Traitorous Central Banks

January 12, 2008

This commentary is not about the Federal Reserve, it’s about central banks in other regions that are following the Federal Reserve down a path to self destruction. Foreign central banks are deliberately inflating their own currencies along with the Federal Reserve, against the best interest of their citizens, in a vain attempt to help Americans move beyond the consequences of their own irresponsibility.

The Canadian dollar and the European euro are not strong. They are weak, unnecessarily weak, when measured against many of the resources and commodities people need to survive or want to live comfortably.

By attempting to cushion the inevitable impact of disastrous monetary policy over the past several decades, foreign central banks are helping America export its inflation and will likely cause much of the world to experience what would otherwise have been isolated to one insignificant nation. Despite what you’ve been bred to believe for decades, America is no longer the engine of global economic growth. America adds very little value to the world and most American exports can be reasonably replaced with substitutes produced elsewhere. America’s major role is consumption, period.

The problem from which the world suffers is a blind adherence to conventional wisdom, that existing business relations with American consumers must be sustained to prevent disastrous economic recessions from infecting nations around the globe. The opposite is true, should the Canadian and European central banks finally decide to let America drift into oblivion they would actually be doing everyone a favor. America will no longer be the custodian of the world’s reserve currency and more responsible monetary policies will be forced on the Federal Reserve. Others will benefit when China eventually allows their currency to float more liberally. When Asians assume their rightful spot at the table there will be plenty of consumer demand not only capable of replacing American consumption but surpassing it.

I believe we are about to enter a pivotal moment in our history. Either the central banks will succeed in their effort to inflate our way out of this crisis and we will all suffer a painful decline in standard of living, we will witness the end of America as an empire while the entire world continues to advance well into the 21st century, or the entire house of cards will come crashing down in a spectacular collapse. In any case, the future will be filled with volatility and we as individuals need to prepare for the coming storm.

I simply can not forsee a scenario in which food prices end their meteoric rise. Those who claim commodities are about to crack are likely looking for an attractive buying opportunity. The reality is that people need to eat and global weather pattern changes will continue to interfere with supplies. As hundreds of billions of dollars are manufactured in central banks around the world with no attractive investment opportunities anywhere people will have no choice but to invest in hard assets.

Only one thing is certain, if advanced nations are to continue stable economic expansion in the long term, central planning of money must finally be discredited.