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The Race To The Currency Bottom: CEBR Predicts Pound At $1.40, Below €1
The cremation of the dollar is spreading as other Central Banks realize what a nifty trick currency devaluation is. The BBC notes that tomorrow the CEBR (Centre for Economics and Business Research) will present a new forecast which calls for the BOE rate to remain at 0.5% until 2011, and to hit 2% in 2014 at the earliest. Furthermore, the pound will be the next carry currency, as it is now expected to drop to $1.40, and below €1. The culprit is the same as in the US: out of control budgets, which will be "moderated" by tax rises (precisely the thing Goldman was warning against earlier) and spending cuts. And, lastly, the CEBR sees the UK's QE program increasing by nearly 50% from £175 billion to £250.
"We are likely to see an exciting policy mix, with the fiscal policy lever pulled right back while the monetary lever is fast forward," said Douglas McWilliams, CEBR chief executive and one of the report's authors.
"Our analysis says that this ought to work. If it does so, we are likely to see a major rerating of equities and property which in turn should stimulate economic growth after a lag."
Last week the Bank of England held interest rates at a record low of 0.5% for the seventh consecutive month.
The CEBR added that the Bank programme to increase the amount of money in the economy - so-called quantitative easing - would increase by £75bn from the £175bn so far announced.
And it predicted that the UK economy would grow by 1.3% in 2010 - having shrunk by 4.3% this year.
A few points: how is it that all countries whose CBs have taken a weak currency approach are expected to grow purely on that basis? Do prognosticators assume that rising stock markets alone (as a function of relative debt reduction due to domestic currency debt denomination) will be sufficient to compensate for the rolling drop off in international trade? Or is China now expected to somehow awaken every single economy in the world, while in the process not blowing up its own (contrary to Andy Xie's warnings)? Curiouser is that even as the US and now the UK seem to have written off their currencies, Germany is somehow expected to support the euro, which even now is rapidly approaching its new all time high. With the eurozone held captive by such economies as Spain and Italy which are arguably in a depression (as Evans-Pritchard recently speculated), how on earth will Angela Merkel be allowed to sustain global economic growth. Or is that presumed US and UK growth going to come exclusively on the back of an unemployment ridden German economy?
Probably the best thing is to pull a Goldmanesque "it does not compute" so the models must be patently wrong, and the best course of action is to avoid logical thought for the duration of the bubble inflation. After it pops... the flood.
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This in some way reminds me of the streets of Saigon in the 1960's. A time when some activist Buddhist monks conclude that the most effective manner of engagement was self-immolation, rather than an enduring course of responsibility.
Leadership. Morals. Mimicry is the best approach critical thinking.
I'd argue the fantasy approach the most workable.
So who's predicting the 1.40 pound? I didn't see any mention of that. And please note that we've already seen the pound at 1.36 in January of 2009. Doesn't seem to hard to predict what has already happened.
Ok, my 89 Week LRC has the -2% LR at 1.1498, so I ponder that it will hit 1.15. Is that better?
Another blatant example of wrong headed decisions by policymakers. They really "think" repeating the same mistake over & over will yield a different outcome. Pure reckless insanity! Moreover, their models, based on God knows what, are obviously wrong, but they will continue following them on the path to destruction. What stupid dunderheads these folk are...
Eventually, even the rubes will see that the various Rube Goldberg contraptions will fail. The Japanese will try their chindogu, and Merkel will even build her own Welmaschine, but they will collapse into ruble (oops, I mean rubble) as well.
Let's hope that the new conservative leadership when elected will take the whip in hand.
I re read Xie's comments from way back in June - interesting not because he warned people off equities but his call for dollar and inflation issues with a view to trouble in 2010
http://english.caijing.com.cn/2009-06-09/110180019.html
Surely there are some very wealthy individuals with big ego's out there who have been financially devastated at this stage our financial collapse. I would like some of those people identified and here what they are saying about their own personal financial devastation and what they think of the system now.
"We are likely to see an exciting policy mix, with the fiscal policy lever pulled right back while the monetary lever is fast forward," said Douglas McWilliams, CEBR chief executive and one of the report's authors.
Capital outflow as result? Double attack on the PP of the people? This one is kind of easy to predict market reaction...
Why is Max Keiser the only one talking about the secondary heist that is occurring on top of the bankheist, that interest rates at 0.0-0.5 produce since this is the price the bankrobbers get on money, yet continue to gamble and charge just as high on all loans as prior to rates being lowered? So, again, while the consumer makes ZIPPO to save, the banksters make bigger and bigger margins while robbing the US coffers? WTF?!
Because sheer contempt frages across Wall Street foraverage joe while in Washington they have pacifiers in their mouths praying the thing doesn't collapse. Got to love the avuncular septegenarian Kanjorski who does his best to exploit is age in the absence of a modicum of understanding of the financial system. The only thing barton biggs ever said worth repeating about wall street is that never have so many been paid so much to add so little value. The table is being set for Jamie Dimon when Geithner is thrown to the side. The media hero worship is the table setting for the savior who will ride in when the economy shows no improvement and Geithner is transitioned from simnple liability/ non performer to charge off. The narrative is being crafted everyday. The guy who saved the world and runs the "best" bank in the US is coming in to reverse the rot. Coming to a city near you.
Yea, ...i just hope this fiasco doesn't go on that long and that justice instead will be served...sorry i was just bitching about one more chapter of the biggest bankheist in the shortest span of time known to man.
