Last week, China pushed down the value of its yuan to its lowest level in 11 years, and the U.S. Treasury designated China a “currency manipulator” in response. Meanwhile, gold soared to fresh six-year highs after breaking through the key $1,500/oz. level. Many worry this could spark an all-out currency war between the two powerhouses and send the global economy into a financial tailspin. Learn more in this episode of USMR Market Insights with Patrick Brunson.
Are We Headed for an All-Out Currency War? – Video Transcription
Patrick Brunson: 00:00
Over the last several months, we've been hearing about president Trump's trade war with China and the ongoing spat that has left the future of the dollar and the global economy in question. But over the last week, the trade war seems to be morphing into what is called a “currency war.” Up until now, countries have been focused on stimulating their domestic economies from within, through their central banking systems. But now central banks around the world are starting to cut interest rates and move towards other steps to pump money into their financial systems. But the problem with cutting interest rates is it lowers the value of the currency to which the rates are applied. Not only that, but it makes investing in these currencies with lower interest rates, much less attractive in countries and banks, they tend to dump currencies when they're devalued and they bet against them in the foreign exchange markets.
Patrick Brunson: 00:52
With that said, the latest moves are now disrupting a relatively stable order around the world, creating unpredictable ripple effects to the global economy. When currencies swing wildly like this, entire economic sectors can be crushed even in powerful nations if those sectors find themselves uncompetitive after a major swing in global exchange rates, and this could crush and destroy the role the United States has played in the international financial system, especially if the accusations of manipulation towards China are followed up with retaliation to try to artificially suppress the value of the dollar. At the end of the day, no one wins anything in a trade war. It's literally a race to the bottom when this happens because all countries involved purposely pushed down the value of their currencies to make them more desirable as trading partners to other countries. When this happens, it causes massive inflationary risks and it can even lead to a recession in multiple countries all at the same time.
Patrick Brunson: 01:52
These are the things that we now have to pay attention to as consumers so that we don't end up going down with a sinking ship. The one thing that is always left standing after a currency war, however, is gold. The yellow metal is the one asset that countries, banks and consumers around the world fall back on during these times because whenever fiat paper currencies are falling, gold tends to rise at a rapid pace. This is one of the main sources of safety that you can transition your portfolio into as a form of diversification as well, and with the trade war now morphing into more of a currency war, it's probably a good time to get involved being that there doesn't seem to be any end in sight when it comes to this conflict. I want you to take action today by calling the number on your screen to get U.S. Money Reserve's latest report: Decision 2020, An Economic Tipping Point. This report covers several important economic issues such as the current state of trade wars, the longest economic expansion in history, and much, much more. So please call the number on your screen or click on the link below to get your copy today. Feel free to comment and share this video if you find this has been useful. If you're watching us from YouTube, please subscribe to our channel so that you don't miss a single episode. I'm U.S. Money Reserve's, Patrick Brunson, and thank you for watching Market Insights.