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The efficacy of a metallic monetary system is beyond dispute at least among real economists which eliminates just about 95% of whom are now engaged in the “profession.” Money, which gold is, allows for specialization, the division of labor, and provides the means for mankind to escape from barter and, thus, a primitive existence. Like free trade, money naturally integrates mankind both among and between peoples.

A system of central banking with an unbacked paper currency is the antithesis of a gold standard. Manipulation of currencies by central banks, mostly through debasement, hinders trade, creates distortions, and ultimately leads to the dreaded business cycle. Murray Rothbard aptly describes the baneful results of state intervention in the monetary system:

. . . government meddling with money has
not only brought untold tyranny into the world;
it has also brought chaos and not order. It has
fragmented the peaceful, productive world
market and shattered it into a thousand pieces,
with trade and investment hobbled and hampered
by myriad restrictions, controls, artificial rates,
currency breakdowns, etc. It has helped bring
about wars by transforming a world of peaceful
intercourse into a jungle of warring currency blocs.*

While the economic efficiency of a gold standard is important, the ethical case for it is more compelling and was the reason why gold, as money, lasted as a medium of exchange for so long. Gold/money has to be created through honest-to-goodness production and exchange. The often dangerous mining of gold takes labor, capital goods, and land. Turning raw gold into coinage is another process which requires a high level of specialization and production techniques. Both are honest and morally sound activities which make for the betterment of life all around.

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

Chinese Currency Manipulation–Trump’s Petard

September 3, 2019

CHINESE CURRENCY MANIPULATION – TRUMP’S PETARD

The risk that the Sino-US trade war morphs into an international currency war has risen
The US$ Index is up since 2010 but its only back to the middle of it range since 2000
The Chinese Yuan will weaken if the Trump administration pushes for higher tariffs
Escalation of domestic unrest in Hong Kong will see a flight to safety in the greenback

According to the US President, the Chinese are an official currency manipulator. Given that they have never relaxed their exchange controls, one must regard Trump’s statement as rhetoric or ignorance. One hopes it is the former.

Sino-US relations have now moved into a new phase, however, on August 5^th, after another round of abortive trade discussions, the US Treasury officially designated China a currency manipulator too. This was the first such outburst from the US Treasury in 25 years. One has to question their motivation, as recently as last year the PBoC was intervening to stem the fall in their currency against the US$, hardly an uncharitable act towards the American people. As the Economist – The Trump administration labels China a currency manipulator – described the situation earlier this month (the emphasis is mine): –

After the Trump administration’s announcement of tariffs on August 1st added extra pressure towards devaluation, it seems that the PBOC chose to let market forces work. The policymaker most obviously intervening to push the yuan down against the dollar is Mr Trump himself.

China does not meet the IMF definition of a ‘currency manipulator’ but the US Treasury position is more nuanced. CFR – Is China Manipulating Its Currency? Explains, although they do not see much advantage to the US: –

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

Peter Schiff Compares Trade War to “Battle at Little Bighorn”

August 28, 2019

Peter Schiff Compares Trade War to “Battle at Little Bighorn”

Political commentators are increasingly critical of U.S. trade policy, particularly tariffs and the trade war with China. Radio host Peter Schiff went so far as to compare U.S. trade policies to General Custer and the Battle of Little Bighorn. Meanwhile, some economic red flags seem to support their worries.

In today’s polarized political climate, there is one topic both the Left and the Right seem to agree on: the trade war with China is eventually going to hurt the average American.

Radio host Peter Schiff has been hammering on the economic dangers posed by tariffs for months. He even compared the resulting trade war with China to General Custer’s Last Stand.

“General George Custer met his doom charging into a battle he thought he could win against an opponent he did not understand. Based on [certain] views about the fast-emerging trade war with China, it looks to me that [the U.S.]…is charging into an economic version of Little Bighorn.
“By mistaking the real nature of international trade, the costs of tariffs, the effects of currency movements, and the supposed ease with which the United States could quickly re-establish itself as a low-cost manufacturer, [the U.S.] risks shredding the safety nets that have undergirded the U.S. economy for decades and plunging us into a war we are ill-equipped to fight.”

