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The Currency Wars Reignite

Tyler Durden's picture




 

Via Mark J. Grant, author of Out of the Box,

“Always remember, your focus determines your reality.”
 
                  -George Lucas
 
Our reality has changed in the last twenty-four hours. The Bank of England and the European Central Bank have re-affirmed their old positions since the Fed has changed tacks. The initial reactions will be a spike in equities and a fall-off in the valuations of the Pound and the Euro to the Dollar. These, however, are first blush reactions as the color fades from the bloom.
 
It may well be, as Europe is in much worse financial condition than the United States, that there is a policy reason for the European positions but it may well also be a calculated move to devalue the major European currencies. Whatever the actual reasons, the European statements have certainly sounded the trumpet that the “Currency Wars” have reignited.
 
The impact of the Euro/Dollar at 1.25 and then 1.20 will be a positive for Europe as exports rise and a negative for America as exports fall and imports rise. The sword could be double edged though as the Fed, in response, begins to cull back on the more than $1 trillion that it has lent to the European banks. Many truths will be shrouded in mystery but the impact will be there regardless.
 
It is a dangerous game when the world’s central banks that have been working for the last five years in unison and now they head down different paths. You may expect tears at the seams and various ripping sounds as Europe moves away from the Fed. Mr. Carney and Mr. Draghi have buddied up while poor Ben is left to wander alone.
 
The trumpets that had heralded “The Three Kings” now sound just for two and the drums that have beat in unison now will sound a disconnected harmony.  America has gone left and Europe has gone right and there will be consequences for both.
 
I mention one other thing this morning that is surely coming and it will be the hammering of the gong. The ECB has massive securitizations that are being carried at par (100 cents on the Dollar) at the ECB and at the European banks. The losses, with many tied to Real Estate, must be staggering. There will be a time, a moment, after “extend and pretend” runs out when these losses must be faced. These securitizations are guaranteed, in the case of Spain as one example, by the sovereign ($51.6 billion in the case of Spain). Others, I have heard, are guaranteed by the major European banks. The poorer nations in Europe will want the ECB to take the hits, shared losses, but Germany will vehemently object.
 
France, Italy, Spain, Portugal and Ireland cannot afford the losses. The hits would bankrupt or severely impair most of the European banks. The clock is running and midnight will be approaching sometime during the next twelve months.
 
I fear what we don’t know and what is hidden. Realization will eventually arrive because it must. A very unpleasant reality will surface. When you shout and scream and make false claims that the money is in the drawer the day will arrive, because you need the money, that you open the drawer and it is not there. That day is one of reckoning. The Europeans will not enjoy it!

 

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Fri, 07/05/2013 - 08:20 | 3723044 Martin T
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"Vanitas vanitatum omnia Vanitas"
Fri, 07/05/2013 - 08:28 | 3723063 Levadiakos
Levadiakos's picture

Bovina Santa! 

Fri, 07/05/2013 - 08:34 | 3723086 Derezzed
Derezzed's picture

The 5th trumpet, beware of the 5th trumpet ...

Fri, 07/05/2013 - 10:51 | 3723575 falak pema
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Casanova riding in a carriage on a trip from Venise to Paris with some stagecoach companions of which a distinguished looking lady.

Casanova : All this bumping and grinding  on country roads gives me a huge urge to surge.

Lady : Vanitas vanitatum omnia Vanitas

Casanova : And up yours lady, I'm thirsty to drink the wine once the bottle is uncorked.

Third passanger : Charity has its limits, she should be sacrificed to the coach horses and we should find better young fillies to mount in the next country tavern. 

Very macho tale but then it was 18th century ribaldry.

The war of the sexes is much more fun than currency lechering.

