Two Cows: The Infographic

There are many complexities in the socio-economic structures that the nations (and corporations) of the world have used (and abused) over the years. Volumes have been written to explain the intricacies of Capitalism, Fascism, Communism, and Socialism; and how these impact various corporations from Iran to Greece to Australia. However, in the interest of brevity, the following infographic - utilizing nothing more than two cows (which perhaps should now be horses, considering their inflationary displacement capacity for firms like IKEA and Nestle) to provide everything you need to know about ecomoomic s.

Gold : From the Situation Room

 Gold Back to Fundamentals...
Buy Low and Sell High !

Implications of a world floating on fiat currencies, and that government “solutions” to debt and deficit spending will significantly — perhaps catastrophically — dilute the value of currencies, the fallout of which has yet to materialize. And that’s how a number of prominent investors and institutions are viewing the price action right now. None of these parties think the gold bull market is over, nor that the price is too high.  As for me, I think that the longer the malaise continues, the more likely the breakout is to be both sudden and dramatic. 

See our 2012 call : 
Buy The Dips, Sell The Rips : This Will Be The Most Volatile Year For Gold

It’s a tad puzzling that gold hasn’t broken into new highs, despite enough catalysts to move a herd of stubborn mules. But that’s the hand we’re dealt right now. We can’t get up from the table until the game reaches its conclusion. Besides, I think the stall in prices is giving us one last window to buy before prices break permanently into higher levels for this cycle.

We can all speculate about when the next leg up for gold will kick in, but the point for now is to take advantage of the weakness. When the price breaks out of its trading range, are you sure you won’t wish you’d bought a little more?

Gold Remains An Historically and Academically Proven Safe Haven. 


It remains very important that investors and savers understand gold’s importance as a safe haven asset and form of financial insurance.

There remains a significant lack of understanding regarding gold and gold’s role as a diversification, a store of wealth and a wealth preservation asset.

Some continue to focus solely on gold’s price and not its value as a diversification for investors and savers. Many have been suggesting that gold is a bubble for a number of years and few have ever admitted how wrong they were with regard to predictions that gold prices would fall sharply.



Whether gold is a bubble or not is not the fundamental question. What is far more important is that there is now a large body of academic and independent research showing gold is a safe haven asset. Numerous academic studies have proved gold’s importance in investment and pension portfolios – for both enhancing returns but more importantly reducing risk.



Conclusion – Gold in 2013


Some market participants and non gold experts tend to focus on the daily fluctuations and “noise” of the market and not see the “big picture” major change in the fundamental supply and demand situation in the gold markets.



This is particularly due to investment demand from high net worth individuals, from hedge funds, from China, the rest of an increasingly wealthy Asia and of course creditor nation central banks. Macroeconomic, systemic, geopolitical and monetary risks have abated somewhat but remain and could intensify rapidly in 2013. 



The eurozone debt crisis is far from over and will become an issue again in the coming months as will debt crisis’ in Japan, the UK and the U.S.



Support for the price of gold should also come from the rising global money supply coupled with increasing investor and central bank purchases which have been driven by falling real interest rates and concerns about the euro, the dollar and other fiat currencies as stores of value.

Tighter monetary policies, as seen in the late 1970s, would likely help alleviate fears of further currency debasement but it is extremely unlikely that this will be seen in 2013. Indeed, ultra loose monetary policies, negative real interest rates, debt monetization, competitive currency devaluations and global currency wars look set to continue – if not intensify. 



Relationship between gold and interest rates

Geopolitical risk remains very underestimated. Geopolitical tensions are particularly evident in the Middle East between Iran and Israel and many western powers.

There are also tensions between western powers and Russia and indeed China and these could intensify in 2013. 



These macroeconomic, systemic, geopolitical and monetary risks are leading to increasing investment and store of value demand from the smart money such as Bill Gross, Jim Rogers, George Soros, Marc Faber and hedge fund managers such as David Einhorn and Kyle Bass.



Prudent pension funds and central banks will continue to diversify into gold.



The precious metals of gold and silver will again be essential diversifications for anyone wishing to protect and grow wealth in what will be a volatile 2013 and in the coming uncertain years.



Owning physical bullion will likely reward in 2013 and in the coming years as it has done in recent years.

What kind of Gold investor are you ? Define your profile and the corresponding strategies

Here’s a sampling of this year’s “gold bug” and what he has to say about precious metals recently. 

