Welcome to the global currency war

Unlimited easing by the three major central banks opens the door to competitive devaluations and stagflation.

By Anthony Mirhaydari Jan 17, 2013 3:40PM

 International currencies copyright Artifacts Images, Getty Images, Getty ImagesMark your calendars. Today is the day the global currency war broke out into the open. This after the Bank of Japan announced it would ramp up its monetary policy stimulus efforts -- on an unlimited basis -- until it achieves a 2% inflation target.


Now, all three major central banks have committed to open ended easing.


As central banks ramp up one last time, the end game for all this -- given the fiscal austerity, budget fights, and policy turmoil just ahead -- is higher inflation combined with economic stagnation. This is the dreaded "stagflation" outcome that is the bane of central bankers, especially the aggressive, overconfident ones that are in charge right now. Here's why.


Russian officials warned that other countries may follow Japan's efforts to weaken the yen -- something that reverberated after the outgoing head of the Eurogroup of finance ministers and the Prime Minister of Luxembourg said the euro was "dangerously high." Officials and Norway and Sweden also expressed concern. Other officials, from the head of the Bank of England to policymakers in Korea and Australia, have all recently voiced their concern about what's happening.


It's no wonder that export-oriented German factories are suffering from a drop in output.



The surge of cheap money stands in contrast to an ongoing deterioration in the economic data. The Philly Fed regional manufacturing survey came in well below expectations this morning -- the latest datapoint pulling down the Citigroup Economic Surprise Index.


The index, which I've frequently highlighted, is about to fall into negative territory for the first time since early 2012 as the hard data continues to disappoint lofty Wall Street expectations. That's coincided with weak performance for the stock market.


If inflation kicks higher because of risking geo-political risks in oil producing regions -- illustrated by the rise of AQIM in North Africa -- the market's theme of "central banks will solve everything" will be in jeopardy.


What's really scary in all this is that if we tip into a recession now -- as Japan and Europe have already done -- there will be no easy salves. Washington is embroiled in a struggle over how much fiscal austerity to dole out. Who gets tax hikes? What programs should be cut?


If the Fed's hands are tied, with more hawkish members there already doubting the effectiveness of its ongoing QE3 and QE4 initiatives, we face the prospect of higher inflation, tighter money, and less government support. All in the context of a loss of cooperation at the G20 level as the major economies fight to boost exports via competitive currency devaluation -- or "beggar thy neighbor" policies -- all at the same time.


As the race to debase accelerates, it will boost the fortunes of precious metals in a big way as investors scramble for alternative stores of value. No surprise then that both gold and silver are quietly moving to the upper end of recent trading ranges in preparation for what looks to be a breakout uptrend.


I'm adding more exposure to the sector via the VelocityShares 3x Silver (USLV), Seabridge Gold (SA), and Coeur D Alene Mines Corp. (CDE) to my Edge Letter Sample Portfolio.


Be sure to check out his new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.

Jan 17, 2013 4:18PM
The world's fiat currencies have a fever, and the world's central bankers have a prescription - MORE COWBELL!!!

Meanwhile, Germany's central bankers are repatriating their gold physically held in other countries. What an interesting coincidence. Considering that our entire fiat financial system is held together solely by our trust in central bankers, what happens when they know better than to even trust each other? I fear we are about to find out.
Jan 17, 2013 4:52PM
Precious metals in a breakout uptrend?  And wasn't it just a few weeks ago when you were telling investors to get out of precious metals because they were overvalued Anthony?
Jan 17, 2013 5:00PM

Great here comes $150 oil again, just what we needed..........

and let me get this straight central bankers want more inflation????  Oh because the middle class is doing so well now why not drive up prices of basic every day needs even more?  I can't see anything but a positive outcome with this line of thinking can you?


Jan 17, 2013 4:53PM
Well, gee, Anthony - you're saying something that many people have been saying for the last 2 years! Duh!! And didn't you say just last week that gold and silver were going to drop? Didn't you say that precious metals were no place to invest? You're an MSN schill and a tool.
Jan 17, 2013 5:03PM
My printing press is bigger than your printing press.

Like I have been saying fo ra long time now. There is no way the world is generating enough money to fund both the USA, European and Japanese debt crisis. And would reasonable people even put their money into these countries who have proven that they can not pay back their debt.


The USA has debt going back to W.W.I even the Spanish American war as the US government merely borrowed money to pay back the people from whom they borrowed money from to pay for those wars.


Pretty much we are in a economic collapse folks. Japan, Europe and the USA can not ever repay the debt they have now and it's beyond even the world to fund those debts.


So the central banks have to loan the banks money at zero percent interest so those banks can buy the government debt paying about 2 percent here in the USA.