Fri, 07/05/2013 - 08:21 | 3723047 francis_sawyer
francis_sawyer's picture

"Our reality has changed in the last twenty-four hours"

~~~

Not to me... It all looks like the same bullshit they serve up on a platter every day...

Fri, 07/05/2013 - 08:28 | 3723065 kill switch
kill switch's picture

The U.S Largest debtor nation on the planet and Europe is in worse shape? LOL

Fri, 07/05/2013 - 08:45 | 3723141 GMadScientist
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When was the last time you visited Spain or Greece?

Fri, 07/05/2013 - 09:03 | 3723210 Levadiakos
Levadiakos's picture

When was the last time you were here asshat

Fri, 07/05/2013 - 09:13 | 3723256 GMadScientist
GMadScientist's picture

2007, it was a great deal nicer then (less stuff on fire, at least).

Fri, 07/05/2013 - 10:07 | 3723458 kill switch
kill switch's picture

 It's just illusion I tell ya, we PRINT PRINT PRINT PRINT PRINT PRINT PRINT.

GOOGLE Images of Detroit,, just lovely.

NSA,NDAA,PATRIOT ACT OH THE HITS JUST KEEP COMING    CLAPPER We don't spy on the American Sheeple cough ....people.

Fri, 07/05/2013 - 08:48 | 3723148 Ghordius
Ghordius's picture

yes. parts of our cities are ruins. we try to keep tourists away. oh, and we can't afford good looking politicians. definitely another sign of decay

Fri, 07/05/2013 - 08:55 | 3723174 Azannoth
Azannoth's picture

"parts of our cities are ruins" - i thought those are the parts the tourists want to see? I am confused

"we can't afford good looking politicians" - as long as the street hookers are good looking you have nothing to worry about ;)

Fri, 07/05/2013 - 09:09 | 3723237 Ghordius
Ghordius's picture

this is a Mark J. Grant "Out of the Box" Article. please don't bother me with undue critical analysis of facts, here. In this space, Europe is in ruins, we will never pay back our debt, our politicians are ugly, we can't afford good looking ones - and don't bother to make unwelcome comments like "compared to who"? Mark says the BoE and the ECB are ganging up on the FED. Whatever he means by that it must be bad, so get your money out of Europe, immediately

then there is - if you count only corporate money - something like a trillion dollars of US investments in europe, and he'd like some of it to return. And don't mention that it's matched by something like 1.2 trillions of european investments in the US, because the US is SAFE ;-)

Fri, 07/05/2013 - 10:07 | 3723460 Freegold
Freegold's picture

Exactly, and expanding ones view to say 10 years from now and choose what "company" you would rather own? The world isn´t going to hoard Treasurys and dollars until eternity. And when those dollars return home or just dies, now that will have some interesting results for quite a few persons "wealth".

Fri, 07/05/2013 - 08:38 | 3723104 GVB
GVB's picture

When banks lever up 10:1 or 30:1 to then buy sovereign bonds one sane person might agree that this is a recipe for disaster, just waiting to happen

 

Understand that bail-in is set in place and contagion effect among EU countries mustn't be underestimated. Literally, this is hell. I detest doom theories. But the numbers are what the numbers are. Sovereign bonds have been rated at 0% risk until a few years ago. The majority of EU countries will never pay back their outstanding debt. They are virtually bankrupt and the only black swan event that will be is the acknowledgement of this by markets. 

People might argue "well CB's will never allow things to reach this point". Well then EU has to revise their Growth & Stability Pact which states:

"The corrective arm is made operational by the Excessive Deficit Procedure (EDP), a step-by-step procedure for correcting excessive deficits that occur when one or both of the rules that the deficit must not exceed 3% of GDP and public debt must not exceed 60% of GDP (or at least diminish sufficiently towards the 60%) defined in the Treaty on the Functioning of the EU (TFEU or Treaty) are breached."

Also, take note that BIS already acknowledged that monetizing debt is a guarantee to default. It cannot succeed, they said. Read this again.

Sadly enough, I see no other option than to "agree" with the Boston Consulting Group. The only possibility they see to get out of the Sovereign Debt Problem is to restructure debt. Read: to levy ALL financial assets by +/- 30%. 

