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-- Posted Monday, 11 October 2010 | Digg This Article | | Source: GoldSeek.com
The failure of the IMF meeting at the weekend to do anything meaningful to head off a currency war between the indebted countries that want to devalue away their economic problems and the creditor nations that lose if they do leaves the forex markets facing a currency war. It will be a battle royal between central banks. In any war the ultimate winner is the one with the greatest resources and at least some strategic advantage and a brilliant general can tip the balance. US strength and weakness The United States is still the world’s largest economy, so its final triumph ought to be obvious. However, this is where the real test of a shift in the balance of global economic power from West to East will come. For the counter argument is that the US is fatally weakened by its debt burden. Will the bond market really support another bout of money printing? In short the US mobile battalions might be about to run out of fuel. Fuel in this case comes from the bond market, and the East is controlling this vital strategic asset. Will China support the US in its devaluation effort that is a de facto appreciation of the Chinese currency? To date the Chinese opposition has been frank and furious. China knows currency appreciation will topple its own bubble economy and throw millions out of work. Those 17 per cent of the US population either unemployed or semi-employed might have little sympathy. They have already paid a high price in the peace. So what happens if the bond market blows up, instead of allowing Mr. Bernanke to print more money? Interest rates will surge, the dollar will strengthen and equity and real estate markets would immediately tank. China will see its best export market in turmoil. The only place for money to go would then be cash or precious metals. Asset devaluation would make cash more valuable, and gold and silver would gain as a store of value and a solid currency not at the mercy of forex markets. Paulson backs gold It is hardly surprising then that the hedge fund manager who got subprime mortgages right is 80 per cent in gold. John Paulson sees low double-digit inflation by 2012 killing the bond market, hardly any US growth in 2011 and 2012, a weak US housing market, as well as a currency war as Washington tries to devalue away its debts. That is a slightly less dramatic view than the sudden collapse scenario but then wars are actually fought over long periods, and in a sense that ensures an even more dramatic and lasting outcome. Paulson thinks the bond market has a little more time to run. Dr Marc Faber and Professor Niall Ferguson do not. But in any real war there are very few winners. This is a period of wealth destruction, not wealth creation. Those that emerge from the ashes with their money tucked away in gold and silver can buy assets cheaply in the early stages of the recovery and prosper in the next phase. Gold is the ultimate warrior in a currency war. ArabianMoney’s editor and publisher is ranked among the 65 global financial commentators now predicting $5,000 gold and has a book out predicting just that (click here).
-- Posted Monday, 11 October 2010 | Digg This Article | Source: GoldSeek.com
Previous Articles by Peter Cooper
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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Gold And Silver Are the Winners in A Currency War
