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“The enormous gap between what US leaders do in the world and what Americans think their leaders are doing is one of the great propaganda accomplishments of the dominant political mythology.”

Michael Parenti

Most economists and financial analysts think that ‘currency war’ merely refers to the competitive devaluations that nations sometimes engage in to help boost their domestic economies, as they had done in the 1930’s for example.

This time the currency war is a much more profound confrontation of differing agendas revolving around the historically unusual role of the US dollar, based on nothing more than the will of the Federal Reserve and the ‘full faith and credit’ of the US, as the reserve currency for global central banks and international trade.

When a single nation begins to wield such an ‘exorbitant privilege’ to underwrite the speculative excesses of a crony capitalist banking system, and perhaps even more importantly, as an instrument in support of their international policy, one ought not be surprised that the rest of the world will begin to resist it.

A currency must be policy neutral, without regard to any party if it is to be a true medium of exchange. Can this still be said of the US Dollar as it has been managed, especially since 1990?

As Alan Greenspan once correctly pointed out, but certainly did not heed when he was at the Fed, if a fiat dollar is managed by monetary policy such that it emulates gold, then it will be perceived as fair, and will certainly be above the particular domestic issues or international policy biases of a single nation that de facto wields the reserve currency status.
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Currency Wars, Battles, And Hostile Actions

September 22, 2015

Currency Wars, Battles, And Hostile Actions

With its recent miniscule 2% devaluation of the Yuan, media pundits noted that China had now also entered into the global currency war. What this comment implies is that other countries with the ability to issue or print their own currency, including the U.S., have been participating in a currency war by devaluing their own currency as a hoped for means to increase their country exports and thereby stimulate their economies. As China’s currency has been pegged to the USD, it had recently grown stronger as a byproduct of dollar’s recent dramatic strength. Accordingly, the peg that China used to tie-in to the dollar’s value had increased the Chinese yuan to a level that was hurting their exports. The resulting devaluation was China’s attempt to correct partially this unwelcome currency appreciation.

With FED’s past QE series of money printing, we have been at the forefront attempting to devalue our own currency as a means to improve our exports, reach the FED’s stated goal of increasing inflation which would produce higher GDP figures, allowing government officials to claim that economic growth or recovery is resuming. Not to be outdone, the European Central Bank has been purchasing weak credits from their banks, in order to make member bank financial solidity ratios appear stronger – which also requires substantially increasing its money supply. The largest and most outrageous example of intentional destruction in the value of its currency is Japan, which for nearly two decades has been on a mission to devalue its currency in order to stimulate inflation.

Currency expansion may seem like an ideal, benign solution to a country trying to stimulate its exports, but it does create a financial assault or loss to their trading partners. For example, China’s recent holding in excess of $1.3 trillion assets (until some recent sales of under $200 billion) from accumulated annual trade surpluses, would lose great value in its assets by the amount of such U.S. devaluation.

…click on the above link to read the rest of the article…

These Currencies Could Be The Next To Tumble In Global FX Wars

August 21, 2015

These Currencies Could Be The Next To Tumble In Global FX Wars

Earlier this week, Kazakhstan moved to a free float for the tenge, prompting the currency to plunge by some 25%.

The move came after the country’s exporters could no longer stand the pain from plunging crude prices and the RUB’s relative weakness. China’s move to devalue the yuan was the straw that broke the camel’s back.

Here, summed up in one chart, was the problem:

This “may prop up growth in the country and help [the] fiscal sector to accommodate external pressures in case they continue to mount,” Deutsche Bank said, commenting shortly after the news hit.

In many ways, the decision to float the tenge (like the move by Vietnam to allow the dong to swing in a wider channel) is emblematic of what’s taking place in FX markets from Brazil to South Korea.

Shockwaves from China’s devaluation have conspired with sluggish global demand and an attendant commodities slump to wreak havoc on developing market currencies the world over. For Asia ex-Japan, the outlook is especially dire, as the PBoC’s FX bombshell threatens to undermine regional export competitiveness, put upward pressure on the region’s REER, and will likely serve to further depress demand from the mainland.

Idiosyncratic political events have only made the situation worse for the likes of Brazil, Turkey, and Malaysia.

Here are some brief comments from Citi:

Is this Asian Currency Crisis Part 2? It sure feels like it. It would be more accurate to call it the Great EM Deval-Meltdown as emerging market currencies are in freefall and another peg bites the dust overnight (Kazakhstan). There are few pegs left besides Saudi Arabia and EURCZK and both are under pressure. The 1-year SAR forwards are at 12-year wides and EURCZK is pinned to the 27.00 floor. Take a look at the white chart below right which shows Malaysian Ringgit and you can get a sense of the 1997/1998 crisis vs. now.

