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Floating Exchange Rates = The world we have today

 -- Published: Monday, 17 August 2015 | Print  | Disqus 

Why is this so difficult for people to see? There can be no confusion about the issue that is sending the world headlong into financial chaos. It is the positively stupid idea of letting unbacked currencies “trade” against one another.

Firstly, politicians are corrupt in every country. They say that death and taxes are the only two certainties? Wrong! Corrupt politicians are a certainty as well. As a result, these politicians get elected via unreasonable promises from a monetary perspective. When you add the fact that sovereigns issue debt as money and not cash you MUST back that debt with something and that something used to be gold.

Instead, post Nixon, the geniuses in charge thought it a splendid idea to let unbacked currencies float. That way the “free market” would decide who had the cleanest shirt. Did anyone ever stop to think that governments have always defaulted on their debts and at some point defaults in economies that truly mattered would start to default again?

Every developed nation is swimming in unsustainable debt without a gold standard to default against. So, we are left with Japan trying to crush its currency, Europe as a whole trying to crush its currency and now China must crush its currency (free market…sure). But, what about the biggest debtor of all the US? Somehow, the US whose total debt level and unfunded liabilities dwarf that of the worlds is watching its currency soar? That makes everyone holding US Treasuries externally richer and the US government a whole lot poorer.

But hey, gold’s a pet rock and has no place in the world of money right? Well, anyone espousing the theory that the gold standard did not work is about to see what a world of sovereign defaults looks like without it.

In the end, sovereign governments have no business issuing debt as money. They should issue cash! If the money center banks insist the politicians issue debt then debt has to be backed by something, should the debt need retiring. It is that simple.

This is an unholy mess we find ourselves in and anyone that thinks there is enough capital to convert privately the outstanding debt into equity at the sovereign level is clueless. So, put your crash helmets on and watch the carnage unfold but if you are looking for someone to blame forget it. The fatal blow that Nixon dealt to the globe was hatched by those that have long since passed being relevant in the monetary world.


It’s a Mystery

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 -- Published: Monday, 17 August 2015 | E-Mail  | Print  | Source:

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