-- Posted Monday, 20 February 2012 | | Disqus

All over the world the central banks are printing money like it just came into fashion. The printing is disguised. China raises its reserve requirements for banks. The Bank of England does another $80 billion in QE. Euro leaders meet to discuss a $170 billion second Greek bailout.

This is all money printing by central banks. Money or additional liquidity is being injected into the global economy. When will it stop? Can it be stopped?

China slowdown

Reading the economic commentators on China, for example, and it is clear that the Middle Kingdom can do a lot more. Why will it do so? Well to ease the pain of an economic slowdown this year – auto and housing sales are tumbling and exports in decline.

Then again China is also feeling the impact of monetary inflation in the global economy with sharp rises in food and energy prices. This is where the real economy gets impacted by central banks printing more and more money.

They can prevent debts from overwhelming an economy and forcing deflation of asset prices. But they cannot eliminate the nasty side effect of inflation which can cause the patient almost as much distress, particularly at the lower end of the scale.

The riots in Athens or Cairo show what this looks like in the real economy. You can squeeze the standard-of-living of the poor but they will fight back. This is also bad news for the real economy because those impacted by food and energy inflation have less to spend on other things, like foreign cars in China.

Winning assets

From an investment perspective gold, silver and oil will do well in an era of money printing and not much else. Stock market speculators can use cheap money to drive up equity prices for a while. But inflation gnaws away on the profitability of companies by pushing up input costs and depressing sales and that means lower share prices in time.

Gold, silver and oil go up because of fixed supply and the desire by investors to get out of devaluing currencies. Rising oil prices are particularly bad for the real economy and will always eventually cause a recession. This is probably not a good year to choose to provoke a showdown with Iran from the point of view of the real economy.

The ArabianMoney investment newsletter is recommending instruments to allow readers to prosper in this environment (subscribe here) and these are often options not favored by advisers more interested in their own commissions than their clients’ interests. Rising oil prices can only be good for the UAE where we are based and investment here must therefore also make sense.

-- Posted Monday, 20 February 2012 | 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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