The Road to Global Monetary Debasement

In today’s Daily Reckoning, we’re going to look at China’s recent ‘monetary easing’ and show you why it’s not as straightforward as it looks.

But first, some local news…

The Aussie market is on a tear. Today’s gain marks the 12th straight rise in the ASX 200 index, which I think sets some kind of record for consecutive daily gains.

The stock market is turning into some weird sort of bond market, where everything is assessed on yield first and actual fundamentals second. That’s good for now, dangerous later…

You can’t argue with the price action though, even if you disagree with it. The ASX 200 broke out to a new, post 2008 high on Tuesday and has kept going. This suggests that we’re set for another leg up in the bull market…after pretty much going sideways for a year.

Of course, you don’t get 12 straight rises (and a gain of nearly 550 index points in little more than two weeks) without giving some of it back to profit taking in subsequent weeks. But the bulls are firmly in control here. Thanks to the market having more faith in central bankers than they do in God, the bulls look like they’ll stay in control for the time being.

One bloke who isn’t in control is Tony Abbott. He’s lost his grip big time. The Fairfax media reports this morning that Malcolm Turnbull sought a meeting with Abbott, apparently to find out exactly how Tony was going to get the party back on track.

Who knows what went on? And you certainly wouldn’t believe a word of their public utterances. What’s clear is that Abbott is bleeding profusely and the sharks are swarming.

Next week looks like it will a crucial one for his leadership. If the Liberal Party had any brains, they’d promote Malcolm Turnbull, as he has the greatest chance of appealing to the marginal Labor voter. But the Liberal leadership is full of right wing ideologues following an anachronistic, conservative agenda.

In other words, they’re all foaming-at-the-mouth idiots who are completely out of touch with most of Australia. The only reason Abbott won power was that the other side was less than useless. That’s how politics seems to work these days…you win office based on the weakness of your opponent, rather than your strengths.

Isn’t it funny how the quality of leadership and of politics in general in this country has deteriorated along with the economy? With economic conditions set to get even worse in the years to come, does this mean we have to put up with more political pathetic-ness?

Chances are the answer is yes. Great leaders generally emerge out of times of economic hardship. Just like an addict needs to hit rock bottom before they take the necessary steps to recover, so too an economy needs to go through tough times before the majority of people wake up and demand genuine change.

You could draw the same parallel with what’s happening on a global scale. Our reverence of central banks and money printing will only be exposed as false once their policies basically destroy the system.

It’s abundantly clear that cheap money is a cancer on the economy, that it destroys the value of money (in relation to asset prices, if not consumer prices) and that it simply doesn’t work.

But we’re so far down the road in this monetary experiment that to stop now would be akin to going cold turkey halfway through the party. Cold turkey only works once you’ve hit rock bottom. That’s when the will to change is greatest, and not a minute before.

So we’re on the road to global monetary debasement…first against asset prices and then against everyday goods and services. The latter could take another few years though…

In the meantime, sit back and enjoy the central bank show. If you want to profit from it, here’s an intriguing way to do so. My mate Tim Dohrmann, editor of Australian Small Cap Investigator, has found a number of stocks that allow you to ‘invest like a millionaire’. Click here for more…

The latest central bank to try and ‘do something’ is the People’s Bank of China (PBoC). Although it is hard to keep up; the Danes cut interest rates last night for the fourth time this year in a futile attempt to maintain their peg with the euro.

That’s partly the reason behind China’s latest move too. I wrote here a few weeks ago that I thought the yuan/US dollar peg would be the next to go…another casualty of the global currency wars.

This week, the PBoC lowered the amount of reserves that banks are required to hold against its deposits, which frees up around 500 billion yuan for potential new loans.

Read the rest of this article at The Daily Reckoning