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Central Tool

How to Profit From Central Bank Actions!

Back in the good ole days of central banking, banks just lowered and raised interest rates to take care of their economies.

Interest rates could vary big time...anywhere from literally 0% to over 8%! However, that was then. Since the “good ole days” we’ve had a “credit crunch” and “global recession”. It’s not often that almost every major economy in the world goes into a recession around the same time.

Therefore most central banks around the world have “shot most of their bullets” as they lowered rates to at or near 0%. However, just when you think they have done all they can do and their gun is just “clicking”…they reach down in their boot and pull out a knife…and the “battle is on” once again.

Well, what is the rabbit that they are pulling out of their hat now? Quantitative Easing…What is that? When they’ve lowered rates as much as they can in an attempt to make money as “cheap” as they can, they crank up the printing presses and make more money.

You see, that tool hasn’t always existed. Back in the day, money represented something. It was backed by gold in the U.S. and Switzerland, etc. Even many countries that didn’t have their currency backed by gold had their currencies pegged to the dollar which was backed by gold. So there was “substance” and “stability”. Well, Richard Nixon fixed that by taking us off of the gold standard. Why? I believe it was to they could have the “right” to print money like a “mad man”…and sure enough, they’ve been doing it ever since.

So you may think that since the U.S. has had a history of printing more money since the 1970s, that it should be no big deal right? Wrong! Before, they printed money like a river. Today they are printing money like the “raging rapids”.

But this “printing of money” used to be more of a habit of the U.S. Fed more so than for other central banks around the world. However, in light of the global recession and the credit crunch, they’ve almost all hopped on the “money printing wagon”.

 

The Central Bank’s Final Rabbit to pull out of the Hat: Quantitative Easing!

 

So who’s involved in this “Quantitative Easing”? Well of course the U.S .is…that’s no surprise. They are the masters at it. They’re printing $300 billion

However, the U.K. has hopped in as well. They’ve dropped rates to the lowest they’ve ever been in their entire 300+ year history. Now they have printed over 75 billion pounds thus far.

Who else has jumped on the band wagon? Canada! Yeah, they call it their “insurance policy against unforeseen economic risks”. Yeah, in other words…they don’t need it now but they’re going to go on ahead and do it anyway, just in case!

Sometimes I feel like these central banks are like little kids. Johnny’s parents let him stay out until 11pm. Why can’t I? Ha-ha!

Instead, Canada is saying, “The U.S. and U.K. get to print money, why can’t we?”

Meanwhile, the SNB (Swiss Central Bank) has intervened in its currency to drive down the value of the franc across the board but in particular to the euro (EUR/CHF). So they are selling francs and doing a little printing themselves.

The Bank of Japan didn’t want to be left out either. They printed over 21 trillion yen!

 

So what’s a currency investor to do amidst al of these central banks “watering down” their currencies by printing even more? There are a few things you can do.

First, you can go back to the “real” currency: gold. Gold is a great place to go when everyone is willingly driving down the value of their currencies. It retains its value and even can go up when central banks lose their mind like they are doing right now!

 

The Only Two Major Central Banks that Haven’t Lost their Minds: Australia & New Zealand.

 

However, you don’t want to have everything just in gold. So there are (so far) a couple of central banks that are yet to join the “money printing club”: Australia and New Zealand

So far, they still have a couple of things going for them. Firstly, they actually have an interest rate of 3% on both of their currencies. While this isn’t anything to “write home to mom about”, it certainly beats ½ of 1% that so many are at right now!

Next, they do have inflation (3.7% Year over Year for Australia and 3.4% YoY for New Zealand) and not deflation. Given all of this AND the fact that they’ve held off on the urge to print more money, it could cause the AUD and NZD currencies to be buoyed while others continue to sink.

On top of this there’s one final benefit to owning these two currencies. They are nick named “commodity currencies”. All of this printing of money will eventually cause rampant inflation, even before the central banks can withdraw it. Therefore, it will cause commodities and the currencies of commodity miners/exporters to thrive.

Therefore, it’s a good thing to hold Aussie and New Zealand dollars and gold while the central banks are in this present “mania”!

Sean Hyman

Contributing Writer

MyWealth

About the Author

myWealth.com provides affordable, online personal finance courses that enable everyone to effectively manage their money by making sound financial decisions. Making sound decisions is a prerequisite to achieving your financial goals and becoming financially secure. myWealth.com offers numerous courses that cover investing, managing ones personal finances and currency trading.

myWealth.com's team of instructors, led by Sean Hyman and Bob O'Brien, pride themselves in thoroughly answering questions and patiently guiding each and every student through the course. Our instructors have years of experience trading various financial markets. They also have years of experience providing financial planning advice to individuals like you.

How do I get the smiley central on my messenger?the tools only appear on the regular mail.?

You cannot get them on Messenger. Messenger already has a pre-set selection of Smileys to choose from. Sorry.

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