In the European Union (EU), the European Central Bank (ECB) is the institution that administers the monetary policy of the eurozone member states, giving it great power as a world central bank. Headquartered in Frankfurt, Germany, the ECB was established in 1998 by the Treaty of Amsterdam. As one of its primary tasks, the ECB controls and issues the currency of the EU; the euro. Mario Draghi is the current President of the ECB.
Central banks around the global economy are involved in a race that will not end well. Of course, I’m talking about the race to the bottom of currency devaluation, which is being achieved through the printing of more and more paper money backed by nothing.
Almost weekly, I hear news about different central banks in the global economy cranking up the speed of their printing presses; they are fixated on printing money because these central banks believe they can solve their economic problems by printing. They are wrong!
Our own Federal Reserve is creating $85.0 billion a month in money with the hopes of bringing economic growth to the U.S. economy. But this strategy is failing the masses in America. Those who have benefited the most from this exercise have been big banks, Wall Street, and the rich. The poor and middle-class are in a worse situation now than in 2007!
But it’s not just the Federal Reserve that’s printing massive amounts of new money. Other central banks are doing the same under a fancy phrase: “quantitative easing.”
In its most recent monetary policy statement, the Bank of Japan reiterated it’s take on printing. It said the central bank will continue to work towards increasing the monetary base in the country by 60 trillion to 70 trillion yen per annum. The central bank will buy Japanese government bonds, exchange-traded funds (ETFs), and real estate investment trusts with the freshly printed money. (Source: Bank of Japan, November 21, 2013.) (Yes, the Bank of Japan is buying securities that trade on the stock market. As our next American financial crisis approaches, … Read More
The U.S. government, after winning World War II for the Allies, was very convincing. It told central banks around the world that they should hold the U.S. dollar as their reserve currency instead of gold, based on the idea the U.S. dollar would be backed by gold. Only limited amounts of U.S. dollars could be printed, because the currency was tied to gold bullion. Central banks bought into the idea.
Unfortunately, a few decades down the road, the concept of a U.S. dollar backed by gold was thrown out the window (thank you, President Nixon). Eventually we were introduced to the modern day printing press—printing money out of thin air at the will of the Federal Reserve without the U.S. dollar being tied to any “hard” currency like gold.
Why would anyone agree to this horrible idea?
Back in those days, the U.S. economy was prospering. Our government was in good shape and didn’t have much debt. And the logistics made sense, too, as time passed. Why wouldn’t a central bank have in its reserves the currency of the world’s strongest economy and military? Why wouldn’t a central banker keep U.S. dollars in his vault as opposed to hard-to-carry and hard-to-store gold?
Years have passed since the U.S. dollar “unglued” itself from gold. Things have changed, too. America is not so glorious anymore. Ever-rising debt and the never-ending printing of U.S. dollars have resulted in some countries changing their policy on U.S. dollar-backed reserves. And the fundamental factors that keep the U.S. dollar strong are deteriorating quickly.
The balance sheet of the U.S. economy does not look as good as … Read More
Export-oriented provinces in the Chinese economy have turned pessimistic and anticipate exports will only grow at the rate of five percent this year. In 2012, they targeted an export growth rate of eight percent to 10%.
What’s troublesome about this is that exports from the Chinese economy account for 20% of the country’s gross domestic product (GDP). This means that, if exports from China to other countries decline, the Chinese economy will suffer an economic slowdown. (Source: Epoch Times, February 7, 2013.)
The Chinese economy has become fragile due to the economic slowdown in the global economy. Its biggest trading partner, the eurozone, is still suffering, while other areas have anemic demand.
As export volume falls in China, it is creating trouble for China’s manufacturing sector. The Chinese Purchasing Managers’ Index (PMI) declined to 50.4 in January from 50.6 in December of 2012. (Source: National Bureau of Statistics of China, February 1, 2013.) A reading above 50 means expansion in manufacturing, while a reading below 50 means contraction. January’s reading is not far from the pivot point into manufacturing contraction.
Getting a read on the Chinese economy is not that easy. Some say statistics out of China are not that reliable. But here is the official word from the Chinese government: in the third quarter of 2012, GDP in the Chinese economy rose 7.4% from a year earlier—the slowest growth rate in three years. (Source: China Daily, December 30, 2012.)
While time and more data will make the picture clearer, with Chinese exports stumbling, a contraction in manufacturing activity could be next for the Chinese economy.
And it’s … Read More
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