Eric Sprott's latest interview with Eric King deals with the 'trench warfare' of investing in gold after the latest FOMC minutes and the dichotomy between paper selling and physical buying of the yellow metal, as well as the recent trend for repatriation of bullion by central banks. As always, if you're at all interested in the precious metals markets, Eric's insight is invaluable.

CLICK TO LISTEN

But institutions, governments, and others are participating, too... 

Central banks around the world bought a total of 351.8 tonnes of gold (11.3 million ounces) in the first nine months of 2012, up 2% from a year ago.

See The World Gold Council Report

Macroeconomic developments likely to influence gold in 2013-World Gold Council-

Even Argentina added 7 tonnes last year (225,000 ounces), and Colombia 2.3 tonnes (almost 74,000 ounces).

And then there is India...I tire of the reports that proclaim something like, “Indian buying dropped this month!” Let’s be clear about India and gold: Imports have more than doubled in three years (through 2011), and investment demand has climbed almost fivefold. And all this occurred while prices were rising and from a nation that already has a strong cultural predisposition towards the metal. Further, silver demand is taking off: sales have jumped 24% this year over last. 

And of course there’s China. While nothing official has been announced by its central bank, the size of its gold imports and buying habits are mind-boggling.

 Gold, renminbi and the multi-currency reserve system

These data suggest in and of themselves that dips in the gold price are likely being bought — and will continue to be bought — by central banks. They’re not exactly short-term traders. Remember, central banks were net sellers as recently as 2009, so this reversal will likely play out for years. 

Starting at the time of China’s last official announcement, we’d need to add another 2,873 tonnes to China’s “official” holdings, just to account for imports and domestic production alone. That would put China’s current “known” holdings at 3,927 – well above Germany as the second largest gold holding nation in the world.

And do you think Germany’s ears are starting to burn? You betcha! Why do you think we saw that news earlier this year that Germany is auditing its gold holdings and repatriating some of its gold held out of country? It’s all about the Chinese math!

When you start adding up the stealthy, hard-to-track sources of gold – black market gold from Africa and South America (and maybe Iran) exports, global gold mining from semi-national Chinese firms or buyouts, and the idea that China is urging their own citizens to hoard gold – you’ll notice that China’s gold hoard is closer to 7,000 tonnes, or more!

As China aspiresto take the lead politically and economically, it is unlikely to be satisfied with storing its wealth simply inliabilities of other countries.

So what are the consequences and the perspectives for the Chinese currency ? Here are some thoughts by the renowned economist and financial analyst Alasdair Macleod :

Lars Schall: The Yuan in China, there’s now a lot of talk about the Yuan being the next reserve currency and we see the Chinese buying gold like crazy. Do you think they have something in mind with backing up their currency with gold?

Alasdair Macleod: Yes, I do. I think they do have a plan, and we don't know what it is, but we can guess. My starting point in this is that all the Chinese and Russian Marxian economists were taught that capitalism destroys itself. Now, whether you believe that or not isn't the point, but the Chinese economists actually have this in mind. And they can see the dangers of the way the US dollar is going. We must also understand that the dollar is for security reasons not something they want to use for their international trade settlements. Remember that every dollar transaction done in the world is reflected in a bank account in New York. So, the Chinese want to get away from the potential control and the intelligence information that it gives America. They want to use a different settlement medium.

Now, they agreed about 10 years ago with the Russians to set up the Shanghai Cooperation Organisation (SCO), and the last unsatisfied objective of the SCO is to have a common trade settlement system between the members of the SCO, which at the moment are Russia, China, and the various "stans" in middle-Asia. But interestingly, the next wave of members who will join are India, Iran, Pakistan, Mongolia and Afghanistan (as soon as NATO has left). So you've really got the bulk of Asia's four billion people, and they're going to be settling cross-border trade not with the dollar but with something else. They need to be gold-rich to give confidence to their currencies.I suspect that the Chinese Yuan will play a big role in Asia. What they're doing with Iran is interesting. They're settling net balances in gold, and gold is being re-monetized in that sense.

And I think that China has accumulated a lot more gold than they officially tell us. So they have the potential to use gold as money. I can see gold being re-monetized in the loosest sense for the largest internal market the world has ever seen. Believe me, it's happening now.

L.S.: Okay, let me then connect another thing with this question. Do you think the Chinese will get paid in gold for perhaps helping out in the Euro crisis? So they're helping to prop up the Euro, and they get in turn some of the European gold?

