Press "Enter" to skip to content

Global currency devaluations won’t work

wallpaper zimbabwe currency

“The result of currency devaluations can be boiled down prosaically: savers get screwed. Remember, it is the Baby Boomers who have the largest accumulation of savings- either in the form of savings accounts, bonds, or home equity- and therefore, the most to lose from a devaluation. ” Contrarian

Governments seem to forget that one must pay off debt during “good times”, rather than increasing services. Using devalued currency to increase growth causes problems, as the productivity increase is artificial, with reduced economic benefits (selling more for less, or even at a loss, is not sustainable) At least the US and probably Canada have the potential to maintain and increase productivity than the economies of southern Europe plagued with expensive services, aging populations and an expensive currency.

Borrowing, with the expectation of future economic growth paying debt sounds good, though one may be challenged if growth does not occur to expectation, often due to circumstances beyond control. Raising taxes to pay debt, while maintaining expected services sounds good up to a point, but is politically divisive and can seriously affect growth, required to pay off debt.

The following article is an excerpt from Elliott Wave International’s free report, 20 Questions With Deflationist Robert Prechter. It has been adapted from Prechter’s June 19 appearance on Jim Puplava’s Financial Sense Newshour.

Jim Puplava: In 1933 at the bottom of the crisis, the Roosevelt administration comes in. In its first week they declare a bank holiday, they reopen the banks with the FDIC, they sever gold, they come in with massive fiscal stimulus and they devalue the dollar substantially. The result was from 1933 to1937 we have positive CPI, economic growth, a robust stock market. If fiscal and monetary measures fail to revive the economy and the market, could the government try devaluation to change the deflationary outcome the way they did 1933?

RP: Well, you have to have a benchmark in order to devalue a currency. Our currency isn’t pegged to anything, so I don’t understand even what the term devaluation would mean. What would they do to do create a devaluation?

JP: Maybe they come out with a formal saying: the dollar is now worth a half a euro, X amount of yen or it’s a formal statement. They just declare it formally.

RP: Yeah, but everybody already knows what it’s worth, because it’s floating freely against these other currencies. And they certainly couldn’t fix it to a lesser currency like the euro. And then the managers of this other currency would simply make another decree and negate it. That’s not going to work.

Let’s take your example, because it’s very important. The whole idea of the government being ahead of the curve is bogus. You know the collapse was from September 1929 down to July 1932, right? The government did not act until it was over. They waited for the bottom of the collapse—of course—and then they finally decided they’re going to do something about it. So, months after the low in 1932, they finally shut the banks and pass laws such as Glass-Steagall, which created the FDIC, and the Securities and Exchange Act, and that sort of thing, to bring confidence back into the banking system. I think the same thing is going to happen here. They’re going to try the same old stuff, more and more lending, more and more borrowing—which is the problem, not the solution—until everything collapses, and then they’ll go, “Oh maybe we should try something else,” and by that time we’ll already be at the deflationary nadir, and it’ll be time to look for an inflationary outcome.

My whole thesis is exactly along those lines. We want to stay prepared for a deflationary crash, and when it’s over, we’re going to convert whatever money we have to stocks, and raw land, and gold, and whatever else we want to buy. That’s when—if the government makes a political decision to inflate through currency printing—it would make the decision. They’re not going to make it before the bottom. The government has never acted before the bottom, never acted in a new way. Right now these bailouts and other schemes are simply pressing the accelerator harder on what we’ve been doing since 1913. Editor’s Note: The article you are reading is just one small excerpt from Elliott Wave International’s FREE report, 20 Questions With Deflationist Robert Prechter.


  1. Mark Mark July 7, 2010

    why are they still not waking up ? Is ben Bernanke a puppet or what? why people are still not marching down the street?!?! when will Obama wake up?!

  2. Jason Jason Post author | July 7, 2010

    People won’t march down the street until they are left with nothing. It is sad.

  3. Mark Mark July 7, 2010

    by then will be too late ~ …if you get cancer you dont wait till your last day to treat. thats just dumb.

  4. Josee Josee July 7, 2010

    Obama is going to help the US no doubt. He is affecting change right now. How can you people believe this republican nonsense? Get your heads out of the sand! Obama is about change. People aren’t marching down the streets because they are happy with what Obama is doing. Stop your whining to go with your cheese.

  5. David Jeremiah David Jeremiah July 7, 2010

    People are not marching down the street because there is no unifying force except the internet, there is no main stream media report on the truth, there is no finance and if anyone speaks as loud as Martin Luther King will end up as him. There are 30 to 40 Million people who are living in Poverty in US. 3 Million are Filthy Rich. The 300 Million who have a piece of the modern life-style are afraid to do anything about it for fear that if they rise up, they may end up as the 30 Million in Poverty. America needs 60 Million people on the street in One Day to wake up the Congress and the World !

Leave a Reply

Your email address will not be published. Required fields are marked *