Euros, Dollars and Central Bank Manipulations

Euros, Dollars and Central Bank Manipulations from Schiff Gold

Peter Schiff has been talking a lot about the weakening dollar. In a recent Schiff Report video, Peter said he sees the “mother of all dollar bear markets” on the horizon. The dollar has already dropped about 12% on the year, and it’s on track for its worst year since 1985. That was the beginning of a decade long bear market for the dollar. Peter says he thinks this one will be worse.

I think this one is going to be the mother of all dollar bear markets, and I think the dollar is going to fall much further than it did in any prior bear market.”

The following article by economist Dr. Daniel Lacalle, published at the Mises Institute FedWatch, provides some further insights into monetary policy by looking at the strength of the euro in relation to the dollar. His analysis sheds light on the relationship between strong and weak currencies, and the cost and benefits of each.

The primary purposes of the incorrectly named “unconventional monetary policies” are to debase the currency, stoke inflation, and make exports more competitive. Printing money aims to solve structural imbalances by making currencies weaker.

In this race to zero in global currency wars, central banks today are “printing” more than $200 billion per month despite that the financial crisis passed a long time ago.

Currency wars are those that no one admits to waging, but everyone wants to fight in secret. The goal is to promote exports at the expense of trading partners.

Reality shows currency wars do not work, as imports become more expensive and other open economies become more competitive through technology. But central banks still like weak currencies — they help to avoid hard reform choices and create a transfer of wealth from savers to debtors.

The Euro Rallies

So how must the bureaucrats at the European Central Bank (ECB) feel when they see the euro rise against the US dollar and all its main trading currencies by more than 12% in a year, despite all the talk about more easing? The ECB will keep buying 60 billion euro a month in bonds, maintain its zero interest-rate policy, and keep this “stimulus” as long as it takes, until inflation growth and GDP growth are stable.

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Peter Schiff

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for more than twenty years, he joined Euro Pacific in 1996 and served as its President until December 2010, when he became CEO. An expert on money, economic theory, and international investing, he is a highly sought after speaker at conferences and symposia around the world. He served as an economic advisor to the 2008 Ron Paul presidential campaign and ran unsuccessfully for the U.S. Senate in Connecticut in 2010.