…click on the above link to read the rest of the article…

It Starts: Broad Retaliation Against China in Currency War

August 20, 2015

It Starts: Broad Retaliation Against China in Currency War

The biggest global “tail risk” is China’s deteriorating economy and an emerging market debt crisis, according to BofA Merrill Lynch’s monthly poll of fund managers. And 48% of them were expecting the Fed to raise rates, despite languid growth and low inflation expectations.

Hot money is already fleeing emerging markets. Higher rates in the US will drain more capital out of countries that need it the most. It will pressure emerging market currencies and further increase the likelihood of a debt crisis in countries whose governments, banks, and corporations borrow in a currency other than their own.

This scenario would be bad enough for the emerging economies. But now China has devalued the yuan to stimulate its exports and thus its economy at the expense of others. And one thing has become clear today: these struggling economies that compete with China are going to protect their exports against Chinese encroachment.

Hence a currency war.

It didn’t help that oil plunged nearly 5% to a new 6-year low, with WTI at $40.55 a barrel, after the EIA’s report of an “unexpected” crude oil inventory buildup in the US,now, during driving season when inventories are supposed to decline!

And copper dropped to $5,000 per ton for the first time since the Financial Crisis, down 20% so far this year. Copper is the ultimate industrial metal. China, which accounts for 45% of global copper consumption, is the bull’s eye of all the fretting about demand. 5,000 is the line in the sand. A big scary number. Other metals fared similarly.

Copper powerhouse Glencore, whose shares plunged nearly 10% today, blamed“aggressive and synchronized large-scale short selling” for the copper debacle, instead of fundamentals. But fundamentals have been whacking copper for years, and shorts have simply been joyriding the trend.

…click on the above link to read the rest of the article…

Both ECB And BOJ Warn More QE May Be Response To Chinese Currency War

August 13, 2015

Both ECB And BOJ Warn More QE May Be Response To Chinese Currency War

Minutes from the ECB’s most recent policy meeting reveal that Mario Draghi and company have a number of concerns about the pace of economic growth in the euroarea and about the outlook for inflation which, much to the governing council’s surprise, “remains unusually low.”

Board members also took note of increasingly volatile EGB markets and made special mention of the second bund VaR shock which took place at the first of June, something the central bank attributes to “overvaluation [and] one?way market positioning related to the public sector purchase programme.” In other words: “our bad.”

The bank gave itself the now customary pat on the back for the “success” of PSPP noting that the “moderate frontloading of purchases” (a reference to the effective expansion of QE that was leaked to a room full of hedge funds at an event in May) was going smoothly, other than the above-mentioned nasty bout of extreme volatility.

As for the economy and inflation, well, that’s not going so hot. “Overall, the recovery in the euro area was expected to remain moderate and gradual, which was considered disappointing from both a longer-term and an international perspective [while] consumer price inflation had remained unusually low.”

Between that rather grim assessment and the comments cited above regarding volatility, one is certainly left to wonder what it is exactly about PSPP that’s going so “smoothly.”

But as interesting as all of that is (or isn’t), the most compelling comments were related to China. Here’s the excerpt:

In particular, financial developments in China could have a larger than expected adverse impact, given this country’s prominent role in global trade.

Consider that, and consider the following statement sent to Bloomberg by an adviser to Japanese PM Shinzo Abe:

…click on the above link to read the rest of the article…

The US-China “Currency War”: Winners and Losers

August 13, 2015

The US-China “Currency War”: Winners and Losers

American politicians aren’t congratulating the Communist Party in Beijing for its success in following the capitalist proverb “enrich yourself,” but screaming foul play: China falsifies the exchange rate of the yuan so that it can make more money off the USA than vice versa. The accusation, made by everybody from Donald Trump to Bernie Sanders, is that China’s policy is killing good-paying American jobs – and a lot else besides. What’s bad for America can’t be caused by anything done by America, but by Chinese trickery!

America’s right to success

The remedy for the problem is just as obvious as the blame: China must get on board with America’s approved rules for international trade and commerce. If China allows its currency to free-float, then the value of the yuan will adjust, China’s exports to the USA will become more expensive, China and the rest of the world will buy more products from the USA, and jobs will return to the USA.

The assumption is that the global money traders, in their infinite wisdom, would find the “correct” exchange rate between the yuan and the dollar once they have free access to the supply and demand for China’s currency. What would the correct exchange rate be? One that guarantees the success of US firms.

