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I feel sorry for Mr. Draghi, the European Central Bank chief.

About a month ago he announced his own version of quantitative easing, pushing the euro lower. For a moment, he thought he would steal the title of “best money-printing central banker” from Bernanke.

How naïve…

When it comes to destroying the value of a currency, nobody can beat Bernanke.

Last week, the Fed counterattacked the ECB’s actions by announcing that it would keep interest rates at near-zero until late 2014. Bernanke also let the market know he would not hesitate to print more money.

This is a new battle in the ongoing currency war. At the end of this war, there will be only a few winners, and a lot of losers.

However, there are a few things you can do to make sure you’re not one of the losers.

And the most important thing is to diversify away from the dollar into stronger currencies and assets.

Let’s look at it this way…

The Race to the Bottom Goes On

The two most important central banks in the world, the Fed and the ECB, are now trying to destroy the value of their currencies. It’s truly a race to the bottom.

Who will win the race? Until recently, it looked like the ECB had left the Fed behind. It was attacking its currency in a much more aggressive way.

Luckily for us, it’s easy to measure the money-printing activity. We just have to look at the size of the central banks’ balance sheet. It’s an easy way to measure how much money and credit central bankers are pumping into the system.

You see, central bankers print money by injecting capital into their banking system. They take financial assets in exchange for that money. Those assets show up in their balance sheet. So when the balance sheet is growing, it means the printing press is running at full speed.

Take a look at the chart below. You can see the Fed’s and the ECB’s balance sheet. During the first half of 2011, the Fed was much more aggressive than the ECB.

But since August of last year, the ECB’s balance sheet has been expanding much faster than the Fed’s. No wonder the euro dropped during that period.

Until Recently, the ECB was Winning the Race to the Bottom

The Next Battle is Coming in February

The ECB’s balance sheet is growing because it’s providing three-year loans to banks. In exchange, the ECB gets financial assets, such as Portuguese bonds, as collateral. It has also purchased some sovereign bonds for its own account.

The ECB’s balance sheet has now expanded to 29% of the euro zone’s gross domestic product. In the past six months, the ECB has injected a whopping €500 billion into European banks. That’s more than the Fed did in all of QE2.

The ECB keeps denying it’s implementing its own version of quantitative easing. But that’s what it is.

In fact, while the Fed’s balance sheet grew nearly 18% over the last year, the ECB’s grew 37%. Just in the last three months, its balance sheet has grown at an annual rate of 90%.

And the second round of money-printing in Europe is coming this month. At the end of February, the ECB is expected to lend as much as €1 trillion to European banks.

 

Protect Your Finances from This War

If you still have any doubts whether we’re facing deflation or inflation, you just have to look at what the Fed and the ECB are doing. With the two most important Central Banks on the planet printing money, there’s no question that inflation is a bigger threat to your finances.

That’s why it’s important that you diversify away from the dollar into stronger currencies, such as the Norwegian krone, Singapore dollar, and Australian dollar.

Another big winner of this currency war will turn out to be gold. The yellow metal is the perfect way to hedge against money-printing and the ongoing currency war.

In fact, gold has taken notice the ECB and the Fed are both attacking their own currencies. It’s already up 8% this year.

I hope you followed my advice in September and took advantage of last year’s gold correction. In that article I mentioned if gold fell close to $1,500, it would be a great opportunity to buy the yellow metal.

The biggest winner in this currency war will be gold.

And if you don’t invest in gold and diversify away from the dollar, you may end up being the biggest loser.

Best Regards,


Evaldo Albuquerque

P.S. While America falters, our continued investigations have led us to countries where economic growth, profit and freedom all share the same side of the same coin. The Sovereign Society’s Executive Director, Erika Nolan and Jeff Opdyke, Investment Director, are planning a tour to one of those places, Uruguay, from February 27, 2012 to March 3, 2012. We’re taking a handful of sovereign-thinking individuals with us to wine and dine with hand-picked experts, who will share secrets most Americans will never discover. This is a unique opportunity to visit this fascinating South American nation and, at the same time, learn how to secure your wealth in the future. Spots are limited, so please get in touch as soon as possible to make your reservation.

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