A.M.: I don’t think China is going to get sucked into supporting the Euro, no, I don't see that at all. What I think is possible is they would very much like to cash in Euros for gold. I am sure they would consider taking physical gold as collateral for Eurozone loans. But for now, every time a Eurozone country goes to China and says "We'll be very grateful for some of your money," the Chinese listen very politely and then just show them the door. China is not in that role as they've got enough of their own problems.

A.M.: And look at it also this way, the average European has a standard of living perhaps ten times better than the average Chinese. China is not interested.

L.S.: Let us then talk about the three big stories in gold this year, and I think the one thing out of the different campaigns for repatriation of gold reserves into the respective countries.

A.M.: Yes. That was going to be my overall story for 2012, and that owes much to the work that you have done. Teasing out of the German authorities exactly how much gold they think they have got and where was a great achievement, a journalistic scoop. And what I particularly liked was not only did you manage to do that, but you have encouraged others to do the same thing elsewhere. The journalist in Mexico who has got the Mexican central bank to talk. We now discover from Austria that the bulk of their gold is in England, and not only that, but they earned 300 million Euro in leasing fees. What a mistake to tell us that!

L.S.: Yes, but can you elaborate on this. Why was it a mistake?

A.M.: Well, I think it was a mistake because the sensible thing for a central banker to do when asked questions about this, given that a lot of the gold has probably disappeared through leasing, is actually to say as little as possible. The real reason for having gold as part of your foreign reserves is to have the ultimate protection of it for your country and currency. Are you telling us, central bankers, that you have compromised that role by leasing it with the risk that it won't come back? You know that must be the next question you journalists will ask.

And of course, to that they all clam up. So I think it was a mistake for the Austrian central bank to admit it. And the most recent story has been the Netherlands where it has just been revealed by the central bank after lots and lots of pressure that they have got 50 per cent of their gold in New York, they've got 20 per cent in Canada, 20 per cent in London and 10 per cent — only 10 per cent — in Amsterdam.

L.S.: So we come to the question, what is a gold reserve. I would say a gold reserve is gold that you have in your possession and at your disposal at any time?

A.M.: Yes, a central banker has actually got to be able to go down into the basement, into the strong room, and count it.

It's as simple as that.

*** GOLD SWITZERLAND / LINK

Gold, the Renminbi & Reserve Currencies

Bullion Action and the USD

We haven’t looked at the US Dollar in awhile so lets see what it’s been up to. 

Yesterday (wednesday 20) the dollar index opened at 80.51 on Wednesday morning in the Far East...and faded down to 80.28 around 3:00 p.m. in Hong Kong...and less than an hour before the London open.  From there, the dollar began to rally...and by 2:00 p.m. in New York it had made it up to about 80.81...and then jumped up to 81.10 following the Fed news.  From there it traded sideways into the close, finishing the Wednesday trading session at 81.05...up 54 basis points from Tuesday's close.

The dollar index rally was well under way before the high-frequency traders showed up in London just after the morning gold fix, so to hang yesterday's precious metals price action entirely on the currencies, is a stretch...and that's being kind.

It's my opinion that this was a manufactured rally so 'da boyz' could hide behind this fig leaf as they did the dirty in the precious metals...and that's certainly not the first time the've used this technique.

The first chart I would like to show you is a weekly bar chart of the H&S top pattern that everybody is focused in on at the moment. It does have nice symmetry to it and looks like the real deal. Please note the blue 5 point triangle on the right side of the chart where the current price action is strongly testing the top blue rail. As this triangle is forming below the H&S top we need to see a pattern that has at least 5 reversal points to reverse the downtrend to up. A breakout above the top blue rail will give us our first big clue that the potential H&S top will fail. Chart 1

Below is another way we can look at the price action from the Dollar high made back in July of last year. Some of you may recall the blue morphing triangle on the left side of the chart that broke out to the upside after a false breakout to the downside at point #6. We have a similar morphing triangle on the right side of the chart. If we start the triangle from the July top then it only needs to have an even number of reversal point to make it a consolidation pattern. I have to admit its not the prettiest triangle I’ve ever seen but the way the breakout and backtest is progressing it could very well be completing the breakout phase. We will know very soon if this is the case as the top blue rail will have to reverse it’s role and act as support on any pull back. Note the gold chart at the bottom. If the dollar does in fact breaks out of the 6 point triangle to the upside that will put alot of pressure on gold.

