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By Robert Fitzwilson of The Portola Group

January 19 (King World News) -

We received some startling research last week that put into perspective how bad the current state of just one aspect of the monumental fiat money/debt creation and currency debasement has become.  The statistic that we found most startling is that the year-over-year increase in the money supply from China, the United States, Japan and the Eurozone was a staggering $50 trillion....

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We repeat, that is just for a 12-month period.  It worked out to a 7% increase on average, but the distribution was uneven.  To put this into context, the entire world’s GDP is $75 trillion.

Another striking aspect of the report was that Japan showed the smallest increase of the four.  China came in at first place with $18 trillion, while Japan “only” increased theirs by $8 trillion.  It is ironic that the financial community is focused on Abenomics and the dramatic increase in stimulus in that country, but it is clear that this situation is global and on an even larger scale.

There has been a lot of talk about the “race to the bottom” with countries debasing their currency in order to obtain an international trade advantage.  There has also been an historic reference to the “Beggar Thy Neighbor” term used in the 1930’s to describe world currency debasement in that era.

We conclude that what we are seeing is a “Beggar Thy Savers” phenomenon.  Instead of currencies competing in relatively free markets and being allowed to weaken, the major currencies are really joined at the hip.  If there is a race to the bottom, it will be like the skydiver teams holding hands all the way down.  In this case it will be the Yen, the Dollar, the Euro and even the Yuan when that time comes.

Much has been written about China’s desire to have the yuan be the world’s reserve currency.  They certainly don’t act like it when massive amounts of currency and debt are being created.  We believe that the currency bloc is being managed within a very tight range.  One of the currencies can get out of line to provide a temporary advantage, but the key to the policy is that nobody gets too far out of line.  Even the Chinese have a stake in maintaining the approximate relative currency values.

Therefore, if those four entities are playing with these rules, the objective then becomes to print as much as you can get away with.  After all, the benefit of being a reserve currency, which the United States has enjoyed since 1944, is that you just create money to buy whatever you need from the rest of the world.  If currencies are not allowed to be significantly realigned, the approach that allows each player to optimize their situation is to print as much as possible and buy as much real goods, real estate, art work, precious metals and companies as you can before the other players beat you to the punch.

The game ends when the existing stock of money becomes worthless for all four players, and the winner is the one who accumulated the most real assets leading up to that point.  This could very well be China’s true short-term intention.  The real losers are the savers.  Their accumulated capital is being debased at an exponential pace.  The recognition of that debasement will be in the form of a precipitous decline in purchasing power at some future date when the currencies collapse in unison.

For most people, they have no accumulated savings.  However, they will still suffer from the dramatic loss of purchasing power for their necessities.  For those that have accumulated savings, it is imperative that they minimize their holdings in traditionally “safe” assets such as cash and fixed income.  They should be emulating the countries in the currency bloc as outlined above.

China is doing the right thing.  They have been encouraging their citizens to acquire gold in addition to other real assets.  India has been attempting to staunch the flow of gold into the country, but that is proving to be ineffective.  Their citizens are too savvy, and gold is such an important cultural factor to them.

It is in the United States and the Eurozone that governments have done everything possible to dissuade and prevent their citizens from preparing for that eventual day that the currencies collapse.  Whether it is the continuing attempts to beat down the price of precious metals, or the barrage of coordinated media attacks and blather, it has succeeded in making savers fearful of what has proved throughout the ages to provide a safe haven.  In the end, it will prove to be a disaster of historic proportions for both the citizens and their governments that fail to protect their wealth.

© 2014 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.

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