If you're still not convinced, I suggest to visit following URL. By the way, both persons who conduct this study are closely related to German policy makers and they are highly appreciated among them. 

http://www.stiftung-marktwirtschaft.com/wirtschaft/themen/generationenbilanz.html

 

Fri, 07/05/2013 - 08:44 | 3723135 Ghordius
Ghordius's picture

"The majority of EU countries will never pay back their outstanding debt" - ok, then I have to buy American and Japanese bonds, because they will pay back, in full. plenty of budget surpluses to do so, eh?

Fri, 07/05/2013 - 08:49 | 3723156 GVB
GVB's picture

Compound interest is also an interesting mathematical concept to look further into when servicing debt. Budget surplus is not sufficient. Quote bottom page of http://www.stiftung-marktwirtschaft.com/wirtschaft/themen/generationenbilanz.html:

Would a businessman be reputable if, when taking a loan from a bank, he hid two thirds of his existing debt?

The state has not even had that much consideration for its citizens. Instead of recognizing state liabilities in their full amount, the state conceals a considerable amount of debt – more than two-and-a-half times the full annual economic output of Germany – and claims, officially, that the national debt lies at “just about” €1.5 billion.

The latest calculations of the long-term public balance sheet, however, reveal that the fiscal policy of the federal government has not been sustainable for many years; it was not even sustainable in the cyclically good years. According to the latest figures, the gap between Germany’s long term revenues and liabilities, the latter of which comprises both visible and hidden debts, has climbed and now lies at just under €8 trillion, or approximately 315% of GDP. The social security system in particular is in dire need of reform.

 

Fri, 07/05/2013 - 10:47 | 3723634 Tinky
Tinky's picture

"that the national debt lies at “just about” €1.5 billion"

Presumably that should read €1.5 trillion.

Fri, 07/05/2013 - 14:28 | 3724287 Non Passaran
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Or you could be less of a euro-fanatic and buy PMs for that money.
No yield, sorry.

Fri, 07/05/2013 - 08:41 | 3723120 aleph0
aleph0's picture

From :

"Our reality has changed in the last twenty-four hours"

to

..:"and midnight will be approaching sometime during the next twelve months."

 

 

Fri, 07/05/2013 - 08:25 | 3723055 Levadiakos
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I doubt people gonna make same GOLD mistake twice. Risk of move to highs extremely low--bounces r opportunities to GTFO of a mistake.

Fri, 07/05/2013 - 08:30 | 3723072 prains
prains's picture

i think the risk of a hairy greek bear self immolating is much higher

Fri, 07/05/2013 - 08:31 | 3723077 SilverIsKing
SilverIsKing's picture

To which kind of gold do you refer? Surely not physical.

Fri, 07/05/2013 - 08:50 | 3723158 Azannoth
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I see a good physical buying opportunity when my Euros go a bit higher vs dollar denominated gold/silver

Fri, 07/05/2013 - 08:37 | 3723071 Ghordius
Ghordius's picture

"Mr. Carney and Mr. Draghi have buddied up while poor Ben is left to wander alone"

"America has gone left and Europe has gone right and there will be consequences for both"

"When you shout and scream and make false claims that the money is in the drawer the day will arrive, because you need the money, that you open the drawer and it is not there. That day is one of reckoning. The Europeans will not enjoy it!"

cool sentences. good words. I'm sure they have some deep, deep meaning, even if it still escapes me

-----

ah, here it is: "The sword could be double edged though as the Fed, in response, begins to cull back on the more than $1 trillion that it has lent to the European banks."

which "European banks"? as far as I know those banks are transnational megabanks of the kind that is also in the FED's orbit. In fact, if the FED would indeed do a thing like that, the BoE and the ECB could give them unlimited liquidity

isn't the real fight about those "dwindling" assets which are used as collateral? bah