Before this week’s turnaround in response to its slump, China had been moving towards free market convertibility of the yuan. Since 2005, it had allowed its currency to gain almost 30 percent in relation to the dollar, while trying to moderate its increase. Yet the results for the trade balance with the US were exactly the same. What was inferred from this? China hadn’t gone far enough. So how will we know when it’s gone far enough? When America is the winner.

…click on the above link to read the rest of the article…

A Death Cross, Wild Market Swings And A Currency War – And We Haven’t Even Gotten To September Yet

August 13, 2015

A Death Cross, Wild Market Swings And A Currency War – And We Haven’t Even Gotten To September Yet

Things continue to line up in textbook fashion for a major financial crisis by the end of 2015. This week, Wall Street has been buzzing about the first “death cross” that we have seen for the Dow since 2011. When the 50-day moving average moves below the 200-day moving average, that is a very important psychological moment for the market. And just like during the run up to the stock market crash of 2008, we are starting to witness lots of wild swings up and down. The Dow was up more than 200 points on Monday, the Dow was down more than 200 points on Tuesday, and it took a nearly 700 point roundtrip on Wednesday. This is exactly the type of behavior that we would expect to see during the weeks or months leading up to a crash. As any good sailor will tell you, when the waters start getting very choppy that is not a good sign. Of course what China is doing is certainly not helping matters. On Wednesday, the Chinese devalued the yuan for a second day in a row, and many believe that a new “currency war” has now begun.

So what does all of this mean?

Does this mean that the time of financial “shaking” has now arrived?

Let’s start with what is happening to the Dow. When the 50-day moving average crosses over the 200-day moving average, it is a very powerful signal. For example, as Business Insider has pointed out, if you would have got into stocks when the 50-day moving average moved above the 200-day moving average in December 2011, you would have experienced a gain of 43 percent by now…

The Dow Jones Industrial Average has been on an unrelenting upward trajectory since its October 2011 low.

…click on the above link to read the rest of the article…

Debt, War and Empire By Other Means

June 20, 2015

Debt, War and Empire By Other Means

This video below may help one to understand some of the seemingly obtuse demands from the Troika with regard to Greece.

The video is a bit dated, but the debt scheme it describes remains largely unchanged. The primary development has been the creation of an experiment called the European Union and the character of the targets. One might also look to the wars of ‘preventative intervention’ and ‘colour revolutions’ that raise up puppet regimes for examples of more contemporary economic spoliation.

From largely small and Third World countries, the candidates for debt peonage have become the smaller amongst the developed Western countries, the most vulnerable on the periphery.

And even the domestic populations of the monetary powers, the US, Germany, and the UK, are now feeling the sting of financialisation, debt imposition through crises, and austerity. What used to only take place in South America and Africa has now taken place in Jefferson County Alabama. Corrupt officials burden taxpayers with unsustainable amounts of debt for unproductive, grossly overpriced projects.

It would be wrong in these instances to blame the whole country, the whole government, or all corporations, except perhaps for sleepwalking, and sometimes willfully, towards the abyss. For the most part a relatively small band of scheming and devious fellows abuse and corrupt every form of government and organization and law in order to achieve their private ambitions, often using various forms of intimidation and reward. It is an old, old story.

And then there is the mass looting enabled by the most recent financial crisis and Bank bailouts. If the people will not take on the chains of debt willingly, you impose them indirectly, while giving the funds to your cronies who use them against the very people who are bearing the burdens, while lecturing them on moral values and thrift. It is an exceptionally diabolical con game.

…click on the above link to read the rest of the article…

“The Mother of All Bubbles” in Stocks and Bonds: Bank CEO

April 2, 2015

“The Mother of All Bubbles” in Stocks and Bonds: Bank CEO

The first quarter was hot across the Eurozone. The euro has gotten purposefully crushed by the ECB’s currency war. QE, first promised then implemented, became all the rage. And stocks surged: the Stoxx Europe 600 was up 16%; Italy’s FTSE MIB index up 22%; and Germany’s DAX also up 22%, the sharpest quarterly gain since Q2 2003. Since January 2012, in a little over three years, the DAX has nearly doubled. Only Greece couldn’t get it together.

And bonds have soared to ludicrous levels, with yields turning negative on €2.2 trillion in Eurozone government debt, according to Societe Generale. German government debt is now sporting negative yields up to a 7.5-year maturity, while 10-year yield – at 0.14% as I’m writing this – is on its way to negative as well.

So on March 31, Hans-Jörg Vetter, CEO of Landesbank Baden-Württemberg in Germany, spoke at the bank’s annual press conference – and fired a warning shot across the bow of investors.

