At the Group of 20 largest economies summit just concluded in Shanghai, the primary concern was deteriorating global growth and how to counter it. Much discussed was a “coordinated effort,” which would include increase government spending by members, in addition to the massive deficit spending already going on worldwide. Mark Carney, Bank of England head, said that central banks’ policies would be more effective if supported by “strong government policies.”
Such ideas continue the Keynesian thinking that economies can be managed, despite the horrific track record of past government interventions in markets. Only the U.S. and Germany poured water on the idea. One senior U.S. Treasury official said that there was not a crisis and that a “crisis response” should not be taken.
A final communiqué is likely to urge members to refrain from currency devaluations . The recommendation will be ignored as Japan, the eurozone and China are deeply involved in massive money creation programs that are designed to fillip economic growth but that will further depreciate their currencies.
Also discussed was China’s slowing economy and “disorderly depreciation of the renminbi,” which could trigger a global market selloff and recession.
Only yesterday, the People’s Bank of China (China’s central bank) had to defend its $3.2 trillion reserve holdings amid assertions that figure included illiquid foreign real estate and private equity investments, which could not be liquidated and used to defend the renminbi.
Kyle Bass, hedge fund manager and currency speculator, has wagered billions that the renminbi and other Asian currencies will fall. George Sores, who has made billions betting against currencies, has suggested that the renminbi is overvalued.
The world economy remains uncertain, and governments are preparing plans to intervene. Any intervention will follow Keynesian thinking and involve more money creation. The time is right for gold and silver investments.
In fact, last week Germany’s Deutsche Bank recommended that gold be purchased as insurance against “rising stresses in the global financial system.” Deutsche Bank is the first establishment bank to recommend gold in years.
Worldwide, gold is in a bull market. So far this year, it is up 16 percent against the euro, 17.5 percent against the dollar, 24 percent against British pound and 9 percent against the Japanese yen.