This is all caused by the dislocation of reality from wages and prices. The owners of production want to only pay US workers minimum wage and even then for just 29 hours a week so they do not have to pay out benefits.


Yet the prices of things are so high that we acknowledged that even people making $250,000 yet alone people making $10,000 a year (29 hours a week at minimum wage) can not keep up with the cost of living.


Yet we have about half to 3/4 of us working for minimum wage and 90 percent of us if not more working for less than $250,000 a year. And the cost of living is above $250,000 a year.


Folks this is a recipe for total economic collapse.


Either we have to raise everyone's wages up to $450,000 a year or lower prices so most of us making about $10,000 a year can survive and do things.


Just remember apartments built for $10,000 in New York in 1912 are now selling for $5,000,000 plus.


Prices are just out of site and going to collapse the economy.

Jan 17, 2013 4:54PM
I guess that´s why in its last meeting the Fed said it would halt QE3 if projected inflation hit 2.5%. It may be coming soon.
Jan 17, 2013 6:20PM
The dollar is a liar. To know the real value of something you have to compare asset to asset. Price is not how you get true value. Divide the price of a barrel of oil  into the price of your house and you will get the real value of your house.  The status quo is the only scenario we have right now. The global currency supply will continue its exponential rate of growth thus the value of all currencies will continue to fall. Gold and silver is the only currencies they can't print 
Jan 17, 2013 6:36PM
Bernanke will be dropping money from helicopters to prevent deflation.  The deficit trade imbalances and unfunded liabilities is the reason they need inflation.  We have fixed debt and falling income ...tax revenues. The lame efforts of the government to fix these problems have failed.
Jan 17, 2013 6:13PM

And the Worlds Governments and Central Banks Ponzi scheme’s come crashing down, While MSN’s money section touts “Good signs for US economy”?

Jan 17, 2013 5:21PM

We are as usual between a Rock and Something Worst...

Please God give me a softer pillow...

Jan 17, 2013 5:58PM

V_L.......I have a freezer full of food, and a decent pantry...

Lots of firewood if needed, even a water supply and generators...

Plus a few guns...


And I'm not expecting the world to end, or chaos in the streets....? But,

You are right about Miss Lilly, she will hoard and keep safe money or her and our CDs...

She just tells me that my Wall St..investments aren't real money, but only numbers on our computers.

That's why I'm still married to her, IN CASE everything else goes to HELL...

We are Ying and Yang...

Jan 17, 2013 7:34PM
If you measure the Dow by the dollar it looks like it is going up in value. However if you divide it by an ounce of gold you get a clear picture that its tanking in purchasing power.
Jan 17, 2013 5:18PM
Who can increase the supply faster seems to be the only question left unanswered.
Jan 17, 2013 6:49PM
It's all been planned for a long time. The elites are getting richer as the middle class is reduced to the lower class and the lower class will become cannon fodder for the military. The true patriots like Peter Schiff and Gerald Celente have been screaming about trade wars, currency wars and soon to come world war. When wil Americans wake up? We had our chance to turn this ship around with Ron Paul but everyone was to busy playing on their iphone or watching TV to see the next DWTS winner. Now they want our guns as well, gee I wonder why? When ga**** $5 a gallon this summer and 2 bags of food cost $100 lets see how many sheep will still get in line to be slaughtered. Prepare yourselves, they are coming for every last $ and if we don't resist they will get it.
Jan 17, 2013 8:45PM
It's beyond amazing when you still find anyone who actually believes the phony inflation numbers provided.  Anyone who does not live under a rock knows that prices for nearly everything have been rising every single year, we have now been relegated to reporting numbers that are no more honest than what comes out of communist bureau offices.
Jan 17, 2013 5:30PM
Cool!!! Boy, that took long enough. What color do you want OUR new currency to be? I vote for the Red White and Blue. Only flows through Main Street. Screw Wall Street. There's a helluva party tab for those paper and button pushers to work toward paying. No Monopoly money accepted, of course. It should be obvious that STUPID ARROGANCE replaced commonsense but that is easily remedied by war.
Jan 17, 2013 5:06PM
wordsof reason.....We don't use printing presses anymore... The"true scammers" are using elite copying machines....
Jan 18, 2013 12:31AM
The primary function of the government was never intended to provide a safety net for every possible contingency......we have government trying to legislate morality, help special interest and this has come to inefficiency and loss of freedom. We will also pay with taxes and inflation. The voters allowed themselves to be bought with free, which will cost them. Even the poor will pay the inflation tax.  
Jan 17, 2013 6:47PM
The fatted calf is about to be slaughtered.
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