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Thursday, February 14, 2013

News from the front: CURRENCY WARS

Kenneth Courtis: Former vice-chairman, Goldman Sachs (Asia) and co-founder of Themes Investment Management:

"The fundamental force driving markets is the coordinated and desperate action of the world’s central banks to offset powerful depressive forces released with the popping of the Bush Bubble and the contagion which resulted for the world financial system. Despite five years of an unprecedented global effort to dominate the crisis, global economic growth, employment, and world trade remain substantially below peak 2007 levels.
Financial systems and economies in OECD (Organisation for Economic Co-operation and Development) countries remain fragile, despite repeated claims of bankers and policy officials to the contrary.

With governments virtually everywhere in the developed world imposing austerity (in order to) reduce overall debt levels, the reality is that leverage has continued to increase in just about every OECD economy since the onset of the crisis. It seems that the greater the austerity, the greater has been the increase in debt levels! 

This equation has just become more powerful with the government in Tokyo committing to a surge in new deficit spending to dramatically increasing the levels of liquidity being injected into the system.

At the same time, the US (Fed) remains committed to increasing liquidity again this year, and the ECB (European Central Bank) and the Bank of England are on standby to do “whatever it takes”. We will continue to have a highly powerful, sustained effort by central banks to force investors to take on more and more risk.With world trade flat and the weak economies of the developed world leading exporters everywhere into pressuring governments to generate more competitive currencies, we have entered into a period of competitive devaluations."
Currency wars have begun and they are very serious, difficult to predict, and cannot be easily reversed. Excessive money printing is the cause.

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