- Can you smell the currency war (FX ie forex war)? Surely, you can see a global currency crisis brewing! The race to the bottom for all fiat currencies have started. The logical end is a One World Currency and Global Central Bank. Got gold yet?
G20 proximity talks needed to avert FX war
Careful calibration of a U.S. dollar devaluation looks to be the only way to avert the sort of currency war flagged by Brazil and others, leaving G20 powers the unenviable task of agreeing some control of the process.
The top world economies, shaken by three years of financial turmoil, are scrambling to cap or weaken their currencies in a fight over fragile global demand for exports — prompting retaliatory capital curbs and damaging trade rows.
As G20 finance chiefs prepare to meet on October 22, they are no closer to resolution of the decade-old bugbear of global imbalances between export-driven economies — mostly developing nations such as China, but also Japan and Germany — and the big global consumers, the United States, Britain and elsewhere.
While there have been loose agreements on rebalancing over time — where emerging powers allow currencies to rise gradually — the lack of an agreed blueprint to manage the transition is already prompting unilateral actions and tit-for-tat reactions in a febrile economic and political environment.
Faced with fiscal exhaustion, hostile electorates and booming China’s refusal to allow a rapid rise of the yuan, the U.S., Japan and possibly Britain seem set on another bout of money printing to reboot their ailing economies and weaken their currencies.
Fast-growing developing countries with flexible exchange rates are caught in the crossfire and are reacting fast, leading to Brazil on Monday to double taxes on foreign inflows and South Korea on Tuesday to threaten curbs on currency trading. France, which takes G20′s rotating chair next month, has denied weekend reports of “secret negotiations” with China. But it’s clear that patience in the status quo is running out.
“To avoid the damaging consequences of continued unilateral action … a core group of major economies needs to agree urgently on a multilateral and coordinated package of policy measures,” Charles Dallara, director of banking group the Institute for International Finance, said on Monday.
U.S. trade threats against China over the yuan showed the “counterproductive nature of unilateral policy,” Dallara said in an open letter to the International Monetary Fund’s annual meeting.
ALL HANDS TO THE PUMP
The main problem for emerging economies is much of the freshly minted “core” liquidity, chased away by depressed western interest rates, is flowing to higher overseas returns rather than strapped firms and households in America or Japan. Their bind is a choice between standing back and accepting export-stunting currency surges and asset bubbles or to resume heavy intervention or capital controls that lead to inflation headaches or further trade distortions.
Robert Johnson, director of the Soros-funded Institute for New Economic Thinking, said G20 needs agreement on the size and pace of the currency shifts between three main groups — the United States and major consumers; the big exporters of China, Japan and Germany; and a grouping of emerging exporters.
“There is competitive devaluation going on,” said Johnson, a former director at billionaire George Soros’ fund management firm and former economist at the U.S. Senate Banking Committee.
“What is called for here is a realignment of emerging countries’ exchange rates vis-a-vis the developed countries — maybe 20-25 percent appreciation over the next year or two.” What emerging economies lose on export competitiveness, he reckons, they can recapture at least partially in cheaper imports for their growing middle class of consumers.
The tricky bit is how to get everyone to move together and prevent market prices snowballing or governments overreacting. Left to their own devices markets are unlikely to deliver the gradualism desired by most governments and faith in efficient pricing is at a low ebb after the credit crisis.
And, reading the runes well, money managers already see the opportunity and are stacking bets to exploit rising pressures.
EMERGING FX RUSH
David Shairp, strategist at JPMorgan Asset Management, reckons the move to emerging currencies could now accelerate. “One of the implicit aims of liquidity injections by the core G4 is surely to facilitate a weakening of their currencies,” he told clients this week. Portfolio flows to emerging market equities are booming and emerging market debt denominated in local currency is currently one of the hottest fixed-income plays.
- Toxic derivatives are a US$1.5 Quadrillion problem! These are almost worthless pieces of paper held by banks. The world is pretty close to a monetary, economic and financial meltdown. Got gold yet? To give you an exact date when this will happen is difficult. I would say we are probably 0-6 months from the pulling of the plug! It can happen in October though. Don’t take my word for it. Listen to maestro Jim Sinclair and his buddy Dan Norcini (thanks to KingWorldNews.com):
Norcini, Sinclair – Financial Hurricane To Collapse the System
…This interview describes what may very well bring the financial system to its knees. October 6, 2010.
“Where we are at on the charts with regards to the precious metals is that they are blowing through resistance levels like they are not even there. If we can clear $23 on silver, there isn’t much resistance until $25 and if silver plows through $25, then you have a realistic possibility of it running up to $35.”