Those are strong words. But is Schiff’s Little Bighorn analogy accurate? Are these tariffs pushing the U.S. toward a disastrous economic “ambush” that could devastate America’s economy? Let’s look at some economic indicators to see what they point to.

Currency Manipulation

Marc Chandler, chief market strategist at Bannockburn, agrees that China’s recent currency devaluation is part of an escalating trade war: “This is another step in the currency war. This also makes trade more difficult.”

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

Getting to a Special State of Ugly

August 11, 2019

Getting to a Special State of Ugly

There are certain phrases – like “trust me” or “I got this” – that should immediately provoke one’s suspicion. When your slippery contractor tells you, “trust me, your kitchen renovation will be done before Christmas,” you should be wary. There’s no way it’ll be done until late spring.

Or when your incompetent client says, “I won’t be needing your services at this time, I got this.” You should expect a panicked phone call at 5pm on Friday. “This is way more than I can handle,” your client will say, “take care of it.”

On Monday, when the sky was falling, and there was much weeping and gnashing of teeth, the Chinese yuan weakened to above 7 per dollar for the first time in over a decade. This prompted U.S. Treasury Secretary Steven Mnuchin to waft out a suspicious phrase of his own. He called China a “currency manipulator.”

Mnuchin’s logic, as far as we can tell, is that China manipulated their currency because their central bank didn’t adequately intervene in foreign exchange markets to prop up the yuan. Conversely, direct intervention into markets, to maintain a centrally planned price that’s acceptable to Mnuchin, is not currency manipulation. Go figure!

On Tuesday, to restore confidence in the yuan, and refute accusations of being a malevolent currency manipulator, the People’s Bank of China (PBOC) announced a plan to price fix the yuan. Specifically, the PBOC will sell 30 billion yuan ($4.2 billion) of offshore bills in Hong Kong on August 14. This move is designed to drain liquidity offshore, thus strengthening the yuan against the dollar.

Why bother?

Cooperative Currency Debasement

The world, circa 2019, is a fabricated reality. Debt, piled upon debt, piled upon debt, ad infinitum, has erected a financial order that’s at perilous odds with the underlying economy. Central bankers attempt to manipulate fake money and fake foreign exchange rates to keep the debt pile from cascading down.

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

Currency Wars Have Entered the Next Phase, Gold and Silver Will Move Higher

August 11, 2019

Currency Wars Have Entered the Next Phase, Gold and Silver Will Move Higher

Gold is trading solidly above the $1500 mark at the time of writing, and I believe we are only just getting started. The currency wars are back in full swing, and they will be more intense than ever.

The United States government, ironically, labeled China a currency manipulator for the first time since 1994, marking a severe uptick in their rhetoric against the Chinese government, as the trade wars continue to spiral out of control with seemingly no end in sight.

Many simply waved this move off as nothing more than what it initially appeared to be: jawboning with no true ramifications behind it. However, others see it as a blatant threat by the U.S. administration against China, as the last time this language was used twenty-five years ago was when China was placed on a currency blacklist.

Some were surprised by this move, as they see it as an overreaction, fearing that we have now moved into another phase of the ongoing currency wars that have bubbled behind the scenes for years—currency wars that are now in plain sight for all to see.

Unfortunately, this should come as no surprise to anyone, as President Trump stated back in 2016 that he fully intended to label China a “currency manipulator”, a statement that was laughed off until now.

This move comes on the heels of a Fed interest rate cut in which the Fed Chief, Jerome Powell, lowered rates by 0.25%, citing fears of a weakening global economy and ongoing trade wars.

Of course, China is far from the only currency manipulator in the world, as countries are constantly “racing to the bottom” in an attempt to lower the value of their currencies. This increases their competitiveness on the international markets by artificially making the prices of their goods lower.

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

Commerce Department Targets China With Proposed Tariffs On ‘Currency Manipulators’

May 25, 2019

Commerce Department Targets China With Proposed Tariffs On ‘Currency Manipulators’

A lot has happened since then-candidate Trump said he would label China a currency manipulator on ‘day one’ should he make it to the Oval Office. So far, at least, the pledge to hold Beijing accountable for manipulating its currency wouldn’t fall into the ‘promises kept’ column. But that could soon change.