Publicly owned LBBW, a full-service and commercial bank, serves as the central bank for the savings banks in the states of Baden-Württemberg, Rhineland-Palatinate, und Saxony. With €266 billion in assets and over 11,000 employees, it is the largest suchLandesbank in Germany. And it too was dutifully bailed out by taxpayers during the financial crisis.

And so the press conference had the usual feel-good fare.

“Over the past few years LBBW has gained a very good position to operate successfully on a sustained basis amid a difficult environment,” Vetter said in the bank’s press release. “On this basis we are aiming for targeted and risk-conscious growth in our core business areas,” he said.

…click on the above link to read the rest of the article…

Next Up: China Will Be Joining The Global Currency Wars

March 23, 2015

Next Up: China Will Be Joining The Global Currency Wars

Japan and the Eurozone have already (re-) discovered the power-button of their printing presses, but these countries might soon be joined by China. China’s prime minister has announced on Sunday he thinks it will be very difficult for China to keep its economic growth rate at the expected 7% level. That could result in some more worries on the financial market as the 7% level is already a guidance wich was revised downward from the previous expectations of an economic growth of 7.4%. Keep in mind the 7% growth rate would be the lowest economic expansion in approximately 25 years for the Asian country.

The situation might get worse before it gets better as for instance investment, consumption ànd production growth levels have fallen to multi-year lows which is obviously an extremely bad sign. A slowing growth rate of the Chinese economy will have an impact that will be felt all over the world despite the prime minister trying to shrug it off saying he’s more interested in a quality growthinstead of hard numbers and continues to make more excuses.

It’s however unlikely the Chinese government will allow the economy to grow at a much slower rate than the eyed 7% and it will definitely use all possibilities to make sure it meets its reduced target. The Chinese are already flexing their muscles and have patted themselves on the back they haven’t used their monetary bazooka since the global financial crisis.

…click on the above link to read the rest of the article…

Draghi’s Dangerous Bet: The Perils of a Weak Euro

January 31, 2015

Draghi’s Dangerous Bet: The Perils of a Weak Euro

The recent decision by the European Central Bank to open the monetary floodgates has weakened the euro and is boosting the German economy. But the move increases the threat of turbulence on the financial markets and could trigger a currency war.

The concern could be felt everywhere at this year’s World Economic Forum in Davos, the annual meeting of the rich and powerful. Would the major central banks in the United States, Europe and Asia succeed in stabilizing the wobbling global economy? Or have the central bankers long since become risk factors themselves? The question was everywhere at the forum, being addressed by experts at the lecturns and by participants in the hallways.

Central banks, said Harvard University economics professor Kenneth Rogoff, are surely the greatest source of uncertainty in the eyes of the financial markets, a statement that was not disputed by others on the panel. The fact that monetary policies at central banks in the US, Europe, Japan and elsewhere are drifting apart poses a major risk for the stability of financial markets, he said.

“It’s important for the international community to work together to avoid currency wars which no one can win,” Min Zhu, deputy managing director of the IMF, told the conference.

…click on the above link to read the rest of the article…

As China’s Offshore Yuan Crashes To A 2 Year Low, Beijing Warns Its Citizens: “Don’t Buy Dollars”

January 30, 2015

As China’s Offshore Yuan Crashes To A 2 Year Low, Beijing Warns Its Citizens: “Don’t Buy Dollars”

We won’t go into the specific details of China’s burst housing bubble, the shady underworld of itspyramid scheme wealth-management products, the fact that any hard asset in China is rehypothecated literally a countless number of times, the nuances of its deflating shadow banking system, or even the complexities of its alleged capital controls (alleged, because as a reminder, they only exist for the common folks – the really wealthy Chinese are naturally exempt from any capital flow constraints). We will point out something even more disturbing.

Recall that China, a mercantilist, export-driven country, has a currency that is pegged to the dollar in all but name (yes, the technical peg was dropped in 2005 but since then the PBOC controls the daily moves in the strictest and tiniest of increments), a dollar which has soared in the past 6 months to levels which have prompted countless other central banks to ease in recent weeks, and even forced the Swiss National Bank out of the currency wars, waving a flag of surrender. As a result, China’s exports have been crushed regardless of what fabricated and goalseeked Chinese data will have gullible observes believing.

And while the value of the local Yuan, the CNY, is set by bureaucrats and policy makers on a daily basis, and trades in a tight band around a specific, political number and thus never truly reflects the fair value of the Chinese currency, its offshore cousin, the CNH, floats and is impacted by the private demand of the Yuan. As such, the latter is far more indicative of the pressures that face the Chinese economy and what financial interests dictate should be the fair value of the domestic currency.

