THE MONEY PRINTING GAME (played by the World's Central Banks)
and how it affects what happens to YOUR money and investments.
It is difficult to make sense of what is happening in the world, without understanding some of these currency games. They affect not only importers and exporters but ordinary people trying to make a living or pay for a home. And the last thing the politicians want is for you to know the truth of what is going on:
WHEN FACED WITH PAYING FOR A MASSIVELY EXPENSIVE WAR IN IRAQ THE US GOVERNMENT HAD TWO CHOICES -
1. Increase Taxes
2. Print More Dollar Bills
You can probably guess which one they chose, but let's put those two choices into political terms:
1. Taxes
The voters know what the government is doing - and are not going to like it!
2. Printing Currency
The voters are kept deliberately ignorant as to what is really going on.
Of course the politicians chose option 2 - and the US government stopped publishing figures of M3 (or the best measure of money in circulation.)
The growth of US money supply is estimated at 13% per annum, but no official figures are available. Other avenues of government spending in the US are also being financed by just printing more paper money.
AS well as a deficit in government spending, the US has TRADE DEFICIT. The US receives 35% of the worlds' exports and runs massive trade deficits. A total of $800 billion flooded into foreign markets last year, to pay for the goods the US imports. The US pays for this by, guess what, printing more dollar bills.
IN THE NATURAL COURSE OF EVENTS, this behaviour would tend to lead to a fall in the US dollar and a rise in other currencies. BUT other countries wish to keep their currencies competitive to help export industries. To stop or slow the rise in value against the US dollar, countries which receive large inflows of US dollars print increasing amounts of their own currencies.
The increased amount of currency in circulation in each of the individual countries is like a rising tide of money, and results in a rise in asset prices such as property and shares. Viewed another way this money printing accounts, in a large part, for apparent spectacular economic growth. Thus, by pursuing the financial policies that it does, the US is exporting inflation to the rest of the world (and allowing economic miracles of all sorts to occur.)
Now however, with American house prices falling and US credit card debt rising, the flow of American dollars to the rest of the world is expected to fall. America's policies are likely to be forced into reverse with widespread effects beyond American shores.
The rising tide of money has lifted all boats - but now it appears to be likely to go out.
If the amount surplus cash in the economy starts to fall, it is reasonable to assume that the price of assets will follow.
While it still uncertain how all this will play out - beware of excessive borrowing and value cash flow in structuring your affairs. If you have borrowed to fund investments or lifestyle, panic early rather than late. If you have borrowed too much, cut your expenses early and if you have some assets that you need to sell, do so earlier rather later and HAVE A MARGIN OF SAFETY.
While is it important to precisely predict and time these events, the important thing to note is - don't be lulled into a sense of false security and believe the commentators that all will continue as before. All the reports indicate that there is now a serious problem with bad home loans in the US and the money time may well have turned to go out.
August 1, 2007
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