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Your Scary Currency Idea for the Day

Monday, 31 Oct 2011 | 3:18 PM ET

Just in time for Halloween, this expert is issuing a warning about a currency doomsday.

Markets and wars have certain things in common, not least the fact that conditions in both can change in an instant. That's why the thesis of "Currency Wars," by James Rickards, is both intriguing and disturbing.

Rickards, a longtime counselor, investment banker, gives gold a major role in his book, and he is adamantly opposed to current Fed policy. He warns that "by engaging in quantitative easing, the Fed has effectively declared currency war on the world." In essence, the injection of dollars into the monetary system is causing inflation and inflationary bubbles overseas, especially in some emerging markets. And with the dollar low relative to other currencies, Americas are buying fewer imports, boosting unemployment in other countries.

Those countries, Rickards says, are retaliating with capital controls, tariffs, and the like - but that's just the beginning. Rickards thinks the whole mess will end in one of four outcomes: multiple reserve currencies, increased use of special drawing rights, a return to the gold standard, or chaos. Some of these could be resolved in a way that restores the dollar's primacy. But, he writes, "Other possible scenarios would include an unstoppable financial collapse followed by the widespread breakdown of civil order and eventually a collapse of the physical infrastructure."

Is Rickards right? We'll know eventually. In the meantime, "Currency Wars" is one spooky read.

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