Part IV of Banning “Naked” Short Selling in Germany – What it is and Why You Should Care

Early May 19, 2010, the German “authorities” banned naked short-selling of financial institutions, euro debt instruments, and cds’s.For details on what this high-finance heist is and how it will affect the markets, read on.

Part IV

But We’re Talking about Currency Manipulation Here, Not Product Pricing

I used product pricing to demonstrate the difference between command economies and free markets. How does that relate to countries stacking the deck in favor of their currencies? It’s really just the same thing on an even larger scale.

Consider what is moving the euro right now. Two weeks ago, it took $1.30 to buy a euro, and this week that’s down to $1.23. That shift simply reflects the market’s growing belief that the European Union is about to make some very hard choices, and given their record it’s pretty clear they’ll be making the wrong choices. To put it bluntly, people believe that the E.U. will dissolve and the euro will become useless, or that in its desperate attempt to conserve the union the EU will make decisions which will stifle the European economy’s efficiency and competitiveness.

Considering that the German bank has moved to interfere with the free market, I’d say the market has a pretty good point, wouldn’t you? But in taking such action they may actually be sealing the doom of the euro, so the jury’s out on that question in my book. You can expect a continued decline of the euro, only now it may take longer to “find its value.”

Does everybody think the euro will fail? No, of course not. Given a free market, the euro would find its value using supply and demand. That price will reflect that some people think that the euro is circling the drain. They will pay less, and if they are wrong, the people who are right will get more value for their money. Everybody will live and learn-that’s what a free market is all about. The people who are right will, and should, flourish (so they can keep doing right things), while those who are wrong pay for their mistakes and try something else next time.

Now that the EU has started down the road to a command economy, they will attract less international capital. Companies with a choice will not send their money where it can get trapped, and people will likewise be loath to invest in an economy where the currency may not reflect its actual value. That’s too risky. People within the economy, not trusting the currency to retain its value, will tend to spend more (on items of certain value) and will save and invest less. They will buy things like gold which have more reliable monetary value. Probably there will be an erosion of trust in government and a commensurate rise in black market activity.

And on the grand scale, money will flow to economies which are freer and more dependable. So far, that has included a flight to the dollar and the U.S. economy, but the time is coming when people will see that the dollar is trapped in the same dynamic. The “exit” sign is marked in gold.

Leave a Reply

Your email address will not be published. Required fields are marked *