Lets look at combo chart 3 for the US dollar and gold. On the chart below with a brown shaded area and a blue shaded area based on the two red triangles on the dollar chart on top. What this chart shows is the inverse move that the dollar.and gold tend to make. You can see that when the red triangle on the left side was building out gold moved up to point #4 on it’s rectangle and when the dollar finally broke out to the upside gold corrected down to point #5 at the bottom of the rectangle. This is where it gets interesting. 

Note the red triangle on the right side of the dollar chart that is getting real close to breaking the top rail. If the US dollar breaks out above the red rail that will put serious pressure on gold that will break the bottom red rail of it’s small downtrend channel. And if the dollar has a strong move up the blue bottom rail of gold’s big rectangle will be in jeopardy which would be a serious blow to gold if the bottom blue rail ever gives way. A break of gold’s bottom blue rail of it’s rectangle would then turn from support to resistance on any backtest. So we have plenty to watch over the next week or so. 

Stay tuned

By Rambus

Gold Market Update

Gold Now Approaching Critical Support

“Sentiment for gold is incredibly fragile at the moment,” writes UBS in Monday’s edition of its daily commodities note It may well be true, as UBS asserts, that “nervous investors are not getting the comfort that they used to get from physical markets.”

Indeed, as the bank writes, “Appetite from India has been quite unimpressive of late, although buyers did respond to last Friday’s selloff – our flows indicated above- average demand, but considering prices in rupee terms have fallen nearly 5% since the beginning of the year, the reaction was disappointing. That participants in China were out last week aggravated matters. Nervous investors did not get comfort that they used to get from physical markets. This week, though, investors in China return with a strong desire to pick up metal at cheaper prices, with turnover on the SGE surging to an all-time high of nearly 30 tonnes. This should help calm some of the uneasiness, but unless there is a strong fundamental upside catalyst, gold is likely to struggle and a move below $1600 could not be ruled out with certainty at this stage.”

Downward pressure in gold prices continued as very large funds liquidated substantial portions of their positions in the gold ETF (GLD). (See article.) Naturally, we need to look at the charts to give this story some context. 

The daily chart shows that price has reached the bottom of the declining trend channel, the top of which is drawn from the October high. This was something we thought likely because price failed to reach the top of the channel before it started down again. Another important event that happened today was that the 50-EMA crossed down through the 200-EMA, signalling nominally that gold is in a long-term bear market. The same type of EMA crossover occurred back in May 2012, so, obviously, the "long-term" nature of the signal is not carved in stone, but it does set the tone for the gold market.

To more accurately assess the long-term picture we need to zoom back to the weekly chart. Here we see the +170% advance from the 2008 low. After the top in 2011, prices have been moving in a horizontal range between 1540 and 1800, in what we would call a high-level consolidation. This is also known as a continuation pattern, which implies that prices will eventually break out of the consolidation and continue higher. That is a nice scenario for gold bulls, but first it appears that prices will have to retest the support at 1540 at least one more time. Obviously, that is a critical support level.

The most striking aspect of gold's behavior since the 2011 top, is that it is not following "the script", which is that the Fed printing press will drive gold prices higher. With the Fed printing money at unprecedented rates, why, we must ask, have gold prices stalled for almost a year-and-a-half? When our assumptions are not confirmed by actual price movement, we must reassess our assumptions. A possible alternative would be that the Fed's actions are not causing inflation, but deflation, at least in that part of the economy that affects gold prices. 

The 7-year chart for gold shown below is very interesting and useful as it reveals that gold can drop back down as far as its lower supporting trendline and crucial strong support at and above $1500, without it even putting a dent in its long-term bullmarket. It is a strong buy as it approaches this support, and a stop can be placed just below it. A breach of this crucial strong support, which has generated 3 reversals to the upside over the past 18 months, would be a seriously negative technical development, which we would expect to be associated with a deflationary scare.

Conclusion: Gold could be in the process of consolidating a massive up move, and it is currently headed toward a retest of the bottom of the consolidation range at 1540. Failure of that support level would suggest that assumptions about the Fed causing inflation (and an increase in gold prices) should be questioned.

And Precious Metal Stocks ?

Our 6-year chart for the HUI index shows a massive completing Head-and-Shoulders top. We have observed this menacing pattern for some considerable time, but for a while thought it would abort because of the negative extremes of sentiment already afflicting the sector. However, we should recall from 2008 that sentiment can get even worse as prices plunge precipitously. The relative strength of the sector against the broad market in the recent past has been appalling, and this does not bode at all well for it in the event that the broad market goes into reverse as expected.

