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Wednesday, January 16, 2013

Currency War is raging or Germany in trouble

I have been saying since 2008, we are in a currency war.  A currency war is when all countries try to boost prosperity by making THEIR currency go lower, so that their countries products are cheaper, relative to the rest of the world.

The problem with this scenario is the other countries see what is being attempted and actively prevent this master, grand plan from occurring.  The net result is all currencies devalue, resulting in higher prices for natural resources.  Natural resources being physical cannot be as easily manipulated like services or other assets based solely on currency worth relative to other objects in the same currency.

Germany on Tuesday announced "Bundesbank to pull gold from New York and Paris".  This is a first sign that the international banking system is losing it's cohesion OR that Germany having more difficulty dealing with the Euro than is publicly known.  Moving gold back to Germany to allow Germany to use the gold as they wish, as they attempt to stabilize their currency.

Either way, this is a tell-tale moment in the history of banking since the great depression.  Since then the western countries have been evolving the financial system based on a trust system.  That ideal actually is the right one, the world banking system at it's heart is trust.   Embracing trust is a good thing for prosperity and business.  However, if that trust is abused, sentiment changes.  Or possibly the trust is just as strong, but the financial system strains is pressuring Germany to deal with and needs the gold closer to home.

As a reminder, I STRONGLY oppose gold as money.  It is the exact opposite of trust.  A currency system based on gold basically allows zero growth without first paying a 'tax' to extract gold, refine it, and print coins as overhead to expanding the economy.  In the very rapid changing world we live, such draconian limitations would smother the economy.

Either way, 2013 is shaping up to be a fun year.

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