If I told you that a country had a debt-to-gross domestic product ratio of nearly 200 percent, no real plan to pay down this debt, interest rates near zero, close to zero economic growth for the past 20 years and horrible demographics making it difficult to grow, would you buy buying the currency of this country? Throw on top of all this that the country is trying wildly to devalue its currency, now would you buy?.
Japan recently announced it is expanding its quantitative easing program by 10 trillion yen to 55 trillion yen (something in the $120 billion range).
The Japanese have stated over and over again during the past year that they want to devalue the yen, which is trading near all-time highs. My feeling is the yen, which is in the 80 range, they want to go down to the 100 range, which is still a historically high level.
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You would think with the weak indicators I have pointed out they would be able to devalue their currency, but they haven’t.
Part of the problem is most of the currencies around the world are just as bad. Europe is going to enter a recession and has huge debt and banking woes, and the United States is printing money and spending like a drunken sailor. Therefore, Japan is a total fiscal basket case and cannot devalue its currency!
However, what is happening is that as all these countries print money, gold will go up in value against all of the currencies. What will happen is the yen, dollar and euro will remain in trading ranges against each other, but all will fall in value in terms of gold.
The yen’s inability to devalue against other paper currencies despite being so fundamentally weak is just another argument to invest in gold and gold stocks.
About the Author: David Skarica
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