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Friday, 20 January 2012

French downgrade invites massive European QE

Massive European QE is predicted because France's credit rating downgrade has made a bad situation even worse for European banks, which are "in an absolute mess".

QE (quantitative easing) is the printing of money, or the creation of money without substantial backing, as was done in Zimbabwe and the German Weimar republic.  When money is printed out of thin air it has no intrinsic value.  The currency itself becomes devalued, and eventually buys less.  When the amount of money in an economy is inflated, each dollar or euro is worth less.

Creating money by QE to give to bankrupt banks is the only way to preserve the European banking system, but that will be at the cost of the devaluation and possible destruction of the euro.

See "Gold price fundamentals viewed from a currency perspective" for the relationship between gold and currencies.

I acknowledge Gold Switzerland for this source article.

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