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  1. Wealth
November 16, 2010

G20's lame ducks

By Spear's

So, in a world of competitive devaluations, the two biggest economies are joined at the hip in the race to the leadership position in this race of losers

The G20 summit in South Korea was a waste of Air-Miles. It achieved nothing, other than to demonstrate Obama is a lame duck with no control over his economy, that the crispy Peking Duck doesn’t want to be fried on the altar of US revival, as Bernanke pours on the oil of QE2 and moves the heat on up to Regulo 10, as he steps on the gas driving his printing presses.

And neither of these majors wanted to hear the common sense of that Call-Duck David Cameron, who warned them both of the dangers of beggar-my-neighbour protectionist policies. The plain truth is that whatever the UK’s position is, no one wants to know.

Why not? China needs GDP growth of 8%+ to absorb its internal migration from the drought-riven North to the economic prosperity on the Eastern seabord, to maintain “social cohesion”; for this it needs to have a competitive Yuan to help exports, especially to the US, so its currency is tied to the Dollar. The US has failed to tackle its budget deficit and has gone for growth to ease its 16% unemployment (as measured by U6) and to lift its decrepit housing market by adopting a policy of benign neglect towards the Dollar, leaving it to wallow and sink in value, and then Bernanke gave it another downward boot with his $600 billion of extra dosh slopping over the decks.

So, in a world of competitive devaluations, the two biggest economies are joined at the hip in the race to the leadership position in this race of losers. Then up pipes Cameron to tell them this is no way to run a three-legged egg-and-spoon race, but of course Britain, happily outside the eurozone, was first out of the traps in this particular race, as the Pound was allowed to devalue by a massive 25% in 2009: he knows only too well that he hasn’t got a moral leg to stand on, and his economic leg carries no clout either in the ring with these two heavyweights. Nevertheless, his warning was all too clear. It was the G20 unstated communiqué, and it didn’t make happy reading.

Meanwhile, the G20 was held under a shadow of eurozone collapses: Ireland joined Greece in the German-managed sick-bay for euro drop-outs, and everyone is looking for the next euro-shoe to fall, with Portugal featuring prominently, which puts a big question mark alongside Spain. There is another candidate, however, coming up fast on the outside, namely Austria, that everyone refuses to acknowledge.

It has all the symptoms of a Friday night drunkie – faltering economy, massive debt-to-GDP ratio, and a banking system that has busted itself on loser-loans to Eastern Europe. Shades of credit-Anstalt’s 1933 collapse loom large. Naturally, the G20 never got round to this one, because there’s no answer other than the €750bn stand-by facility, paid for by Germany. Then the Germans don’t help by announcing that bond-holders of failed sovereign debt must take a “haircut”.

Ah! Well! In the kingdom of the blind, the one-eyed man is King: so, hang onto your Gold. I said that some time ago as Gold went through $500, about twice the price when the man named after the colour brown sold 58% of the UK’s Gold; and I have repeated the advice for several year’s now; and now Gold is hovering at $1,400. Interestingly, silver stayed at $3.80 for years, but last week the Spot price in London hit $15 per ounce.

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One dealer in Hatton Garden is smelting down worked silver items at a rate of 2 tonnes per week: quite a thought that, that all those fake Queen Anne teapots are being melted down as the craftsmanship involved achieves a negative added value. Now that’s something every G20 delegates should ponder on, like one of those WW2 government austerity posters: ‘Is your journey really necessary?’

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