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Race to the Bottom

By: Peter Schiff, Euro Pacific Capital, Inc.


-- Posted Friday, 1 October 2010 | Digg This ArticleDigg It! | | Source: GoldSeek.com

Long ago, before economic models developed their current levels of sophistication, it used to be that the goal of a government's economic policy was to bring prosperity to its citizens; in other words, to raise the general level of material comfort, while at the same time reducing the amount of toil required to attain that end.
 
However, due to the blather spouted by modern economists, success is no longer measured in those terms. Instead, governments simply look to pump up nominal levels of gross domestic product (GDP), while simultaneously catering to the needs of entrenched political classes. As exports feed directly into GDP, currency devaluation has been widely used as a means to boost exports and therefore achieve 'prosperity.' In this model, selling is an end unto itself. There is no focus whatsoever paid to the obviously negative consequences of currency debasement: diminished purchasing power and lowered living standards.
 
Way back in the 20th century, a nation's currency was viewed much as a company's stock price. The reliability, competitiveness, and growth of a national economy usually translated into a strong currency.  This system made sense.
 
Countries that offered the most fertile soil for investment capital or that made products other countries wanted would attract funds from abroad. Demand for the currency of these "blue chip" countries (which was needed to invest or buy locally) would inevitably push up the value of the currency. And so, much as shareholders of successful companies are rewarded by higher stock prices, citizens of successful countries were rewarded with stronger currencies - with which they could buy more goods and services both domestically and internationally, raising their living standards.
 
But all that has changed in recent years. With a strategy that seems to be taken from the playbook of Sam Walton, governments now look to take market share from competitors by lowering the cost of their exports. To do this, they have adopted a beggar-thyself policy of habitual currency debasement. Although such a move may benefit those who buy the products, it is a burden to the country's own workers who, like Wal-Mart employees, have to get by on subsistence wages. While the markets like a low-cost provider, this is not a niche that everyone can, or should, fill. While some will compete only on price, more successful ventures will compete on quality and innovation. For every Kia, there is a Mercedes Benz.

For the remainder of this article, and for a look at reasons why you may want to invest in Australia (a country that is resisting the urge to debase), go to the latest edition of Euro Pacific Capital's Global Investor Newsletter
Click here to download Peter's latest Special Report: My Five Favorite Gold & Silver Mining Stocks.

Be sure to pick up a copy of Peter Schiff's just-released economic fable, How an Economy Grows and Why It Crashes


-- Posted Friday, 1 October 2010 | Digg This Article | Source: GoldSeek.com

- Peter Schiff C.E.O. and Chief Global Strategist


Euro Pacific Capital, Inc.
10 Corbin Drive, Suite B
Darien, Ct. 06840
800-727-7922
www.europac.net
schiff@europac.net


Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, commodities, gold and the dollar, he is becoming increasingly more renowned. He has been quoted in many of the nation's leading newspapers, including The Wall Street Journal, Barron's, Investor's Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle, The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer, and the Christian Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg. In addition, his views are frequently quoted locally in the Orange County Register.

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkley in 1987. A financial professional for seventeen years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, he is a highly recommended broker by many of the nation's financial newsletters and advisory services.




 



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