“If currencies show some excessive moves in a biased
direction, we will take action,” Fujii said Oct. 3 in Istanbul
after a meeting of G-7 finance ministers and central bankers.
The fat lady is tuning up.... I believe she is about to sing.
Marcy Kaptur endorses squatting, because most likely they don't know where your mortgage is...
8:15
http://www.pbs.org/moyers/journal/10092009/watch.html
That's a great interview, everyone should watch it. Simon Johnson is one of the good guys. I don't know much about Kaptur but she seems respectable, especially considering the company she is forced to keep on a daily basis.
So, the trend continues, same as last month and the months before, projected to accelerate over the next year. Raise your hand if you're surprised.
Predictions:
- China, Singapore, etc. to step up buying hard assets around the world to try to diversify faster than devaluation shreds the value of their investments. Looks good for increased takeover activity in resources/mining sectors in OECD countries (US, Aus, UK).
- A short-term commodity 'bubble' due to this?
- Why not expect the 'bear market rally' to continue? I don't see how this policy will lead to a stock-market plummet anytime soon. Rather, a 'bank holiday' in more than one OECD country and a currency 'reset' looks increasingly likely to me when the competitive devaluation goes far enough. In the meantime, we'll get more articles and 'leaks' about secret meetings excluding the US and UK.
- We'll get increased rhetoric on 'basket of currencies' - and gold to rise in other currencies - as OECD follows US lead. IMF to increase SDR issuance until somewhere along the way it slowly dawns that nobody trusts much fiat SDRs either, the 'SDR Plan' being a head-fake by China/Russia just to wean the rest of us from the USD as 'global reserve'.
- Silver, the 'poor man's gold', to continue to out-perform gold since it is much more affordable to a gradually panicking peasantry.
Upshot: Staying well away from financials, sticking with commodity/resources stocks with good balance sheets, and staying long in the precious.
>- Silver, the 'poor man's gold', to continue to out-perform gold since it is much more affordable to a gradually panicking peasantry.<
That train already left the station. More and more people are living hand-to-mouth, most won't be buying because they can't already but will only be scrounging for more quarters 1932-1964 instead.
Ahh, the Precious. I love the precious. "It's MY PRECIOUS!"
Classic!
These CB's need to listen to some eternal wisdom
MO MONEY MO PROBLEMS
http://www.youtube.com/watch?v=kR9hV-elWRE
They'll just add scrimpin to their pimpin. Shit rolls down hill till the system breaks then it magically blasts back up hill.
So seeing as the USD is losing so much value, how is it that the poll on this site shows that about 70% of people here are expecting deflation? Gold, equities and property (where I live) seem to be getting more expensive. The USD is getting killed against every single currency, yet this is deflation? If so, I would hate to know the idea of inflation people here have. Also, I dont understand how it is that so many people here continually comment about gold going to $2,000+ and yet they voted in the poll that we will have deflation?!?! How does that work?
Fractional reserve systems inevitably end up with too few dollars to service too much debt. Since it ends so twisted and drastic it's basically "unenforceable". So you are forced to print money to match the debt better or allow enough of the debt to disappear to bring it back into stability. There was horrible deflation during the great depression until gold was magically revalued 60 percent. Then there wasn't. The problem is the global reserve status. Dollars that were onced used by say saudia arabia to sell oil to europe when they become unnecessary then it's magic super inflation. Then when you have to buy another currency before you even buy oil you get double swap spread fucked and oil will go through roof in US. So the answer is both. We'll have deflation until the fed prints so much money that we have inflation. There's no such thing as growth. For something to grow something else has to get smaller and since the majority can't get any smaller the growth of the few has to be given back.
But it seems to me that it won't work like "normal" at all. The central banks will get caught in the mother of all gold short squeezes and the USA and UK will crater like nothing has ever cratered before. As they try to back currency with violence they will have citizens attacking them while external countries attack them. Hopefully it will mostly be labor strikes and tax revolts and trade wars but if it goes extremely violent then the path to universal peace will be what comes after universal violence. Nothing quite puts a damper on an economic policy quite like "If we do that. We get death and blood flowing through the sewers".
Confusion is about the chronology I think - a period of deflation first, where, once the big boys start shorting the equities markets, or there's a collective 'emperor's new clothes' moment, the dollar strengthens as dollar denominated debts have to be settled, combined with a scramble to "safety" (Stockholm syndrome).
Many 'assets' are expected to fall in value during this time as dollar debts need dollars not assets to repay them, but commodities may hold their value to some extent.
This may cool the presses for a while but as the spiral tightens it will become apparent globally there just isn't enough moolah to go round without printing or raising rates to attract the attention of a smaller pool of lenders.
Raising rates forces further domestic defaults, printing ostracizes your country internationally. At some point, faith in the dollar disappears and a 'tangible asset' grab will take place. What happens to commerce at this point is a mute point. Barter? Gold?
IMO, from my readings, usual caveats apply.
Oh and 'pop'
What happened during the great depression. Individual states started printing their own currencies to make up for the lack of enough currency to actually conduct business with.
still waiting for Spain Greece and Ireland,and what about Italy?those guys are not gonna sit tight watching whatever left that they produce eaten up by devalued BP or USD and I think soon Germany would have a political crisis at its hands,print or don't print. More precisely,to be or not to be.....
How about a post that periodically ranks the top ten Central Banks around the world by how much they value their own currency?
In a recent video Mark Faber said India's Central Bank was better than the others, but he offered no quantifications or specifics.
Pretty soon we'll all be wiping our asses with $100 bills. They'll be cheaper than paying cash for Charmin.