This morning, the Swiss National Bank intervened dramatically to push down the Swiss Franc vs other currencies.
It seems pretty clear that the Chicoms are set to try to devalue their currency, specially against the dollar and the euro.
Milton Friedman notwithstanding, these moves make it clear that the dominant threat on the minds of central bankers is DEFLATION. Competitive devaluation scenarios are particularly and extremely tough on fiat currency economies, which, sadly, takes in the entire planet at the moment.
Sportsfans, you simply cannot sustain a fiat currency in an environment of deflation. This produces breadlines, economic paralysis and coma, and eventually death.
Take the situation to your heart, and understand why this is so:
Suppose you grasp in the very center of your bones that the currency you hold is virtually certain to be worth more in a month than it is worth today. Will you go out tomorrow and spend your currency? If you are rational, you will spend this appreciating currency only if you absolutely MUST spend it.
Now, multiply this folk wisdom, this common sense, across four billion souls, and behold!
Everything comes to a halt. Nothing moves.
Central bankers around the world are quite right to be terrified pale at the prospect of global deflation. They will be strung up from the nearest telephone poles.
Why is this different in an environment of commodity-backed currency? One’s currency cannot rapidly appreciate when it is a stand-in for a tangible commodity, unless, somehow, inexplicably, the tangible commodity is somehow becoming much more scarce than previously, or, the sovereign decrees that it takes less currency to buy the commodity than previously.
Only fiat currencies, or economies with diabolical sovereigns, are exposed to deflation.
Yes, we have a global asset bubble. But, we would never have been able to blow up the asset bubble without fiat currencies.
Folks, human beings cannot get along with the discipline of tangible values. Our brains don’t work that way.
Hoard your currency. Lend it to the trustworthy, because they will pay you back with more valuable currency than you lent. Make sure you have tangible assets pledged for your loans.
Be prepared to defend your property.