it reminds me all the BS that was written when the FED and the ECB made that huge EURUSD swap deal

Fri, 07/05/2013 - 08:41 | 3723123 GMadScientist
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Swap lines still open until Valentine's Day 2014. ;)

Fri, 07/05/2013 - 08:52 | 3723167 Ghordius
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perhaps we'll reach until then that trillion mark again, yes. oh, and if it does it will look again as if the FED was helping the ECB (instead of those same megabanks), then it inflames the righteous in the US, which is "good politics", I hear

Fri, 07/05/2013 - 09:50 | 3723408 GMadScientist
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Always easy to cast as "saving the world from global recession"...they can even use the same cape as last time.

Fri, 07/05/2013 - 11:29 | 3723746 Ghordius
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Superman's, of course. though I hear he does not wear underpants anymore. is he swimming naked, too?

Fri, 07/05/2013 - 15:44 | 3724527 GMadScientist
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In cold water; beware shrinkage.

Fri, 07/05/2013 - 08:36 | 3723094 GMadScientist
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"America has gone left and Europe has gone right and there will be consequences for both."

Because they're both going in fucking circles.

Fri, 07/05/2013 - 08:41 | 3723119 Ghordius
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in opposite directions, though. like water on the north or south hemisphere. we must have had a pole shift or something

Fri, 07/05/2013 - 08:42 | 3723127 GMadScientist
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I was thinking head-on collision course on a round-a-bout (to make it "more British").

Fri, 07/05/2013 - 08:54 | 3723177 Ghordius
Ghordius's picture

it reminds me the reason why no car tunnel under the Channel can ever be built, as long as we continentals drive on the wrong side

Fri, 07/05/2013 - 08:37 | 3723099 therearetoomany...
therearetoomanyidiots's picture

"The clock is running and midnight will be approaching sometime during the next twelve months."

Ummm, sure it is...

Who wrote this article, Food Insurance (tm)?

Fri, 07/05/2013 - 09:09 | 3723236 Imminent Crucible
Imminent Crucible's picture

So many comments like this: "Yeah, yeah--we've been hearing this same BS forever" implying that what hasn't happened yet is never gonna happen.

Evidently you believe that central banks can keep stacking up debt exponentially forever. Eventually the bid for the sovereign debt of insolvent governments dries up completely, as it did in Argentina and Greece and countless other countries ever since rulers dreamed up the scam of borrowing money against their populations' future wages. There are more defaults than countries, as Argentina is now headed for its eighth sovereign default. Germany has defaulted before, as has the U.S.--which never paid back its Revolutionary War debts run up by issuing Continentals, or the Civil War debts in Lincoln's greenbacks.

Default is the rule, not the exception.

Fri, 07/05/2013 - 09:23 | 3723288 Ghordius
Ghordius's picture

central banks can stack up debt exponentially, forever *. what you rightly allude to is that governments that can't service their debts default. and yes, this is the rule **

though may I note that the UK never defaulted in modern times? devaluation, yes, but no default since a few Renaissance Florentine bankers haven't be paid back, and this is not in the official statistics

anyway, what is more likely to default when debt levels are similar? a country with a near-balanced budget or one that has huge deficits?

(*) Evidence: the Zimbabwan Central Bank is nearly impotent and irrelevant, not broke(n). Visit it's website, if you like

(**) unless their national banking systems and/or CBs buy up their debt

Fri, 07/05/2013 - 09:52 | 3723417 GMadScientist
GMadScientist's picture

Whatever tilts your gilt.

Fri, 07/05/2013 - 10:25 | 3723542 Imminent Crucible
Imminent Crucible's picture

