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IPFS News Link • Currencies

If The European Politicians Lose The Currency Chess Game


Note:  Nobody knows what is going to happen in the next year, let alone in the next three years.  What follows is the theory behind the European Politicians losing the currency chess game.

If you read my interstitial article, it explains the ECB policy move in terms of chess.  Go read it if you haven’t already.

What happens if the European Politicians can’t make tough decisions (intelligent chess moves) in three years? 

The Euro goes through inflation.  The ECB increased the money supply, and even if money velocity (the number of times each Euro is spent) remains stagnate for some years to come, at some point the velocity will increase, and because there are more Euros in the financial system, More-Euros * Typical-Velocity = Inflation.

Intelligent market participants understand this eventuality, so they will exodus the currency initially, and most likely on the three year mark, and hence hasten this inflation.

But it begs the question, if you sell European assets for Euros, what currency do you buy with your Euros?

Dollar Deflation and Gold Appreciation

There are two beliefs in currency in the financial markets:  fiat and gold.