The currency war, that is. And as usual, PhD economists have no idea what that really means:
At the end of October, the Bank of Japan announced that it would increase its quantitative easing program. In an unexpected move, the bank increased its purchases of Japanese government bonds to grow its monetary base to 80 trillion yen (about $730 billion) per year up from 60-70 trillion yen.
Nouriel Roubini, professor at New York University and chairman of Roubini Global Economics, believes that this was a dangerous move that could trigger a round of currency wars.
So, who will win such a war? Why, it’s…
All of this easing would imply that the only currency increasing in value will be the U.S. dollar…
Ha ha ha! Take that, rest of the world! You suck! We win! We’re #1! USA! USA!
Americans have very short memories. The Fed has done QE1, QE2, QE3, Operation Twist, and ZIRP since 2008. That’s why the money supply takes off in the graph above. And that’s why almost everything you buy today has increased in price between 30-50% since 2009. That’s also why I don’t get to eat as many Doritos as I used to.
One way that companies try to fool you into thinking that the price of their product isn’t going up is by keeping the price the same, but reducing the amount of the product inside the packaging. I call this the ‘Doritos effect™’ because I first noticed this back in 2009. Doritos/Pepsi/Yum brands changed their packaging from a short fat bag to a taller, thinner bag. Both bags were priced at $0.99.
Unfortunately for Doritos/Pepsi/Yum brands, there were still some of the old short, fat bags on the shelf next to the new thinner ones. I was able to see that the new bags contained approximately half an ounce less chips. The older size bags will now cost you $1.49. In the end, this was a good thing, because I really needed to stop eating so damn many Doritos anyway.
But now they’ve gone too far — by reducing the amount of bacon you get in a package.
Cranks like me (and James Rickards) think that the way to preserve your purchasing power in times like these is to buy gold. But PhD economists and financiers think that buying gold is stupid.
Even with currency wars, gold will remain weak, says Roubini. “For now the Fed is not easing, and the dollar is strengthening,” he says. Gold is a hedge against inflation, but Roubini believes there are many assets now that are better and that can provide an income, like real estate, equities and credit. Gold can only provide capital gains.
Sigh. Gold is not an investment. You shouldn’t buy gold because you want to make money off of an increase in the value of gold.
What, then, is gold exactly? The greatest banker in US history knows:
That’s what J.P. Morgan told Congress in 1912. Under oath. Now, he didn’t have a PhD in Economics, but I think he knew a lot about money. A lot more than
Mr. Dr. Roubini.
Hmm. James Rickards doesn’t have PhD in Economics either. But he says that the currency war has been raging for some time now. And that the dollar will be toast if another country decides to back its currency with gold. Rickard calls that the ‘nuclear option’. I don’t know what is going to happen, but I’ll side with JP and Jim. They have real-world experience with money. Dr. Roubini has his PhD…
Never listen to anyone who has a PhD in Economics…