Global outrage: Top finance officials from China, Russia, Germany, Brazil and many other countries all over the globe are expressing anger over the decision by the Federal Reserve to initiate another round of quantitative easing. A number of key exporting nations are now evaluating whether or not they should devalue their own currencies in retaliation.
The commodities bubble: It isn't just precious metals that are exploding in price. Virtually every major commodity has been skyrocketing in price in 2010, and things only accelerated once the Federal Reserve announced this new round of quantitative easing. Some analysts fear that this commodity bubble could put significant inflationary pressure on economies across the globe.
Japan intervened for the first time since 2004: Japan's stunning 12 billion dollar move to push down the value of the yen made headlines all over the world.
Even economies that are on a relatively solid footing are openly attempting to manipulate currency rates in 2010.: For example, the Swiss National Bank experienced losses equivalent to about 15 billion dollars trying to stop the rapid rise of the Swiss franc earlier this year.
According to the Wall Street Journal, in order to repay maturing bonds and finance the budget deficit, the U.S. government will have to borrow 4.2 trillion dollars over the next year. If other nations decide that they are tired of the games and that they are going to stop lending so much money to the U.S. government, where will all that money come from? Would the Federal Reserve step in and monetize most of it?
But without faith in the U.S. dollar and in U.S. government debt, the world financial system is headed for a world of hurt. If the rest of the world starts rejecting U.S. dollars and U.S. Treasuries, the fallout will be horrifying.
Not only that, but if we do start to see a full-out currency war with nation after nation "competitively devaluing" their currencies, we might see faith being lost in all paper currencies. If that happens it will create a financial horror of unprecedented proportions.
So let us hope that cooler heads prevail and that we don't see a full-fledged currency war break out. Let us hope that faith in the U.S. dollar and other major currencies remains high for as long as possible.
Because once the "tipping point" comes, there will simply be no putting the toothpaste back into the tube
Now it's about to get worse...: