Copyright John T. Reed 2015
Several developments in the flirting-with-hyperinflation fad going around the world lately. The Euro Central Bank says they will “buy” 50 billion euros a month worth of Euro Zone federal government bonds. It’s called “Quantitative Easing.” That’s a euphemism used by lying politicians and central bankers to spin what they are doing as something other than violating the most basic prinicples of central banking (laid down by Walter Bagehot in his 1873 book Lombard Street) and daring hyperinflation to occur by running the “printing presses” lik eth Germans did in the early 1920s..
That means they will “print” euros. The charter of the Euro Zone prohibits the ECB from ever buying federal government bonds of euro countries, but, hey, this is Europe where rules are really just guidelines. This increasing the money supply faster than required to match economic growth deliberately makes the currency worth less to try to stimulate exports and incoming tourism raises the risk of high inflation in the euro.
Canada, yes, Canada, one of my recommended currencies, also did a similar thing. They cut interest rates yesterday. That makes the currency less attractive to own thereby weakening it which risks higher inflation. Here is recent Canadian inflation. They say they did this because they rely on exports of petroleum products and oil prices have fallen. Whatever, it means they are trying to stimulate exports by making the CAD worth less—about the same as Japan and the ECB are doing and what the Fed was doing until recently.
Am I unhappy about this move? Yep. Am I going to remove my money from Canada as a result? Not yet. I’ll keep an eye on it. We still have to give the CAD bonus points for being a country we can drive to. And they don’t come off the list of recommended currencies unless I become convinced that their hyperinflation will equal or exceed that of the U.S.
The Japanese government is jawboning companies to raise wages. That is a typical precursor of inflation. (page 133 of my book How to Protect Your Life Savings from Hyperinflation & Depression. 2nd edition. http://www.johntreed.com/hyperinflationdepression.html
As expected, DKK is acting like CHF did last week. Including higher negative interest rates on savings. So I am going to Denmark and Sweden this June and thought I might look into opening savings accounts in one or both of those countries, but it now looks like I would more likely end up doing what I did with regard to CHF—buying DKK or SEK in cash in Vancouver and putting it in my BMO safe deposit box.
I predict DKK will do what CHF did last week—stop their pegging the DKK to the EUR and let the market set the exchange rate between the two, which will cause the DKK to rise in relation to the EUR, but it has probably already been factored into the DKK price because of what Switzerland did last week.
If the currency in question is deflating—as CHF is—cash in a safe deposit box gains purchasing power. Also, negative interest rates cost more that safe deposit box rental fees. And finally, you have to report foreign financial accounts to the U.S. government on the annual Fincen and Form 8938 forms, but you do NOT have to report foreign cash that you hold.
Recently, DKK has had slight inflation, not yet deflating. http://www.tradingeconomics.com/denmark/inflation-cpi
John T. Reed