Shortly after the Treasury Department delayed its biannual report on suspected currency manipulators – an ominous indication that the issue might resurface in trade talks after Beijing reportedly balked at a pledge to keep its currency stable – the Commerce Department on Thursday revealed that it’s planning to propose a new rule that would allow it to impose anti-subsidy tariffs on imports from countries suspected of undervaluing their currency.

The change would allow the Commerce Department to impose anti-dumping and countervailing duties on products believed to benefit from manipulated currencies. In effect, an artificially depressed currency would be treated as a government subsidy.

Though China wasn’t specifically named in the Department’s announcement, it presence on the Treasury Department’s manipulation ‘watch list’ – which also includes Japan, South Korea, India, Germany and Switzerland – means Chinese companies would be obvious targets.

And just like that, Wilbur Ross has opened up another front in the US-China trade war – albeit one that could ensnare some of Washington’s closest allies, Reuters reports.

“This change puts foreign exporters on notice that the Department of Commerce can countervail currency subsidies that harm U.S. industries,” Commerce Secretary Wilbur Ross said in a statement.
“Foreign nations would no longer be able to use currency policies to the disadvantage of American workers and businesses,” he said.

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

Turkey On Verge Of Collapse As Overnight Swaps Hit 700%, CDS Soar

March 27, 2019

Turkey On Verge Of Collapse As Overnight Swaps Hit 700%, CDS Soar

In Turkey’s ongoing attempt to crush currency manipulators, yesterday we reported that in addition to launching a “probe” against JPMorgan, the biggest US bank, for daring to cut its TRY price target, as well as threatening unnamed “manipulators”, on Monday Turkish authorities took a page of the Chinese currency manipulation playbook, when they made it virtually impossible for foreign investors to short the lira as they soaked up virtually all intermarket liquidity, potentially threatening to kill the economy.

As we reported yesterday, the overnight swap rate on Monday soared more than ten-fold over the prior two sessions to more than 300%, the highest spike on record going back to the nation’s 2001 financial crisis as offshore funds clamoring to close out long-lira positions failed to find counterparties and the cost of a lira short exploded.

Think Volkswagen short squeeze but for a currency, or FXwagen.

Well, FXwagen went turbo on Tuesday, when this unprecedented move continued as Turkish Lira swaps exploded again, more than doubling overnight, and hitting an insane 700%, with some reporting prints as high as 750%

There was just one problem: whereas on Monday this “shock therapy” meant to force out the shorts did in fact work, sending the Lira soaring, and the USDTRY tumbling, the continuation of this painful squeeze no longer has a positive impact on the currency, where as of this point most of the shorts had already been stopped out. As a result, the USDTRY actually rose for the day, and was up to 5.4272, after hitting 5.3051 on Monday.

Commenting on this unprecedented move in swaps, Bloomberg’s Mark Cudmore notes that he doesn’t recall “seeing this happen to any liquid and freely tradeable currency in the past 15 years.”

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

“One Size Fits Germany” Math Impossibility, Get Your Money Out of Italy Now!

October 19, 2018

“One Size Fits Germany” Math Impossibility, Get Your Money Out of Italy Now!

Italy, on the Euro, has a currency that is 9% too high. Germany, on the Euro, has a currency that is 11% too low.

There was much discussion yesterday about the US Treasury report that determined China was not a currency manipulator.

However, there are six countries on the manipulation watch list: China, Japan, Korea, India, Germany, and Switzerland.

Japan, Germany, and Korea have met two of the three criteria in every Report since the April 2016 Report having material current account surpluses combined with significant bilateral trade surpluses with the United States.
Germany has the world’s largest current account surplus in nominal dollar terms, $329 billion over the four quarters through June 2018, which represented its highest nominal level on record. Germany also maintains a sizable bilateral goods trade surplus with the United States, at $67 billion over the four quarters through June 2018. There has been essentially no progress in reducing either the massive current account surplus or the large bilateral trade imbalance with the United States in recent years, in part because domestic demand in Germany has not been sufficiently strong to facilitate external rebalancing and because Germany’s low inflation rate has contributed to a weak real effective exchange rate.