While we are aware that the sector could go contra-cyclical at any point, as it has traditionally done in the past, and we will always be on the lookout for signs of this happening, at this point it looks like it will be subject to a similar cycle of forced liquidation as in 2008. If the broad stockmarket reverses hard it looks likely that the HUI index will crash the crucial support at the lower boundary of the Head-and-Shoulders top pattern and plunge, with a probable downside target in the vicinity of the 2008 lows, and possibly lower. We keep a general stop at 358 on this index and will be out of all remaining holdings in the sector if this fails .

The great gold debate continues 

The scariest thing about the markets is uncertainty. That’s why all investors crave knowledge — whether it’s fundamental, macroeconomic, or even technical. We need some type of compass to guide our trading and investing decisions. If we aren’t navigating with even a vague idea as to how things are going to play out, then what the hell are we doing throwing our money around in the first place?

Now, I’m not some lunatic who doesn’t understand the strong fundamental arguments backing gold. Rampant money printing and overseas demand are the first that come to mind. Both are valid points. But gold’s decade-long bull market has attracted more than a few momentum buyers. And like it or not, these weak hands are adding to the selling pressure. 

Here’s what you have to do: 

First, don’t get too hung up on the story right now. None of your arguments can change the price action. 

Second, if you’re a long-term gold buyer, you have to understand just how important the $1,540 range has become over the past two years. This is gold’s price floor. A bounce higher from the $1,540s is the perfect long-term entry point. 

However, if we see continued weakness at $1,540, all bets are off...

Currency Farce

G20 agrees to avoid currency wars

The conundrum is clear — the world’s leaders from G-7 to G-20 approve of policies to boost growth, while disapproving of policies to boost growth at the expense of others. So while currency manipulation is bad, zero rates and [quantitative easing] are good in times of trouble. And if those policies happen to cause a currency to weaken, well, that’s OK in the eyes of the G-20. - So it seems supported by Klugman on his blog 

To us there is a serious intellectual error here, typical of much of the recent discussion of this issue. A currency war is by definition a low-level form of a trade war because currencies are internationally traded commodities. The intent (and there is much circumstantial evidence to suggest that Japan at least is acting with mercantilist intent, but that is another story for another day) is not relevant — currency depreciation is currency depreciation and still has the same effects on creditors and trade partners, whatever the claimed intent. The risks of disorder and disruption are still very real today.

Jim Rickards: Currency War 3 Has Just Begun

Last two ran for 15 to 20 years 

Jim Rickards, Pentagon advisor, investment banker and author of the famous book, Currency Wars, speaks with Jim Puplava o the Financial Sense Newshour to discuss the new age of global financial warfare and its potential outcome on savers and investors around the world. 

TO LISTEN CLICK HERE

Currencies and global trade are zero-sum games

The immediate focus is on the antics in Japan, the world’s third largest economy, but it’s happening everywhere.If the Bank of Japan keeps printing money, the Nikkei will eventually hit 13,000. It may not happen by the end of next month, but it could happen by summer.  But these gains will come at the expense of other countries. If Japan’s currency becomes less expensive, another country’s currency rises in value. And if Japan’s exports increase, another country’s exports will plunge. Eventually, this other country may even decide to devalue its own currency to counter the damage caused by Japan.

On and on it Goes…

The current war began when the United States decided to print money to weaken the dollar. When the Fed first expanded this policy in March of 2009, it worked great. The U.S. dollar lost 12% of its value in just nine months. But by December, the dollar stopped falling ! The change began when the crisis in the European Union started pushing investors out of the euro and into the dollar. 

Then, countries like Brazil began systemically weakening their own currencies against the dollar. By May of 2010, the dollar was back near the highs it hit during the financial crisis. Then, investors began speculating that the Fed would print more money. Two months later, Fed Chairman Ben Bernanke confirmed this. Brazil’s finance minister, Guido Mantega, then declared the world was now engaged in a full-blown currency war. And he was right. By April of 2011, the dollar was 16% off its June 2010 peak.

Today, the dollar is 10% higher than it was in 2010. Despite the Fed printing trillions… and government deficits exceeding 10% of GDP… the dollar never went back down. And with Japan’s latest moves, the dollar is destined to rise further.

And recently, French President Francois Hollande called for a weaker euro and urged the euro zone to set a medium-term target for the currency. Not long after, European Central Bank President Mario Draghi said the ECB was “monitoring” the recent rise of the euro currency.

So not only does the U.S. want a weaker currency, but so does Japan and the EU. And countries littering Asia all want a weaker currency as well. Even Brazil wants a weaker currency, and China is holding the line on the yuan.

