the point that a currency like the dollar which provides a real rate of return offers better long term protection than gold.
Excellent analysis Henry.. And while I accept your assessment that lax capital controls make fiat devaluations similar to the '30s more difficult, can't we present many examples such as Mexico, Ecuador, Brazil, and others, where such devaluations have occurred?
And while I concur that I would rather have a currency backed upon the economic prosperity of a nation, rather than by a shiny yellow metal, I can't ignore the fact that a massive devaluation in Japan will only increase the pressure upon the US economy. It would certainly send us back into a double dip recession, probably stronger than the one we're supposedly emerging from now.
Right now the value of the USD is being assessed according to expected economic growth. Such economic growth would be negatively impacted by a Japanese devaluation.
On top of that, since Japanese assets would be far more attractive, I believe we'd see a massive outflow of capital from the USD into Japan, buying up those firesale deals, which would decrease the strength of the USD.
Thus, until the uncertainties were straightened out and a bottom put in on the yen, I would probably see gold as doing better than the USD.
What do you make of that potential scenario?
Hawk |
