The Phaserl


The Race to the Bottom Will Reignite Gold

by Jason Simpkins, Outsider Club:

Six of the world’s central banks (Europe, Denmark, Sweden, Switzerland, Japan, and Hungary) representing 29 countries have taken interest rates negative. They range from -0.05% in Hungary to -1.25% basis points in Sweden.

As a result, other countries, plagued by the same low commodities prices and a soft global economy, are now under growing pressure to take the same action.

Defend your currency and suffer the consequences, or devalue it and play catch up. In many cases the decision is difficult, but seemingly inevitable.

This is what you call a race to the bottom — various countries all jockeying to devalue their currencies to maintain growth.

In some cases it makes sense.

Europe has been battling slow growth and deflation. GDP growth languished at 0.6% in the first quarter, and consumer prices are down 0.2% this month. The continent is also coping with the threat of a “Brexit,” as Britain ponders leaving the European Union.

And so, the ECB last month slashed its interest rates to record lows. It also ramped up its quantitative easing program to 80 billion euros ($91 billion) per month from 20 billion euros, and announced that it would also start purchasing corporate bonds.

However, this is far from an isolated case. Other central banks around the world are pursuing the same strategy — and some with far less justification.

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