It is also the former, the Offshore Yuan, that overnight hit a two-year low, reaching a level not seen since September 2012.

…click on the above link to read the rest of the article…

Currency Wars – Russia Buys 20.7 Tonnes Of Gold In December; Netherlands Refutes IMF Gold Data

January 27, 2015

Currency Wars – Russia Buys 20.7 Tonnes Of Gold In December; Netherlands Refutes IMF Gold Data

UPDATE: Since we published our blog this morning, the Dutch central bank has denied that it added to its gold reserves in December.

De Nederlandsche Bank, the Dutch central bank has denied reports in Reuters, Bloomberg and picked up by GoldCore, that the bank had increased its gold holdings for the first time in sixteen years. IMF data had shown that the Dutch had increased their holdings to 622.08 tonnes.

“De Nederlandsche Bank has not increased its gold holdings. Several media reported this Tuesday that based on IMF figures, DNB’s gold stock increased in December 2014. This is incorrect,” it said on its website.

The DNB’s correct and current gold holdings consist of 19.691 million troy ounces (612.5 tonnes), the tenth largest holder of the metal in the world, according to the World Gold Council’s January data.

We believe that it is only a matter of time before a European or other central bank begins to emulate China and Russia and starts accumulating gold. Today’s error may portend tomorrow’s reality. It is important to note that while Dutch central bank gold accumulation would have been a very significant development, Russia’s steady and robust accumulation of gold is very important. It came at a time when some analysts were suggesting and there was much chatter that Russia would sell gold reserves.

GOLDCORE’s BLOG THIS MORNING:
DUTCH AND RUSSIAN CENTRAL BANK BUY 30 TONNES OF GOLD IN DECEMBER

Russia and surprisingly the Netherlands were the largest central bank buyers in December – accumulating a significant 30.34 tonnes between them as currency wars intensify.

Demand for gold as a diversification and monetary asset continues to be very robust and central banks remain net buyers of gold which should be supportive of prices.

…click on the above link to read the rest of the article…

From Keynesian Shangri-La To Outright War

January 26, 2015

From Keynesian Shangri-La To Outright War

Over the last few weeks drum beats could be heard signalling the coming of troops from abroad to lay waste to any foe ahead of them. However, unlike what we first conjure up as troops from an opposing force made up of men and weapons. This battlefield is being waged in the ether of the currency markets.

Although barely covered by the main stream press Central Bankers have now shown they’re now far from working in unison or displaying any semblance of a cohesive group. Rather, they’ve now turned their attention and policies inward in a “shoot first, screw asking any questions later” mindset.

It wasn’t hard to extrapolate recent events happening if one only paid attention to previous clues. The swiftness along with the repercussions going forward are the only thing that were hard to calculate. However, we now see the brutality and to what extent even perceived smaller entities (such as the Swiss) are willing to take to save their own sovereignty just by counting the first wave of casualties through the metaphor of empty money bags.

Once the Swiss National Bank (SNB) decisively went rouge and un-pegged the floor between the Franc and Euro everything changed. We’ll never know who knew what, if, or when. (i.e. All the other Central banks.) Yet one thing is clear: The SNB didn’t care about who or what entity was pegged to their currency in a carry trade, nor the effects it might have on its economy.

…click on the above link to read the rest of the article…

charles hugh smith-Have Central Banks Entered an Undeclared War?

November 22, 2014

charles hugh smith-Have Central Banks Entered an Undeclared War?.

The monetary tectonic plates are shifting, and predicting the next global financial earthquake is relatively easy.

I recently suggested that the devaluation of the yen was Japan’s Monetary Pearl Harbor: a direct attack on the currencies of its major trading partners: the euro (European Union), the won (South Korea), the Australian dollar (AUD) and the U.S. dollar (USD), which affects both the U.S. and China since China’s currency, the renminbi, is pegged to the USD.

Though there have been no overt (that is to say, public) counter-attacks, this may not reflect monetary peace so much as an undeclared war. Correspondent Mark G. observed that the current geopolitical backdrop is considerably more unsettled than the relatively benign global chessboard in 2008:

“The Eurozone and the Pacific Rim now have a pair of regional wars being fought out primarily by financial and monetary means. We can infer that the major central banks won’t be anywhere near as cooperative during a crisis as they were in 2008.”

While the American-European financial sanctions against Russia and Russia’s counter-moves are being waged in public, the public response of the Korean and Chinese central banks to Japan’s massive devaluation has been limited to grumbling.

…click on the above link to read the rest of the article…

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