World central banks compete with Federal Reserve in currency war, debasement

Former United States President Thomas Jefferson once said, “I believe that banking institutions are more dangerous to our liberties than standing armies.” Indeed, this famous quote by a great man certainly could be applied to central banks of the world, which are now engaging in a new World War: a currency war.

Last week, Bank of Japan (BOJ) Governor Haruhiko Kuroda announced that it would be injecting approximately $1.4 trillion into the economy for the next two years – essentially, a foreign quantitative easing platform. The new governor confirmed that the BOJ would be doubling the monetary base to 270 trillion yen ($2.9 trillion) by the end of next year in the hopes of ending stagnation.

The inflationist monetary policy sent the Japanese yen staggering and bond yields hitting record lows. Although it is deemed by pundits and economists as a radical monetary step, it appears that Kuroda is taking moves out of the playbook of Federal Reserve Chairman Ben Bernanke: stimulus, inflation and zero-percent interest rates.

“This is an unprecedented degree of monetary easing,” Kuroda said at a press conference Thursday, according to Reuters. “We took all available steps we can think of. I’m confident that all necessary measures to achieve 2 percent inflation in two years were taken today.”

Meanwhile, over in Europe, the Bank of England and the European Central Bank (ECB) have vowed to continue pumping money into the economy. It doesn’t stop there. The central banks of Lebanon, Hungary, South Africa and others are all instilling economic stimulus.

What will be the results of such policies? Well, in the U.S., a lot of the establishment insiders believe the Fed is gaining ground because the stock market is rising. This is true – after spending $85 billion a month how could the market not generate gains? – but the overall economy is still suffering: unemployment remains high (globally), the cost of food is rising (globally), fuel prices are jumping (globally) and debt is a persistent issue (globally).

The future doesn’t look bright, at least according to the remarks of a Chinese official, who thinks inflation could be rampant in the short-term because of debasement competition by monetary leaders.

Li Ruogu, chairman of the Export-Import Bank of China, told attendees at the Boao Forum on the southern island of Hainan that the measures taken by the BOJ could trigger a race to see which central bank weakens their currency more.

“They are using Keynesianism, they are using monetarism, they are using modern financial economics. Most of this stuff is deeply flawed, if not completely junk science,” said author James G. Rickards at a recent global investment risk symposium. “When you start looking at things that way, you will see that this is a system that is bordering on the critical state and potentially prone to collapse.”

In the end, the only benefactor from this influx of cash is the commodities market. Already, precious metals are receiving a much needed boost after dipping to nearly $1,500 and $26, respectively. On Tuesday, gold rose to a one-week high by climbing close to one percent at $1,586.70, while silver increased 2.7 percent to $27.88.

The U.S., Japan, China, Canada and other countries are at war and it seems the central bankers believe that this war is too important to be left up to the generals or the politicians. Bernanke was the one who pulled the first trigger.

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