Because we are at new highs in nominal terms on gold, we can’t go back and reference charts so we are projecting levels. The next technical resistance is at $1,380 with light selling possible at $1,350.
The primary drivers in gold and silver today had to do with concerns over currency devaluation as well as securitized debt problems and the implications associated with it. Here is what Jim Sinclair had to say:
“Each time that happens an item of collateral on the securitized debt publicly dies. That is why this is dynamite that people will realize very soon. This is one reason gold is up hard today.”
“That collateralized debt obligation is now effectively worthless because the collateral behind the debt can no longer be collected. The banks cannot go and get it. Let’s say you have 10 mortgages at $1 million a piece, the sum total of those mortgages are $10 million. So, the banks took the 10 mortgages and bundled them together into a collateralized debt obligation or CDO with a face value of $10 million.
They then sold that new entity that they created to an investment group of some sort, a pension fund, hedge fund, etc. promising them a yield of let’s say 7%. The sales pitch would emphasize the fact that this CDO was backed by real collateral. In the event of loan defaults by the borrowers, the banks would tell the buyer of the CDO that the collateral behind the loan could be sold to recapture any potential losses on the part of the purchaser.
Everything seemed to work fine until the defaults began and the foreclosure process kicked into high gear. The foreclosure process has exposed fatal flaws in the system and the flaw is that the banks cannot prove clear ownership of the mortgage.
Consequently, they are then barred from foreclosing on the property. Because they can no longer foreclose on the properties, the CDO is now effectively worthless.
The hedge funds and the pension funds cannot now sell these CDO’s on the open market, so how are they going to recover their original investment? Perhaps you may say that won’t be a problem because these instruments were insured. The problem is now the credit default swap or the insurance policy that was purchased to protect against default assumes that the insurer has the financial wherewithal or resources to make good on the claim.
If there were only a small number of these problem CDO’s this would not be an issue. But as the number of the foreclosures continue to skyrocket, and more and more banks are prohibited from seizing the collateral behind the property, the sheer magnitude of the number of claims presented to the insurer will overwhelm their balance sheet.
In effect what you have is an insurance company which doesn’t have enough money to pay off the claims. Compounding the problem is the fact that the CDO’s and credit default swaps related to these claims form a mass network of interdependence. This then ripples through the entire system and creates a domino effect which can cause the failure of entities creating the next financial crisis.
Ultimately the Federal Reserve will be asked to step in and buy up the now worthless CDO’s and put those on its balance sheet. In order to do this the Federal Reserve will have to engage in massive quantitative easing, taking onto its balance sheet the worthless CDO’s in exchange for newly issued treasuries.
This of course will have a horrific effect on the US Dollar which is why gold and silver are heading much higher.
This interview with Dan Norcini turned out to be an incredibly concise explanation of a financial hurricane that threatens the entire system. Make sure you are insured by owning physical gold and silver.
- If you want to follow a daily blow by blow account of what is really happening behind the scenes, do not forget to checkout KingWorldNews.com. Eric King does a great job.
- The inflation adjusted high for silver based on the US$50/oz 1980 high is about US$140/oz. This is based on official government inflation statistics(lie). If you were to take the inflation figures from www.shadowstats.com, the inflation adjusted high is around US$450/oz. Can we see US$200/oz silver? Yes, absolutely. Silver is ridiculously cheap!
- What we are seeing, recently, is short covering by the banksters. Silver is on the cusp of an explosive move towards US$50/oz. Ted Butler explains all the great fundamentals of silver:
$200 an Ounce Silver? – Can it Happen?
…..Let me first tell you what I am not including as reasons for triple or high triple digit silver. I am not talking about the end of the world, or the destruction of the dollar or other currencies. I am not talking about silver as money. I am not talking about virulent inflation where you see $200 silver, along with $50 for a loaf of bread or $10,000 for an ounce of gold. While I can’t guarantee that those things won’t take place, they are not among my reasons for triple digit silver.
I suppose that if the world’s monetary affairs go to hell in a hand basket, those holding real silver would be protected. But that’s not the basis for my silver recommendation. Bad things may happen in the future, but I refuse to dwell on them or promote them as reasons for owning silver. To me, silver is a “good news” metal. Its many and varied uses are all about making man’s condition better and improving standards of living. I’m a commodities guy and an optimist. I won’t advocate silver based on bad things happening that cause price appreciation. Life is too short. The great news is that nothing bad has to happen for silver to hit $200, $500, or $1000.
