Germans Want Their Gold

If German central bankers were movie directors, we wonder what movie they’d be making right now. Gone in 60 seconds? The Associated Press reports that Germany’s money stewards are repatriating about $200 billion worth of gold from storage in the United States and France. No word on whether they will have to declare that much money moving across borders.

The Germans want their gold. And who can blame them? They’re stuck paying off the debts of everyone in southern Europe. That kind of extravagance puts pressure on the integrity of paper money. You need gold in your back pocket just in case – at least that’s how we read the story.

The bigger storyline is the global currency war. With so much global debt, everybody needs growth. But to get growth, you have to devalue your currency to gain a competitive advantage over everyone else. This dynamic has turned into a ‘race to the bottom’ to see which country can create the weakest currency.

If you think making yourself weaker to make yourself stronger sounds…counterintuitive…well…it does. Granted, one country might be able to do it. But when everyone tries to do it, you get a version of the fallacy of composition. That’s where the benefits of a given policy that accrue to one country disappear when everyone does the same thing.

That’s about where we are in today’s macro-economic picture show. There are plenty of bit parts, character actors, and even a few intriguing cameos in the share market that make it possible for investors to still turn a profit. But we sense the arc of this storyline is about to take a dramatic turn. Stay tuned to tomorrow’s episode for more.

Dan Denning,
for Markets and Money

Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors.

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