Copyright 2012 by John T. Reed

The 7/31/12 Wall Street Journal reports that the central banks of the Euro Zone, England, and the U.S. are all “printing” money, that is buying their own government bonds with money they conjured out of thin air. A graph on page A8 of the paper shows all three central bank’s quantities of government securities and loans to banks going nowhere but up.

On facing page A9, we read that Brazil’s politicians are doing what Latin American governments seem to have a congenital propensity to do: abuse their power to print money. The article says they have favored promoting growth over preventing inflation.

That’s always the way.

But, hey, they’re one of the mighty, high-growth BRIC countries so they have a reputation to uphold, not to mention their reputation as a bunch of morons who will chronically hyperinflate their currency to avoid doing the right thing fiscal-policy-wise.

An expert there says the government seems obsessed with growth, not inflation.

Ours too.

Which means Brazil and the U.S. will get inflation. Hyperinflation is like a seven-year locust in Latin America. You would think they would eventually wise up. Our excuse in the U.S. is we have not had hyperinflation since World War I.

We could have simultaneous hyperinflation in the Euro Zone, U.K., Brazil, and the U.S. Japan has the world’s worst debt-to-GDP ratio (208%) not counting Zimbabwe whose ratio is irrelevant because no one would ever buy their bonds anyway. Japan may not inflate because they seem to be able to command their citizens to buy their bonds ad infinitum. Hardly any are held by foreigners.

Simultaneous hyperinflation in that many top developed countries might even make hyperinflation acceptable—all the kids are doing it—aside from the fact that it is intolerable.

I will close by noting that none of the countries where I have put my savings or urged you to put yours—Australia, Canada, New Zealand, and Switzerland—are in the Euro Zone or U.K., U.S., or Brazil.

Also, a country that I almost recommended—Sweden—is doing extremely well according to that same page A9. Sweden is an EU country but not an EZ country. I pulled back on my recommendation of them because I learned that they were obligated by their EU treaty to join the EZ. They seem to be dragging their feet on it, which is good, but I do not need more than about four currencies and that connection to the EZ was enough to knock them out of my top four list.

Why is Sweden doing so well? They were way ahead of everyone else on the road to socialism decades ago. So they arrived, in the early 1990s, at the Maggie Thatcher point sooner. That is where you run out of other people’s money to spend on entitlements. So Sweden turned to capitalism and fiscal discipline sooner than the rest of Europe. They adopted a policy of running a 1% of GDP surplus of tax collections over government spending and have done so for the last two decades. They are doing great because—who knew?—capitalism and fiscal discipline work.

Another country I was about to recommend but stopped is Denmark, for similar reasons. They are EU, not EZ, but their currency is pegged to the euro under a treaty. Switzerland’s currency is pegged to the euro, too, but just because they feel like it at the moment. They can unpeg whenever they feel like it. Denmark is mentioned in the Sweden story as also knocking them dead economically and being considered a haven from euro troubles.

The Swedish krona has risen in value against the euro. Apparently the buyers of it are not concerned about the treaty promising to join the EZ. And Denmark has been paying negative interest on its government bonds for the last three auctions, indicating that currency is considered to be extremely strong. Switzerland has also been paying negative interest on bonds and savings accounts lately. Your money is harder to access if you put it in a safe deposit box in a foreign country, but currencies that pay negative interest rates are arguably more sensibly held in the form of cash in a safe deposit box than in the form of bonds or bank accounts.

If you do not like two of my recommended currencies, you could do worse than replacing them with Swedish (38.4% debt-to-GDP ratio) and Danish (46.5% debt-to-GDP ratio) crowns. The debt-to-GDP ratios of the U.S. U.K., and the Euro Zone are respectively 104%, 85.7%, and 82.5%. Canada is 83.5%, but I give them bonus points because I can walk there.

John T. Reed