A fool's game

The last thing was to expect that the G20 actually do anything to stop the currency wars from continuing. The meeting was bound to be highlighted by countries such as Brazil, India and China complaining that developed countries are all devaluing their currencies at once. Central banks around the world are making the mistake of printing cash since the currencies they manage aren’t devaluing against other fiat currencies.

Choose your side !

You see, newly printed bills add to the supply of cash on the market. And more money chasing a limited supply of resources will result in higher prices. What matters, though, is how these currencies devalue against commodities like gold and silver. 

And considering gold and silver prices have been consolidating for more than a year and a half despite so much newly printed cash hitting the market, higher prices are right around the corner.

Empty declaration against currency wars

The meeting of G20 finance ministers and central bankers held in Moscow has issued a statement against competitive currency devaluations in the wake of growing concerns about the development of a “currency war”. However, the words contained in the G20 communiqué issued on Saturday will have virtually no impact on present policies.

The governments and central banks of the major economic powers will continue their own versions of “quantitative easing” (printing money), thereby working to drive down the value of their currency in international markets. The only stipulation from the G20 is that they do not actually say that is what they intend to do.

The finance ministers’ statement reiterated “our commitments to move more rapidly towards more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, and avoid persistent exchange rate misalignments.” It added: “We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes, will resist all forms of protectionism and keep our markets open.”

The key phrase is “for competitive purposes”. Provided countries say that increasing the money supply through central bank intervention in financial markets is aimed at boosting the domestic economy, then their actions will fall within the G20 guidelines. But the inevitable consequence of such action is to weaken the exchange rate of the given national currency in international markets.

The currency war issue occupied a central place on the G20 agenda in the wake of directives issued by the newly-elected Japanese government to the country’s central bank to boost the money supply in a bid to revive the stagnant economy. As a result, the yen has lost about 7 percent of its value this year.

Japanese ministers and government spokesman have openly talked about the need to bring down the value of the yen. In an interview on the eve of the G20, a close parliamentary ally of Prime Minister Shinzo Abe said it would be “appropriate” for the yen to trade at around 100 to the US dollar, compared to its present level of 93.

The tone for the G20 was set by the G-7 group of major powers, which issued a statement on the eve of the meeting warning against competitive devaluation. This was widely interpreted as being directed against Japan. But the G20 meeting did not want to issue a direct condemnation of Japan, lest this set off a broader conflict.

According to one financial analyst who spoke to Bloomberg, the message from the G20 is that while it will be “harder for the Japanese to talk down the yen … they will let their policies do the talking.”

The underlying cause of the currency conflict, however, is not the latest actions of the Japanese government but the “quantitative easing” program of the US Federal Reserve, which is printing money at the rate of $80 billion a month, or $1 trillion per year, through its bond purchases.

Federal Reserve chairman Ben Bernanke defended the policy at the Moscow meeting, saying that if it succeeded in stimulating domestic demand then “we are helping to strengthen the global economy as well.”

In fact the policy has nothing to do with boosting US economic growth but is aimed at providing ultra cheap money for the major banks as they seek profits through speculative operations on the financial markets. Far from strengthening the world economy, the Fed’s policy is creating growing economic tensions.

Because the dollar is the foundation of the international monetary system, the inevitable consequence of “quantitative easing” is to lower the value of the dollar in relation to other countries. This creates economic difficulties for US rivals both in export markets and in their domestic markets, due to the increased pressure of international competition.

Japan has been among those countries adversely affected. However, its program of lowering the value of the yen has impacted on its competitors, in particular South Korea. The head of South Korea’s central bank has warned that its future growth could be adversely affected.

The growing divergence between official stated policy and actual practice underscores warnings by Brazilian finance minister Guido Mategna, who first raised the danger of a currency war in 2010. “The currency war has become more explicit now because trade conflicts have become sharper,” he said in an interview. “Countries are trying to devalue their currencies because of falling global trade.”

These mounting problems were expressed in the latest growth figures showing that the US, Japan, Britain, and the eurozone all experienced economic contractions in the fourth quarter of last year. It is the worst result since 2009, the period immediately following the eruption of the global financial crisis.

The G20 meeting held in April 2009 was full of promises of coordinated action to stimulate the world economy. At the Moscow meeting, however, there was barely even pretence that such action would be taken. This was despite the fact that at least one-third of G20 countries are officially in recession. The communiqué simply said that “ambitious reforms and coordinated policies” were the key to achieving strong sustainable growth, without specifying what they might be.