Try Fixing This

The Euro is 11% undervalued in Germany, the largest Eurozone economy.
The Euro is 9% overvalued in Italy, the third largest Eurozone economy.

The normal way central banks make adjustments to fix over-valued or undervalued situation is through interest rate policy or direct currency intervention.

No matter which the ECB does, it will impact Italy and Germany in opposite directions.

Meanwhile, interest rates are on the verge of spiraling out of control in Italy.

Italy vs Germany 10-Year Bond Spread

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

China’s Currency Manipulation Does NOT Harm Its Trading Partners

June 19, 2018

China’s Currency Manipulation Does NOT Harm Its Trading Partners

Americans are being told that China’s currency manipulations are causing harm to its trading partners, America being the main victim. Nothing could be further from the truth. China’s currency manipulations certainly cause harm, but to China itself!

No country can cause harm to another by adopting any economic intervention. All economic interventions cause harm only to the country that adopts them. This applies to subsidies of home industries, quotas restricting import volumes, tariffs imposed on imports, and currency manipulations.

A nation typically manipulates its currency by giving more of its own currency in exchange for the currency of other countries. Thus foreign importers can buy more goods per unit of currency exchanged. In other words, if the free market exchange rate between the dollar and the yuan is six yuan per dollar, an importer would be able to buy goods costing six yuan by tendering one dollar. If the Bank of China arbitrarily decides to boost imports, it can give eight or ten yuan for each dollar presented. Chinese goods drop in price on the American market.

Protectionists such as President Trump view this as harm, but where exactly is the harm? A Chinese good that previously cost a dollar now may be purchased for sixty or eighty cents. Our American standard of living goes up at China’s expense! The extra money in Americans’ pockets may be used to consume or invest more. This is a very strange definition of harm.

The real harm occurs in China. The Bank of China sets off price inflation in its own country. It may try to mitigate this inflation by raising the interest rate on its own debt in order to withdraw the extra yuan from circulation. This is known as “sterilization”. It then appears as if China has achieved greater exports with no price inflation. However, China’s debt rises.

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

Austrian Economics Is Essential to Understand Booms, Busts, and Money Itself

May 25, 2018

Austrian Economics Is Essential to Understand Booms, Busts, and Money Itself

The boom-and-bust business cycle is a natural result of free-market capitalism, but rather of government intervention.

Looking to the next few years, will America and the world continue to ride a wave of economic growth, improved living standards, and technological changes that raise the quality of life? Or will this turn out to be, at least partly, an artificial economic boom that ends in another economic bust?

Reading the economic tea leaves is never an easy task. But the Austrian theory of the business cycle offers clues of what may be in store. In 1928, the famous Austrian economist Ludwig von Mises published a monograph called Monetary Stabilization and Cyclical Policy. It was an extension of his earlier work, The Theory of Money and Credit (1912).

Many things have happened, of course, over the last nine decades—the Great Depression, the Second World War, the Cold War, the end of the Soviet Union, roller coasters of inflations and recessions, replacement of gold with paper monies, the dramatic expansion of the welfare state, and an era of government debt fed by deficit spending to cover the costs of political largesse.

Then, as today, many governments were busy manipulating the supply of money and credit.

Yet, the laws of economics have not been overturned. As a result, like causes still bring about like effects. Minimum wage laws still price some workers out of the labor market whose value added to the employer is less than what the government dictates he must be paid. Rent controls and restrictive zoning laws create housing shortages when government interferes with market-based pricing.

Mises’ Monetary and Business Cycle Analysis Still Relevant Today

This is no less the case in the area of money and banking. When Mises published Monetary Stabilization and Cyclical Policy in 1928, most of the major countries of the world where still on some version of the gold standard.

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

The Pitfalls of Currency Manipulation – A History of Interventionist Failure

March 30, 2016

The Pitfalls of Currency Manipulation – A History of Interventionist Failure

The G-20 and Policy Coordination

Readers may recall that the last G20 pow-wow (see “The Gasbag Gabfest” for details) featured an uncharacteristic lack of grandiose announcements, a fact we welcomed with great relief. The previously announced “900 plans” which were supposedly going to create “economic growth” by government decree seemed to have disappeared into the memory hole. These busybodies deciding to do nothing, is obviously the best thing that can possibly happen.
Yuan, weekly – since the sharp move in USDCNY in August, market participants have begun to worry about the yuan and China’s shrinking foreign exchange reserves – click to enlarge.

