Eric Sprott - Bonfire of the Currencies

From ZeroHedge.com
By Eric Sprott

Bonfire of the Currencies

World governments just can’t get enough conflict these days. They’ve now resorted to battling each other with money printing. The devaluation race is in full gear, and it’s tough to keep track of who’s winning. It’s been just wonderful for investors, of course. In addition to contending with 0% interest rates, they now have to navigate through increased currency volatility and uncertainties associated with potential inflation. Gold and silver are benefiting greatly from this ‘currency war’ as investors seek safe harbor in hard money. We can’t say we’re surprised to see gold and silver where they are, but it has been surprising to witness just how willing and open governments are to blasting their own currencies down in value. Although we have complete confidence that the economists at the world’s various central banks know exactly what they are doing, we’re content to own precious metals investments in the meantime until such a day arises when the currency war winner is finally announced.

Just to make sure you’re up to date in currency war news, the most recent devaluation shot was fired by the Federal Reserve on August 17, 2010, when it initiated its permanent open market operations (POMO) to stimulate economic activity. The central bank announced its intention to reinvest the proceeds of its maturing mortgage-backed security holdings back into Treasury bonds. Combined with recent comments by the Federal Open Market Committee (FOMC) on increasing the US inflation rate (through money printing), world governments have been coerced into action. They’ll be damned if they let the US devalue against their own respective currencies and slam their exports, so everyone’s devaluing in tandem. It’s literally a "race to the bottom", with all major currencies on the potential fiat currency chopping block.

By our count, no less than 23 separate countries have now intervened in the foreign exchange market in some way since September 21, 2010. The goal for all is to increase the supply of their respective paper currencies in order to drive them down in value. In the cases where countries can’t print outright, they have intervened through capital controls or "open mouth" operations (ie. talking down your currency in policy meetings, etc.). Both approaches have significantly increased the currency market’s volatility. Japan’s October 5th announcement of a "new fund" to purchase assets ranging from government to corporate bonds has forced other countries to pursue the same policy, and the world now awaits similar announcements from the United States and UK in the form of new Quantitative Easing programs.2

Investors aren’t clueless, however, and many are shifting capital to protect themselves. A large number of commodities are now benefiting from the uncertainty created by the devaluation race. Gold, Silver, oil, copper, wheat, sugar and Platinum are all on the run, and yet we have no reported inflation!.....read on