Global Mining Investing $69.95, 2 Volume e-Book Set. Buy here.
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Global Mining Investing is a reference eBook to teach investors how to think and act as investors with a underlying theme of managing risk. The book touches on a huge amount of content which heavily relies on knowledge that can only be obtained through experience...The text was engaging, as I knew the valuable outcome was to be a better thinker and investor.

While some books (such as Coulson’s An Insider’s Guide to the Mining Sector) focus on one particular commodity this book (Global Mining Investing) attempts (and does well) to cover all types of mining and commodities.

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Thursday, October 07, 2010

Nonsense about a currency war

In the media we are being told that a currency war is brewing in international markets because China is supporting its currency. We might ask - what are the ramifications of this?
In this blog however I want to focus on what is not said.
The yen is too high because over the last decade it has not engaged in the currency debasement that the USA and EU have...this has meant its currency has been resilient despite its weak local economy. It has also been supported by a current account surplus, however that benefit has declined in recent years, so that the surplus is all but gone. I would argue that this posturing against China's strong yuan is nothing more than a justification for the 'quantitative easing' which is about to follow. That has nothing to do with China, but everything to do with the poor economic management of Japan.

You might wonder why these countries keep blaming each other. The intent is to give the appearance that they are out there acting in your interests. They are not. Its all a 'serve-serving' show to make the international political debate look like a battlefield. These countries have never been more alligned in their desire to expropriate more wealth from you. Did the Chinese government object when the Australian government placed a resource rent tax on had done the same to its miners in the year previously.

You are not going to see the debasement of the USD for the most part because Europe and Japan will be debasing their currencies at the same time. The only strong currencies will be the commodity currencies. So expect an economic miracle in these countries. The reality however is that whilst people will look at commodity prices and say these countries are benefiting from high commodity prices. The reality is that commodity prices have not risen in real terms, so much as the USD in which they are denominated in as collapsed in value. We can show this by looking at the impact of commodity prices in Australian dollars - a hard currency. Hard by virtue of its monetary discipline. No one can match the capacity of the USA to debase its currency...since its debt is denominated in USDs. Of course the US will have to change its posture if debtor nations like China and the Middle East give pause to buying US bonds. It will be forced to raise rates, taxes. There is in fact no need for a new currency....just a rationalisation.

This is the era of moral relativism. A consequence of that value system is economic relativism, and that means in this context, currency relativism. i.e. If you don't see it, it does not exist. So its ok to have a debasing currency, as long as no one sees the problems associated with it. What will happen? Countries like Australia which have a hard currency will be forced to debase by either:
1. Engaging in quantitative easing
2. Increasing debt spending, i.e. Long term infrastructure projects which will make no returns in the short term.

See how it is. It is about sabotaging your economy, as by inefficiently making your economy as inefficient as possible, you can keep your currency competitive and your people happy. The reality is that only countries like China, which imports, processes and exports is immune from the effects of this economic relativism....and that will remain true as long as the country has a surplus of labour. Give it about 15-20 years before it is forced to adjust. In the meantime, Australia will be forced to debase its economy. We will have a welfare state as big as European stages in future. Don't say you were not warned. It will all be done in the name of the 'common good', so you won't see it coming. Of course they use different words these days. Even since '1984' was published the words have changes in each decade. Today its 'global competitiveness' and 'quantitative easing'....tomorrow it will be 'lifestyle preservation' and 'harmonic adjustments'. Well they are my suggestions.

So back to Japan. Does it have any alternative but to engage in 'quantitative easing'? Not unless it is prepared to raise its taxes, raise interest rates or reform the economy, or cut spending. But the government is not prepared to significantly do any of that because that would cause 'disharmony'. So its national delusion and currency debasement....which places it in tune with the global imperative. The excuse is that Japan's currency is too strong. The reality is that Japan needs to fund its debt by debasing its currency. By printing money to repay debts.
Andrew Sheldon
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