At the epicenter of reasons for launching silver to the heavens is the coming end of the silver manipulation. This has been my central theme for many years. Despite denials and protestations to the contrary by many, it remains obvious that silver is not priced properly. There is no legitimate free market explanation for such extremely depressed prices in the face of such spectacularly bullish fundamentals, namely, a structural deficit and depleted world inventories. Only manipulation could explain such a perversely low price compared with the real fundamentals. The good news is that since this manipulation is dependent upon the continued uneconomic dumping of government inventories (from the People’s Bank of China), it is just a matter of time before those finite supplies are exhausted, and the price of silver is set free.
The end of the manipulation may kick off a whole host of related reactions. You can’t keep the price of anything artificially depressed or elevated for decades and not expect violent counter moves when the artificial restraint or prop is suddenly removed. History bears this out. So it is logical to assume that when the silver suppression ends, we will get a severe jolt to the upside. As I have long maintained, it is the manipulation itself that creates the exceptionally low risk and high profit potential. When the manipulation ends, we must move to a price point where supply and demand balance without government inventory dumping. Considering how long silver has been kept depressed, it will take an extremely high price to balance supply and demand.
But this is old news for regular readers, and not the point of this article. Under normal conditions, I do not think it would take $200+ silver to balance the deficit. It would take a much lower price. However, it’s unlikely that normalcy will prevail in the future. There are certain factors that could come into play that could vault silver, in the years ahead, to truly shocking price levels. Just as we have remained grossly undervalued in silver for decades, it is very possible that, in the inevitable move to a market equilibrium price, we could overshoot dramatically to the upside, even if only briefly. There are several factors in place, all unique to silver, that could account for unthinkably high prices.
At the heart of the unique set of silver factors is one common denominator – human emotion and group behavior. People are motivated by price. Ironically, it is only high and rising prices that causes great numbers of people to buy in unison. Low prices discourage mass buying. (That’s why silver is not on the mainstream radar screen yet.) If you study the history of investment extremes, or bubbles, it is the rising price itself that is at the heart of the cause for the move. The big problem is that the masses, excited by the price rise, come in late and stay too long.
I think silver is a prime candidate for a future price explosion that is historic and world wide in scope. Given its universal usefulness, appeal and stature, and its current low price, any significant price movement is likely to excite the world investment community. Its long term depressed price means that less than 1% of the people currently hold silver. No one knows if a silver price bubble will develop, but here are the reasons why it could.
1. A Short Squeeze On The Futures Market
For 20 years, there has been an outsized silver short position on New York’s Commodity Exchange, Inc. (COMEX). This paper short position has been unique, in that no other commodity but COMEX silver has had a futures and options short position larger than world production and world known inventories. This has been one of the keys as to why silver has been depressed in price. But shorting is a two way street. While the shorts have had their way with the price of silver for a long time, when those shorts are bought back or covered, the price effect of shorting is reversed and it becomes bullish.
A shortage of real silver would cause the shorts to buy back their positions. We are seeing signs of delay in physical deliveries, a precursor to shortages. Also, before a short-covering panic develops, we should also see signs of a reluctance to take an additional shorting by the commercial dealers. Those signs are emerging. In fact, there could be sharp upward movements in the price of silver on just the lack of new shorting.
Actual, panic-driven short covering hasn’t been seen in the silver market for more than 20 years, due to the ironclad control on the market that the dealers have maintained. A short covering panic appears unavoidable at some point, because the size of the short position, measured in the hundreds of millions of ounces, dwarfs comparable known real deliverable inventories. If this uniquely large silver short position on the COMEX enters into a panic covering phase, it could create triple digit silver all by itself.
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- The currency war has started. Japan has fired a major shot across the bow. But all their easy money moves to dampened the rise of the Yen has failed miserably. The USD-JPY is now at the 82.x handle. So much for all the intervention.
- The market is giving the BOJ a boot to the backside. It does not look good for the Japanese economy. The collapse of the USD looks pretty close. How will the rest of the world react when the USD goes down? The Chinese are unwilling to revalue the CNY, so they may opt to let their Yuan go down together with the USD. This will suck big time because the rest of Asia’s exporting Tigers will follow. Currency debasement is here, got gold yet?
- Keep in mind that the Illuminist endgame is a One World Currency and Global Central Bank. Implied in this plan is world government. For their One World Currency to succeed I believe that they will back it with hard asset ie gold ! Got gold yet?
IMF chief fears risk of currency war after Japan’s zero interest rate move
The Bank of Japan’s surprise move to reinstate zero interest rates has led to a warning of the danger of a currency war from the head of the International Monetary Fund.
Dominique Strauss-Kahn warned that moves by central banks across the world to cut interest rates and carry out billions of pounds worth of quantitative easing could upset the global economy recovery as currencies chased each other ever lower.
