Prudent investors should maintain a healthy scepticism about anything we read in the mainstream media. What you see on the news programs, in my view, represents what corporate interests – a term which I use in its broadest sense to include governments – want us to believe.
The lead economic story over the past month or so has been about Europe going down the tubes, imminent collapse of the euro, blood in the streets in Europe etc. Now I’m the first to admit that European finances are in terrible shape, and that the European Monetary Union might not have been a good idea from the beginning… but I believe there is an untold story behind the headlines. Things don’t get hyped this much by pure accident.
“You know you said something to me Peter, a year or so ago, that really stuck in my mind because it made a lot of sense to me,” said a close friend to me last week. “You said that if the central banks could arrange for the dollar, the euro, the pound and the yen to fall all at the same time, nobody would really notice that a devaluation was taking place.”
I’ve pointed out many times that however dire the circumstances are, I don’t expect to see overnight devaluations of major currencies in the way that we have seen in places like Argentina and Venezuela. The first world central banksters are more sophisticated than that. They certainly don’t have 100% control of the situation, but neither are they going to let the dollar, the euro or the yen into freefall. To do so would be completely against their interests. Instead, they are going for stealth devaluation.
Stealth devaluation means gradually taking away purchasing power in such a way that most people won’t notice. They will not see huge variations on their retirement account statements. They will have the same number of dollars or euros or pounds. So people won’t complain too much. They’ll sit in front of their TVs ready to be distracted by the next passing fad, blissfully ignorant that they every month the purchasing power of those fiat money units is less.
Meanwhile, the governments will effectively have gotten away with grand theft. Theft from pension plans, retirement accounts, and ordinary people’s savings. Or put another way, a hidden form of taxation (so still theft).
The dollar is collapsing… it has been harder and harder to place US treasury bonds recently, because despite the USA’s triple-A credit rating, foreign investors are getting the distinct feeling that treasuries are not so safe as they are made out to be. Hence the run of sovereign and institutional investors to gold, the only debt-free currency, which continues to rise.
Look at the recent fall in the value of the euro from this perspective. The US is prepared to play hard ball to keep up confidence in the dollar. On May 12th my friend, economic commentator Frank Suess, wrote about a secretive meeting held under the ominous title of “High-Level Conference on the International Monetary System, Zurich” This gathering entailed the who´s who of international finance, including IMF chief Herb Stein, George Soros and Masaaki Shirakawa.
Whether you like it or not,said Frank, “the global financial system is always but a mirror image, a reflection of what is happening in Americ. The US dollar is at the epicenter – NOT the Yuan, NOT the Euro, and certainly not Greece.”
Then, a few weeks later, as Frank’s predictions played out, he commented furthe, saying that what we see now is America defending the Greenback´s position as the number one world reserve currency. And, America “is playing smart and tough. When you are not able to fix your own problems and clean up your finances, then what needs to be done is denigrate and weaken your closest contender, in this case the Euro.”
Of particular interest is Treasury Secretary Timothy Geithner’s travel schedule. He has been touring the world from China, to London, to Germany, to Spain. Everywhere he stopped, he pushed for ‘quantitative easing.’ Europe, according to Mr. Geithner, is expected to “chip in and support the global economic recovery” – or in other words, run deficits like the USA.
And that is precisely what Europe is now doing – printing vast sums of money to fund bailouts that are strongly opposed by European voters. And that is, naturally, bringing down the value of the Euro.
But if we look at the bigger picture, it is still the American deficit that is the biggest problem. Other currencies need to be knocked into shape so that the American people, and investors around the world, don’t notice the devaluation of their currency.
Greece, in the global scheme of things, is insignificant. Greece´s GDP is approximately US$ 76 billion per annum. That is less than 3.8% of the size of the economy of the State of California. And have you looked at the shape of California’s finances lately? Food for thought…