There have been rumors though that they did at least strike some sort of sub rosa agreement with respect to the future course of yuan manipulation. In other words, some kind of policy coordination between China and other major currency issuers has quite possibly been agreed upon, even if only tacitly. Officially, China merely used the occasion to “reassure trading partners on foreign exchange”:

“Chinese policymakers on Thursday ruled out an imminent devaluation of the yuan as they seek to reassure trading partners ahead of the G20 summit that they can manage market stability while driving structural reforms.”

When global stock markets swooned in late August 2015 and again in January 2016, the decline in the yuan’s exchange rate was widely blamed as the cause. Considering various central bank policy decisions announced since the G20 meeting, it does appear as though a coordinated move aimed at halting the yuan’s slide and support wobbly risk asset prices has been underway.

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

The Currency Manipulation Charade

May 28, 2015

The Currency Manipulation Charade.

NEW HAVEN – As the US Congress grapples with the ever-contentious Trans-Pacific Partnership – President Barack Obama’s signature trade legislation – a major stumbling block looms. On May 22, the Senate avoided it, by narrowly defeating – 51 to 48 – a proposed “currency manipulation” amendment to a bill that gives Obama so-called “fast-track” authority to negotiate the TPP. But the issue could be resurrected as the debate shifts to the House of Representatives, where support is strong for “enforceable currency rules.”

For at least a decade, Congress has been focusing on currency manipulation – a charge leveled at countries that purportedly intervene in foreign-exchange markets in order to suppress their currencies’ value, thereby subsidizing exports. In 2005, Senators Charles Schumer, a liberal Democrat from New York, and Lindsey Graham, a conservative Republican from South Carolina, formed an unlikely alliance to defend beleaguered middle-class US workers from supposedly unfair competitive practices. Stop the currency manipulation, went the argument, and America’s gaping trade deficit would narrow – providing lasting and meaningful benefits to hard-pressed workers.

A decade ago, the original Schumer-Graham proposal was a thinly veiled anti-China initiative. The ire that motivated that proposal remains today, with China accounting for 47% of America’s still outsize merchandise trade deficit in 2014. Never mind that the Chinese renminbi has risen some 33% against the US dollar since mid-1995 to a level that the International Monetary Fund no longer considers undervalued, or that China’s current-account surplus has shrunk from 10% of GDP in 2007 to an estimated 2% in 2014. China remains in the crosshairs of US politicians who believe that American workers are the victims of its unfair trading practices.

Read more at http://www.project-syndicate.org/commentary/currency-manipulation-legislation-tpp-by-stephen-s–roach-2015-05#VmdR75E4svhYI0m8.99

China Switches to Supporting Yuan as Outflows Mount: Currencies

January 26, 2015

China Switches to Supporting Yuan as Outflows Mount: Currencies

Managing the yuan is turning into a different game for China’s policy makers these days.

After more than a decade of curbing the currency’s gains to help turn the nation into a manufacturing colossus, there are signs the People’s Bank of China is now propping up the yuan to stem an exodus of capital that’s threatening the economy.

A gauge of capital flows on the PBOC’s balance sheet fell by the most since 2003 last month in a sign it’s selling foreign currency, while the yuan’s reference rate set daily by policy makers is at itsstrongest-ever level compared with the market price.

“Everyone thought the movie would never end, and suddenly it ended, so everyone is hurrying to leave,” Kevin Lai, an economist at Daiwa Capital Markets in Hong Kong, said by phone on Jan. 22. “The authorities need to think of a way to keep the audience in the theater” as the economy slows, he said.

China amassed a world-leading $4 trillion of foreign-exchange reserves by mid-2014 as exports surged and capital flowed in, attracted by a currency that strengthened for four consecutive years. Now that the yuan’s gains are faltering, the PBOC is trying to prevent its declines from turning into a rout that could deter investment just as the economy suffers its slowest growth in 24 years.

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

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