



As a key condition for financial rescues of these ailing sovereigns, the International Monetary Fund (IMF) and the European Central Bank (ECB) both demanded severe cuts in government spending. Faced with a bondholder revolt that sent yields upward, both acquiesced and have embarked on austerity campaigns to repair their financial positions.

The big question is: has the umbrella stopped shrinking, or will other countries soon face similar decisions?

For now, major governments such as the US and EU have been able to continue to borrow and spend licentiously to fend off the threat of deflation and keep their economies stimulated (the US is by far the greater offender). But three surprising and powerful changes threaten the viability of a long-promised "exit strategy."

First, international investors are beginning to become net sellers of sovereign debt. Even the mighty United States is finding that, despite the Fed's rounds of massive quantitative easing, in which the Fed has bought outright hundreds of billions of dollars of US Treasuries, yields are still rising. In other words, the private and foreign selling pressure is stronger than the Fed's buying pressure.

Second, the credit agencies, stung by their failure to warn investors about the banking crisis, are now emboldened enough to threaten the triple-A ratings of member states within the EU, and even of the United States itself - now the largest debtor in the world. Although it remains to be seen how great an impact the rating agencies will have on the debt markets, the fact that such moves are being contemplated at least drives the debate in an unprecedented direction.

Third, there is considerable and growing political pressure on governments to cut spending. There is a growing awareness among Western voters that government largesse can't be maintained forever, and that it will likely cost the next generation if not the present. Many pet spending programs, including defense, healthcare, welfare and even public pensions, are getting ready for haircuts - if not scalpings. Massive government spending cuts, possibly accompanied by tax increases, will be sure to take a huge bite out of near-term GDP growth, and will perhaps put the world back into the second act of a recession. This will lead us to the next great crossroads in the global financial crisis. Put simply, will the governments of Europe and America allow a natural contraction?

If the central banks of the EU and the US choose to unleash even more massive reflationary programs, then a period of crippling inflation could be the outcome. This will form the basis of monetary chaos and prolonged economic stagnation, the most damaging of all economic conditions. In these circumstances, the prices of needed raw materials and commodities, including precious metals and energy, would explode in dollar terms. [For those looking to gain investment exposure to the North American energy market, be sure to read Euro Pacific's new special report first. Click Here to download.]

Meanwhile, Chinese inflation is beginning to drive the international agenda. In order to keep a lid on this growing problem, China will soon have no choice but to revalue its currency, the yuan, higher. This will curb inflation and make most commodities cheaper in domestic terms. It will also satisfy the increasingly angry political calls of other nations for China to revalue.

A yuan revaluation requires a devaluation of other key currencies, most dramatically the US dollar, but also the pound sterling and euro. This will raise prices for food, energy, and other necessities even in the absence of action by our central banks. Such an outcome will place further economic pressures on the developed West.

In conclusion, 2011 likely will open with a deepening recession, increasing austerity, and falling asset prices. If this is met by a new round of inflation creation and yuan revaluation, then investors should weigh whether to redeploy assets in anticipation of potential rising commodity prices. I expect these developments not to happen gradually, but to come in great waves. Smart investors will tie their fate to an investment vessel with a solid hull, because in these seas, even a hint of rot could tear a ship asunder.

For in-depth analysis of this and other investment topics, subscribe to Peter Schiff's Global Investor Newsletter. Click here for your free subscription. 

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2019 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