Currency devaluation

K

Kenster

To counter the effect of market deflation and prolonged depression, a likely action world governments will take is to stage a concerted global currency devaluation, a la 1933 Roosevelt action.

What I would like to know is, when the devaluation is announced and takes place, what is the effect on asset prices and, as investors, how can we takes advantage of it?

- What is the effect on property prices?
- What is the effect on existing debt?
- What is the effect on rent?
- What is the effect on share prices?
- What is the effect on share divident?

???
 
Kenster said:
Gold .
Click to expand...

That is the only possible answer if all major currencies are to devalue. And I've heard this story too, I just don't know how it could be done in practice. If this were to happen no suggested price for Au under $10k/oz would be unreasonable.
 
In '33 Roosevelt devalued the USD simply by raising the official price of gold (after he confiscated the citizen's private holdings at the old price). This worked because the USD bill was a "gold certificate". It was written on the note that the bearer was entitled to exchange the note for about one gram of gold. It was an entitlement.

All currencies are now fiat so they would have to go back to some sort of gold standard and I can't see that happening.

I have no idea of the figures, but if the US went back to a full gold standard they would have to calculate the total amount of currency in circulation and divide that by the amount of gold in their reserves and the amount of gold their foreign currency reserves would buy. The result would be the price of gold, stated in US$s. I've never read anything about that so it is pure hypothesis on my part and I'm open to debate.
 
Thanks Kenster. I had a quick look and couldn't find those figures.

But it wasn't the confiscation which caused the devaluation but the re-pricing of gold. Now gold has trebled in the last few years but that has had no direct effect on the exchange rate of any currency, because none is linked to gold. To somehow devalue the Euro, Yen, Yuan and US$ all at once would necessitate linking one to gold and making that the international currency, as the US$ is now, as agreed to in a new Bretton Woods Agreement.

http://en.wikipedia.org/wiki/Bretton_Woods_system
 
1 metric ton = 35,274 oz.

1oz of gold = $737.40 @ Nov 19 close.

1t of gold = $26,011,047.60

145,000t of gold = $3,771,601,902,000,000,000,000.

3.77 pentzillion dollars of gold around the planet if that is metric tons.
 
Devaluation vs Gold had some meaning in the 30's, when currencies were backed by gold. The primary store of value was gold, and the paper currency was its day to day translation/incarnation.

Today, though, paper currencies do not represent gold, but the ability of the issuing sovereign country to pay dividends in the face of interest. Currency of a stable country which pays interest and is not going to default has its value. On the other hand a currency of a 3rd world country which can always default on its obligations is not even convertible (see many countries in the developing world).

If so, to seriously devalue a currency today it is needed for the issuing government to declare a default on its bonds. Like Russia did in the late 90s. And Argentina around the same time. Luckily most countries are not like Russia or Argentina (this remark is not about Russians or Argentinians, but about their govt & economic systems)

Raising "artificially" the price of already freely traded gold will not cause a devaluation by itself.

The only way to devalue ALL major currencies is to make a fully concerted default of ALL major countries US, Europe, Japan on their bonds - such move will indeed devalue their currencies and Gold will skyrocket, but again - how probable this screnario sounds? Not probable to me.


If at all I see deflation, which means currencies re-valuation. But, of course, anything can happen.
 
spark said:
If at all I see deflation, which means currencies re-valuation. But, of course, anything can happen.
Click to expand...


Deflation eh..??

I think my farm business has been hit with deflation. I bought up fertilizer, fuel, chemical etc at peak prices 6 months ago, and now am ready to harvest a crop that has crashed in price. This will mean a loss even though I have a very good crop to harvest.

What happened to inflation?

You learn something new every day.



This will be the fate of a lot of business's in the coming months I can see.

Also, deflation is good for savers, bad for debters. The debt, even if it doesn't change, will take more servicing. Hmm........At least I won that bit.

See ya's.
 
Real deflation sucks, hard to get out of. Certainly hope we dont go there.

Im guessing that there will be some severe rate drops to try to avoid this scenario. So much for the inflation monster eh.
 
1 metric ton = 32,150 troy oz.

1oz of gold = $738

1t of gold = $23,726,700

8,133.5t of gold = $193 trillion (US holdings)

US national debt = $10,666 trillion http://www.brillig.com/debt_clock/

So the Yanks would need 15% of their Au holdings to pay off their national debt. Not as bad as I thought. :)

Note: There has not been an audit of US reserves for decades.

Does anyone know how much US money in circulation? Would that be M1?
 
One thing that is really really bugging me in this financial melt down, is that when the US market tanks, our market tanks, yet the damn US dollar remains strong.
 
topcropper said:
Deflation eh..??

I think my farm business has been hit with deflation. I bought up fertilizer, fuel, chemical etc at peak prices 6 months ago, and now am ready to harvest a crop that has crashed in price. This will mean a loss even though I have a very good crop to harvest.

What happened to inflation?
Click to expand...

Same here, as an importer I have stock which sells only at discount, and replenishments will cost me more since the AUD crashed almost 20% from 0.6 to 0.5 per Euro. You are squeezed from both the supply side and the demand side. :mad:
 
spark said:
replenishments will cost me more since the AUD crashed almost 20% from 0.6 to 0.5 per Euro.
Click to expand...

I think I'll buy a new Mitsi van in the post Xmas sales. I reckon they will have payed for this stock ages ago when the A$ was stronger. They will have trouble financing the next shipment if they can't mark up current stock though, and they can't. A new van $19,990, air con on the road. Same price I paid for my current one and the one before that.

But our motor dealers are a mafia mob and I don't feel sorry for them. :D
 
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