A One World Currency Is Inevitable
Christopher Laird, July 29th, 2009
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I know it sounds impossible, but the world is being forced to a point of having to implement a one world currency. Or at least a one world currency among the major economies - maybe Tunisia might escape.
Started with the USD
Why do I say that? Well, if you follow the evolution of the USD since roughly the end of WW2, it gradually became the world reserve currency, and that was intended. It started with the Breton woods agreement, and also during WW2 when the European allies currencies were collapsing as Hitler was conquering Europe.
The US at the time was by far the world's biggest industrial power, and was wealthy enough to backstop Europe's currencies as well as rebuilding the West after WW2. Not only backstopping the currencies, but things like the Marshall plan which put out a ton of money to rebuild the war ravaged economies.
Ok, so there was a good reason for the US to backstop the West's currencies during WW2 and after. - AND of course, like any power of that magnitude, it got taken advantage of - as today the US is running horrendous fiscal deficits and is abusing this world reserve currency, the USD.
But, our trade partners have no easy way out of this structure. If they dump the USD because of the US fiscal deficits, they will cause so much damage to their own economies that they just cannot even think of doing that.
But, ultimately, since the world economies are all linked now, none can stand alone whatsoever, so then the idea of individual currencies is fading. In fact, all individual currencies do now is cause trade and currency frictions, like the US complaining the Chinese are using a cheap Yuan to manipulate their trade to their advantage, and the Chinese are complaining the US is running ruinous deficits and devaluing the USD.
Too low interest rates push away capital
And there is more, for example, Fekete has a very interesting article just out about how the US Fed and Treasury are pushing interest rates down, which makes it less desirable to invest capital, which is deflationary. And, if you notice, the only real lenders out there right now are the world central banks lending public money in a last attempt to keep the credit markets alive, a feat that will fail - but I am broad brushing here.
Right now, if you look at various markets, there are lots of conflicting trends. This represents the change from a booming finance driven world economy after WW2, with the USD becoming a de facto world currency, to what is now a deconstruction of that whole system, and deflationary effects are emerging.
In fact, one reason I have been absent from the public dialog for several months is because we have been diligently analyzing these changes and know lots of change is afoot, and are just thinking a lot about this.
But, one thing that we stated several months ago was the oil and commodity bull of 09 was fading and due to fade into summer 09. And that is happening. Look at Copper, poised for a big fall, and oil, already falling from its highs.
And yes, these declines are related to speculators realizing the latest jig is up and inventories are so high for oil and copper that that latest party is ending for the moment.
And yes that is due to deflation, where the world economy is poised this year for a roughly 2% decline overall, unheard of since WW2, with some key sectors in the major economies having contractions of 25% roughly for everything from various exports and imports to rail traffic. Get this: a drastically slowing world economy is afoot.
