Currency Wars Go Global
It seems as though there is not a Central Bank in the world that is or has not engaged in some form of quantitative easing since the financial crisis of 2008. It all started of course in the US and the attention shifted to Europe earlier this year as the ECB started their own version of QE.
Japan has led the way in Asia and now the Yen is at a 13 year low and has lost approximately 16% of its value in the past 9 months. But now many other countries in Asia are jumping on the currency devaluation bandwagon.
According to an article in Business Insider, The Malaysian ringgit, Thai baht, and Indonesian rupiah are all currencies that have been victims to recent interest rates cuts in Asia. In addition, this past March the Central Bank of South Korea cut its interest rate to a record low of 1.75% (Source; Business Insider 2015 June 16th)
The global blue print for stimulating growth now appears to be expansionary monetary policy which is a fancy term for money printing. However, all this has accomplished is a short term boost to asset prices and volatility in the currency and bond markets.
The Inter-connected Global Economy
According to an article in the Telegraph, investors have been withdrawing money from the emerging markets at the fast pace since the financial crisis. The article reports that equity funds from Asia, Latin America and the emerging economies have shed $9.27 billion in the week up to June 10th. (Source: The Telegraph 2015 June 12th)
This is all the result of a pending interest rate hike by the Federal Reserve. The concern is that even a small increase in rates could cause a Dollar spike, which would be a problem for the $9 trillion of off-shore dollar denominated debt.
One of the more interesting statistics referenced in the article is that according the IMF, the asset management industry now has $76 trillion worth of investments, which is equal to 100% of world GDP.
Money flows from investors and traders are going into assets based upon the actions of the Federal Reserve. As a result, highly liquid markets like stocks and bonds could become illiquid if large amounts of capital decides to pull out all at one time. Too many sellers and no buyers is referred to illiquidity.
The Case for Gold
The markets are entering a period where the Central Banks have backed themselves into a corner. We are beginning to see how years of easy money policies are producing deep financial ramifications to the world markets. The question now seems to be not whether there will be a crisis, but whether it will be manageable or an outright collapse. This is one of the main reasons to consider physical Gold and Silver.
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