Hinde Capital CEO Ben Davies has compared the spate of currency interventions to a pre-World War II moment when 25 devaluations in a week set off a flight toward worldwide inflation.
Davies says the dollar-yuan peg was the lynchpin of a global currency regime that promoted cheap credit and asset bubbles. As China pulls the rug out, and Western nations nurse a sovereign debt hangover, every country in the world will race to devalue its currency.
Davies, like Ambrose Evans-Pritchard, says the battle will go beyond forex, leading to escalating political tensions.
“Every country is embarking on the creation of currency to create export growth… As Plato and Aristotle said, this leads to overgrazing, effectively governments expropriating resources from other governments and that leads to only one thing, friction, and as Howard Buffett eloquently put it, it leads to war.“
This also explains why Japan is screwed: “The very act of yuan revaluation has… maliciously pushed the horn of the impossible trinity* up the backside of Japan and Japan is squealing.” (*The Impossible Trinity refers to the inability of countries to have a fixed exchange rate, independent monetary policy, and capital mobility.)
And that’s why Davies is buying gold.