In an interview with the Financial Times, he said: “There is clearly the idea beginning to circulate that currencies can be used as a policy weapon. Translated into action, such an idea would represent a very serious risk to the global recovery … Any such approach would have a negative and very damaging longer-run impact.”
Japan surprised markets by adopting a zero interest rate policy and announcing plans for quantitative easing (QE) in an attempt to inject fresh stimulus into the economy. The move led to an immediate fall in the value of the yen against the dollar.
The Japanese central bank has pledged to buy assets worth five trillion yen (£38bn) and cut its overnight rate to between zero and 0.1pc,from 0.1pc, reinstating the so-called “zero interest policy” that the Bank only ended in July 2006. It will keep its benchmark rate effectively at zero until establishing price stability, adopting a similar loose policy commitment to the US Federal Reserve.
The size of the QE programme roughly matches the extra stimulus package desired by the Japanese government. Japan is running out of options as it seeks to reinvigorate its economy in the face of national debt running at twice the national output – the largest of the advanced economies.
It is also trying to counter the yen’s strength, which has been one cause of the country dipping in and out of deflation over the past 15 years. Lingering concerns about the global economy pushed the gold price up 1.8pc to another record high, of $1,340.20 an ounce.
Japan is not the only country enact policies that could suppress the value of its currency. Brazil recently threatened to intervene to keep the real down and earlier this week doubled taxes on foreign investors buying Brazilian bonds. The move was seen as way of stopping large inflows of foreign currency pushing up the value of the real. Mr Strauss-Kahn was speaking ahead of this week’s IMF and World Bank annual meeting.
- Have things gotten better? The cracks have been papered over. That is all. The western propaganda MSM went into ‘things are getting mode’ while countries got raped by the banksters and poverty and unemployment rose. Practically all major western banks are bankrupt.
- They appear to be solvent because the FASB has allowed them to ‘mark to fantasy’ all the toxic derivatives on their balance sheet. Hey, if you allow me to value my toilet bowl at US$1T, I can give myself giant bonuses too.
- The IMF is part of the western Illuminist hegemony. It is earmarked to be the global treasury department. Do not be taken for a ride. These snakes are just preparing the way for ’666′.
Banks’ $4 trillion debts are ‘Achilles’ heel of the economic recovery’, warns IMF
More taxpayer support is needed to ensure global financial stability despite the billions already pledged, the International Monetary Fund has warned, as banks remain the “achilles heel” of the economic recovery.
Lenders across Europe and the US are facing a $4 trillion refinancing hurdle in the coming 24 months and many still need to recapitalise, the Washington-based organisation said in its Global Financial Stability Report. Governments will have to inject fresh equity into banks – particularly in Spain, Germany and the US – as well as prop up their funding structures by extending emergency support.
“Progress toward global financial stability has experienced a setback since April … [due to] the recent turmoil in sovereign debt markets,” the IMF said. “The global financial system is still in a period of significant uncertainty and remains the Achilles’ heel of the economic recovery.”
Although banks have recognised all but $550bn of the $2.2 trillion of bad debts the IMF estimates needed to be written off between 2007 and 2010, they are still facing a looming funding shock that will need state support. “Nearly $4 trillion of bank debt will need to be rolled over in the next 24 months,” the report says.
“Planned exit strategies from unconventional monetary and financial support may need to be delayed until the situation is more robust, especially in Europe… With the situation still fragile, some of the public support that has been given to banks in recent years will have to be continued.”
Although the IMF does not mention individual countries, it is clear it has concerns about the UK. According to the Bank of England, British banks need to refinance £750bn-£800bn of funding by the end of 2012, £285bn of which is emergency support that expires in the same period. The IMF adds: “Without further bolstering of balance sheets, banking systems remain susceptible to funding shocks that could intensify deleveraging pressures and place a further drag on public finances and the recovery.”
The report welcomed banks efforts to recapitalise, noting that the average tier one ratio rose above 10pc in 2009, but cautioned that “despite these improvements, banking system risks are more elevated today”. Europe’s financial system, in particular, “remains vulnerable to downside risks and further funding strains if capital buffers are not strengthened”, the IMF said, naming the regional Cajas of Spain and Landesbanken in Germany.
Even US banks may need an extra $13bn of capital if “real estate prices fell significantly”. The research shows that the UK has been relatively prudent on bad debts and capital, having wirtten off all but $50bn of the bad debts identified by the IMF – just 10pc of the total.
The IMF also called for urgent global co-ordination of banking reforms, chiding regulators for having failed to agree on the details: “The sooner reforms can be clarified, the sooner financial institutions can formulate their strategic priorities and business models. In the absence of such progress, regulatory inadequacies will continue for some time, increasing the chances of renewed financial instability.