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-- Posted Wednesday, 4 March 2009 | Digg This Article | Source: GoldSeek.com

Everybody knows that ‘quantitative easing’ or printing money is just around the corner, and the Bank of England yesterday was the first central bank in the world to receive government permission to go ahead.

Such is the size of the coming US budget deficit amid market interventions on an unprecedented scale that turning on the printing presses will be the answer. Karl Marx would likely see this as capitalism in its final death throws, but his face is still unlikely to appear on dollar bills.

However, it is a very socialist turn in world affairs and, to turn Marx back on himself, every experiment with socialism has ended badly; often with inflation ravaging the incomes of the poorest and retired in society, completely the reverse of the doubtless well intended effect.

Inflation guarantee

Printing money guarantees inflation. As Milton Friedman wrote inflation is always a monetary phenomenon. More money is by definition inflation.

So what is holding up the US dollar? Why has it rallied recently against every major currency?

First, this is a reflection of the even worse economic performance of national rivals: Japan is sunk in deep recession; the eurozone has a crisis over lending more than a trillion dollars to Eastern Europe; the UK is swamped by its outsized banking sector and housing crisis; even Switzerland’s economy is none too chipper.

Secondly, as global financial markets have sold off, and continue to sell off, then assets are liquidated mainly into US dollars and this creates a demand for dollars that supports its relative value.

Market bottom

So when will the inevitable impact of printing money catch up with the greenback? It surely has to come when financial markets reach a bottom and end their sell offs. That could take a matter of months but almost certainly not as long as a year.

And once money is piled high in dollar bills and treasuries, and stocks have a clear ‘buy’ sign over them, the stock market will rally and the dollar will crash in value along with bonds.

That will be the point at which you want your money out of the US currency and into hard assets like precious metals which will then be the currency of last resort. For as the stock market recovers all that newly printed money will flood into the system from the bank accounts where it is presently being hoarded, creating inflation and devaluing the dollar.

It will not take long for investors to catch on and this flood will be channeled into the narrow gold and silver markets creating huge price increases. If anybody has a better idea of the outlook for the US dollar please leave a comment.

-- Posted Wednesday, 4 March 2009 | Digg This Article

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link

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