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Michael Pento continues:


“On the heels of the Federal Reserve’s and European Central Bank’s promise of unlimited counterfeiting forever, the Bank of Japan announced last week that it would expand its purchase of Japanese Government Bonds (and other assets including equities) by 10 trillion Yen.  This brings the latest round of BOJ intervention to a total of 80 trillion Yen!


The sad fact is that the developed world’s central banks are in a desperate battle of one-upmanship.... 


Continue reading the Michael Pento piece below...




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“The ill-founded goal is to wreck their currency’s value, in relationship to other fiat currencies, in order to boost manufacturing and stimulate economic growth.  But once again these central bankers have their economics backwards.


A weak currency that is caused by printing money cannot create a more competitive market for a country’s exports because it increases the cost of goods sold in terms of the domestic currency.  Central banks reduce the value of their currency by lowering interest rates and boosting the money supply.  This causes aggregate prices to rise, especially on manufactured goods that are a key component of exports.


While it is true that foreign currencies will have a more favorable exchange rate, the price of domestic goods and services will have increased in commensurate fashion—thus, offsetting the change in currency valuations.  Therefore, there is no improvement in the balance of trade and no improvement in economic growth from competitive currency devaluation.


For example, the U.S. dollar peaked at 160 on the Dollar Index back in 1985--the USD Index is comprised from a basket of our 6 largest trading partners.  This index has lost 50% of its value since that time and stands at just 79 today.  According to the economics of today’s central bankers, this should have engendered a U.S. manufacturing renaissance, a huge trade surplus and a vibrant economy. 


However, the U.S. economy has been mired in anemic growth for years.  The trade deficit has been a chronic problem for decades and was $559 billion last year alone.  And manufacturing as a percentage of the economy has dropped from 18% in 1985, to just 12% today.


You just cannot ignore the fact that governments and central banks are engaged in a global currency war.  But we already know who the losers are in this battle; they will be the middle classes and the economies of the developed world.  There will be no sustained economic growth until central bankers make peace with their currencies and put aside the notion that prosperity can come from inflation.


Until those in charge of fiat currencies reach that epiphany, the only winners will be those that can afford to place a significant portion of their investments in hard assets.”


To learn more about Michael Pento’s financial management services CLICK HERE. 


© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.


The interviews with Nigel Farage, Ben Davies, Dr. Keith Barron, Jean-Marie Eveillard, Bill Fleckenstein, and Egon von Greyerz are available now.  Also, be sure to listen to last week’s line-up of other KWN interviews which included and Felix Zulauf, Rob Arnott, Michael Pento, Gerald Celente, and James Dines by CLICKING HERE.


Eric King

KingWorldNews.com

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