Sunday, August 4, 2013

There Are No Markets Anymore

The answer is straightforward. Interest rates are a reflection of risk. The interest rate structure in the above table implies that the pound has a higher interest rate because it is more likely to be debased by government and central bank policy (i.e., lose purchasing power) than the dollar, which itself is more likely to be debased than the euro. Carrying this concept one step further, the pound is in contango (as are the dollar and euro) against the Indian rupee and South African rand for example, both of which have higher interest rates than the pound because they have a greater risk of being debased by government and central bank mismanagement.

However, the interest rates of all national currencies need to be viewed cautiously. As Chris Powell of famously declared in 2008: “There are no markets anymore, just interventions.” So rather than being a reflection of true market conditions, interest rates today result from heavy-handed central bank manipulations, thwarting real and accurate price discovery by the market.

- James Turk via a recent GoldMoney article, read the full article here: