All Out Currency War: Final Stage Approaches

Pinnacle Digest writes: The casualties of the ongoing currency war are beginning to stack up as inflation wreaks havoc throughout much of the world and in the United States. Peter Schiff recently wrote that, "the U.S. Federal Reserve finally laid all its cards on the table and went "all in" on permanent quantitative easing, indicating that the brainwashing is widely established and will be difficult to break."

Schiff's message throughout the chaos of reckless central policy decisions is to appropriately react and adjust to the coming dangers. Schiff reminds us that the Federal Reserve has already unleashed two huge waves of quantitative easing (purchases of either government securities or mortgage-backed securities) in order to stimulate consumer spending and ignite business activity. The economy has done little to nothing in response to these efforts and continues to flounder.  

Schiff explains that, Ben Bernanke backed away from previous assertions that printed money would be effective in directly pushing up business activity. Instead he explained how the new stimulus would be focused directly at the housing market through purchases of mortgage backed securities.

The housing market is Bernanke's new focus. Creating another bubble in this sector is something Bernanke and central policy makers in Washington know they can achieve. Bernanke made clear that this strategy is intended to spark a surge in home prices that will in turn pull up the broader economy. Schiff reminds investors that such a belief requires a dangerous amnesia to the events of the last decade.

Schiff states that, "Although the Fed is directing its fire towards the housing market, the needle they are actually hoping to move is not home prices, but the unemployment rate.  Until that rate falls to the desired levels (some at the Fed have suggested 5.5%), then we can be fairly certain that these injections will continue. This will place permanent pressure on banks around the world to follow suit."   

For the above reasons the currency war will continue with increasing severity and casualties. The Bank of Japan, to use one example of many, is already calling for more stimulus amidst a fledgling economy and widespread deflation.

Schiff's closing comment is that, "While I believe the Fed's plan will be a disaster for the economy, the silver lining is that it provides investors with a road map."

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