Williams says central banks need to continue to print money to “maintain the pretence that the global economic situation is under control, which it surely is not.”
This opinion is echoed by my friend, Ian McAvity. In his Deliberation on World Markets newsletter, he says “the orchestrated reopening of Cypriot banks creates two euros despite claims to the contrary.” Most importantly, the fact that “gold did not surge on these developments for the second most important currency teetering on the brink adds weight to the case for surreptitious central bank interventions,” he says.
McAvity says “surreptitious,” while CLSA’s Greed & Fear Author Christopher Wood calls it a “grandiose monetary experiment,” which may be “unprecedented in recorded financial history.” He believes that there is an “outright embrace of the eroding distinction between monetary and fiscal policy” and instead of moving away from its unconventional easing policies, “the central banks are moving further and further away from the exits.”
But there is a much more important issue that has been raised because of Cyprus’ and the euro system’s “startling inequality of treatment,” says CLSA’s Russell Napier. He questions whether the euro system works in a political sense. He writes:
If … people of the system believe that the euro’s sustenance necessitates the use of arbitrary power, resulting in unequal treatment, then they will conclude that the euro system is not worth having. The loss of democracy and the rule of law will outweigh whatever economic benefits euro membership may bring.
An avid sports enthusiast would translate this “loss of democracy and the rule of law” to a game where the referees are making unfair calls, adding rules and changing boundaries to control the outcome.
About the Author
Frank Holmes is CEO and chief investment officer of US Global Investors. This first appeared in his Frank Talk blog. For more updates on global investing from Frank and the rest of the U.S. Global Investors team, follow on Twitter at www.twitter.com/USFunds or like on Facebook at www.facebook.com/USFunds. You can also watch exclusive videos on what research overseas has turned up on the U.S. Global YouTube channel at www.youtube.com/USFunds.
US Global Investors, Inc. is an investment management firm specializing in gold, natural resources, emerging markets and global infrastructure opportunities around the world. The company, headquartered in San Antonio, Texas, manages 13 no-load mutual funds in the U.S. Global Investors fund family, as well as funds for international clients.