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Nowhere To Run - A Monetary Crisis

Saturday, March 6, 2010, 11:38 AM
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Nowhere To Run - A Monetary Crisis

Saturday, March 6, 2010

Executive Summary

  • Nations around the world are insolvent and on their way to bankruptcy, a fiscal crisis, a currency crisis, or all three.
  • World markets are currently interlocked to a troubling degree.
  • A falling currency is always a cross-border event.
  • The German DAX, the Dow Jones, and the FTSE 100 charts are nearly indistinguishable.
  • A bigger trigger than Greece will be needed to set off the next round of global trouble.
  • The UK is a highly qualified candidate for that role; Japan is also a likely possibility.
  • Expect the unexpected.  The future is going to change suddenly and rapidly.

A significant issue facing all of us concerns the idea of a large decline in the value of our home currency, whatever currency that may be.  History is full of examples of currencies suddenly, and sometimes permanently, losing value.  Certainly, there is no greater financially traumatic event than having all of your perceived wealth evaporate like water on hot steel simply because your currency fails.

Once upon a time, evaluating the relative risks of various currencies was pretty straightforward, as they were independently run and market forces gave pretty clear signals.  Today, the major currencies are hopelessly intertwined, manipulated by central banks, and are therefore providing relatively poor information to market participants.

 

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