Wednesday, Sep 29, 2010
Capital controls eyed as global currency wars escalate
Telegraph: We won't be having a Japan style 'lost decade'
''Stimulus leaking out of the West's stagnant economies is flooding into emerging markets, playing havoc with their currencies and economies. Brazil, Mexico, Peru, Colombia, Korea, Taiwan, South Africa, Russia and even Poland are either intervening directly in the exchange markets to prevent their currencies rising too far, or examining what options they have to stem disruptive inflows.''
Posted by hpwatcher @ 07:44 AM (1157 views) Add Comment
15 Comments
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1. hpwatcher said...
Rather a good quote on the article:-
The mountain of debt cannot be removed by financial legerdemain without destroying the currencies and associated economies. It has to be paid for and therein lies the political responsibilities of Govts involved.
There is already growing protectionsim and calls for capital controls are a precursor to 'economic prisons' as Govts seek to trap taxable wealth within the endebted West. On the other side of the coin, other surplus countries don't want any more of our 'funny money'. As a result other assets will become evermore popular if Govts continue debauching the currencies with money printing. It could eventually lead to hoarding of fuel and non-perishables by ordinary citizens as they also lose faith in paper money.
We keep getting told that deflation is not an option because of the "debt deflation trap". In reality it is the only option if we are to take the pain of restructuring our economies towards investment in wealth creation.
2. debtfree said...
It really is a catch 22 situation.
There is nothing the western governments can do that will resolve the situation.
3. hpwatcher said...
There is nothing the western governments can do that will resolve the situation.
At the moment, it's very difficult to positive on the outlook for currencies, I think most will end up getting wrecked.
4. drewster said...
hpwatcher,
What non-perishables could people realistically hoard? Gold is one of the best candidates, since it can store a large amount of value per kg. Platinum is even more expensive than gold, per kg, and it has some industrial uses too. Some of the rare earth metals are even more expensive than gold or platinum, but they are hard to buy & sell since there isn't a liquid market for them. Hoarding oil is much more difficult - even if you have a huge 5,000 litre tank in the garden, at 50p/litre (home heating oil) you're only storing £2,500. So if you believe in currency death, precious metals seem to be the best way forward.
5. debtfree said...
A new dawn, a new age.. please welcome the British Lira and American Peso.
6. str 2007 said...
On the basis that the currency will be destroyed or at least devalued further, wouldn't huge debt be one of the best hedges. Particularly if it could be used to purchase something that's yield would cover the interest payments.
Now we just need to think if a way of leveraging up our debt on a yielding asset.
How about a btl property.
And you all thought that scam was based on never repaying the debt and relying on capital gain, when in actual fact it was based on a 25 year currency destruction and clearing down the mortgage with what in today's money would buy you a small car.
The foggy haze is clearing.
How frustrating the majority of btlers would never even considered that.
7. alan said...
The countries who will do well are those that produce food and materials or make products that people in other countries want.
The UK seems to have lost the will to live..... The only thing we excel at seems to be raising speeding tickets and parking fines.
That's why when house prices rise its seen as "recovery".
8. Indebted said...
What str 2007 said seems quite true to me; in fact, I've seen it in action. I'm originally from Croatia. My parents took out a mortgage to build a house in the 80s, but shortly thereafter we had hyperinflation. In a few years my father paid off the remaining 20-odd years of debt with 1/3 of his monthly salary. And even though we had hyperinflation, nobody was hungry and people didn't hoard grain in their basements; we were, however, shopping like mad.
Fast forward 25 years: I'm now living in the UK and the same thing seems to be happening here. I was always quite thrifty, but then I recently realized that nobody cares about savers. Add to this the fact that the UK rental system is not really designed for long-term renting, I recently plowed all my money into a house. Currency debasement? Bring it on, I'll be cheering! Regardless of what happens, this way I can at least paint the walls as I wish, and don't forget the joys of putting in mixer taps!
Honestly, I think that, for normal people -- that is, for people who don't want to make money in property but just want to live somewhere nice -- buying property is a reasonable thing to do. I just think that people should stop thinking about *investing* their money and start thinking of buying a home. This is one of the differences between the UK and back home: when people buy property back home, they are primarily interested in space and freedom, rather than what their house is going to be worth in 20 years. This, however, is changing: similarly to here, financial institutions and the media are slowly turning people into "investors". IMHO, this is one of the key issues that caused the mess we're all in now.
9. Slartibartfast said...
The debt mountain and austerity measures are red herrings so the Tories can push through their ideologically driven changes in Government spending.
It's hard to think they will be stupid enough to trash the economy. Then again?
10. mark wadsworth said...
HPW: "capital controls are a precursor to 'economic prisons' as Govts seek to trap taxable wealth"
Capital controls (however disguised) are a one way ticket to inflation (and unemployment, economic misery, protectionism etc). There's no need to "trap taxable wealth" as the best source of taxable 'wealth'* is physically fixed and cannot be moved abroad.
Having said that, I suppose the next step in the Home-Owner-Ist plan has to be 'capital controls' and hence high inflation and subsidising land ownership even further.
* Whereby land is only 'wealth' from the point of view of society as a whole, but not a source of private or individual 'wealth' as land ownership is merely the flipside of somebody else's debts or other burden/restrictions. It's like 'money' as such is not 'wealth' because for every financial asset there is a financial liability.
11. general congreve said...
Glad to see there's a consensus on this developing, as I've said all along, gold (physical and in your possession) is the way to go to protect your wealth and most likely multiply it many fold. Chances are those holding gold will be dancing on the grave of the smouldering ruins of the western economies in a few years time.
@6 - Wiping out debt on a property via inflation is an attractive proposition. However, a quick search on google and moneysupermarket doesn't show me anything better than a 5 year fixed mortgage currently being offered by any lender (to be sure of the best terms I entered that I had 50% equity, no other debts and 100k income), they're obviously not thick.
Got gold?
12. str 2007 said...
gc
Yes, some, but more silver. Though altogether not too much.
I can't at the moment see why it would fall, but if it did it could fall along way.
3 years ago I couldn't see what could hold house prices up.
Therefore I do operate and eggs and basket policy.
I must admit it would also be re-assuring to have 6-12 months supply of gold & silver in small denominations 'under the matress' so to speak, but alas although I have physical, it's in a vault.
Actually realising it's true worth though in an armegeddon type scenario would be easier said than done.
Once someone knew you had it, your life would be in danger !
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14. notyethomeless said...
Indebted @8 - thank you. The scenario you describe is very much what I expect might happen in the UK.
However, hyperinflation as happened in Weimar Germany and Croatia are generally escaped from when good money and stability are provided from 'outside'. My worry is that there will be no-one stable left to rely on to help.
I agree with your advice about houses, though it is still a bet on inflation / deflation...
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