I don't disagree, Ghordius, but in my view a devaluation of the people's savings and wages is just a sneaky mode of defaulting. The bondholders got their pounds sterling back, yes, but they were smaller than the pounds they lent to the UK govt. Soros got blamed for it, but he just rode the donkey that Downing Street and Parliament turned loose.

And when the nation's central bank is the buyer of last and only resort for the nation's debt, the govt is about to go tits-up on its creditors, as again, in Argentina in 2001 and today. When the CB is the market for the govt's debt, it's an admission that there really is NO market for the debt. It's all a confidence game, and if you can't find anyone desperate enough to take a govt's debt even at junk yields, all confidence is gone. Collapse can't be far off.

No, I can't give anyone a date, any more than Kyle Bass can. All I can do is promise that it can't last, and to watch for the day when yields rip higher. With the 10yr at 2.70 and the long bond at 3.64, today looks like one of those days.

Fri, 07/05/2013 - 08:37 | 3723102 Rusticus
Rusticus's picture

"it is a dangerous game when the world’s central banks that have been working for the last five years in unison and now they head down different paths"

 

... same fucking path, they're just running it in relays.

Fri, 07/05/2013 - 11:01 | 3723678 Kirk2NCC1701
Kirk2NCC1701's picture

Same path, same Ponzi.

The real targets are Russia and China. Same as it ever was, same as it ever was, same...

Fri, 07/05/2013 - 14:09 | 3724226 anonnn
anonnn's picture

Exactly so, as the attention-spans get used up..

Fri, 07/05/2013 - 08:48 | 3723149 NipponMarketBlog
NipponMarketBlog's picture

 

 

There are no currency wars - only desperate politicians and central bankers....

 

http://nipponmarketblog.wordpress.com/2013/05/06/currency-war-or-is-it/

Fri, 07/05/2013 - 08:57 | 3723188 orangegeek
orangegeek's picture

See below - the USD has been driven as low as it can go - and the Euro as high.

 

http://bullandbearmash.com/about/usd/

 

Now we start the game of the opposite - the Yen, GBP and CAD have all been heading lower.

 

Currency war?  More like a friendly play on a old see-saw.

Fri, 07/05/2013 - 09:10 | 3723241 Jimbodude
Jimbodude's picture

It used to be so simple. I grew corn and he built houses. I gave him corn for a  house. Then he came up with a new deal. I gave him a load of corn and he gave me a bit of paper telling me that he would build me another house next year.  Next year I gave him more corn and he gave me more paper saying he would build me five houses in ten years. Every year I give him corn and he gives me bonds for houses. He is such a fool. I have given him 50 tons of corn and he owes me 500 houses. I would like the houses now but if I ask for them, maybe he will go broke and not be able to supply me with corn anymore. Maybe I could grow my own corn and ask for the houses now.

Fri, 07/05/2013 - 09:12 | 3723252 WTFx10
WTFx10's picture

"it is a dangerous game when the world’s central banks that have been working for the last five years in unison and now they head down different paths."

Am I missing another criminal organization on this planet? Aren't ALL the worlds Central Banks owned and controlled by the same criminals? If not please enlighten me on this other private for profit criminal financial terrorist organization\cabal\cartel? We know the governments are criminal but they work for the same bankers, so it ain't them. Who am I missing?

The same private shareholders in this planetary for profit CON job own them all so it really does not matter what any of them do. They are playing you and you report it like its a big fucking mystery why they do what they do. No fucking dangerous game being played in their eyes. The only dangerous game they worry about is truth.

Debt is money

Freedom is slavery

Bullshit is reality

 

 

 

 

Fri, 07/05/2013 - 09:43 | 3723368 robertocarlos
robertocarlos's picture

My Canadian dollar is getting monkeyhammered. My dream of living in LA, because it's cheaper than Vancouver, is over.

Fri, 07/05/2013 - 09:54 | 3723425 GMadScientist
GMadScientist's picture

Don't do it man...there's no price low enough to make LA acceptable.

Fri, 07/05/2013 - 10:10 | 3723472 robertocarlos
robertocarlos's picture

Tupac sang that LA is the place to be.

Fri, 07/05/2013 - 10:59 | 3723669 The Final Countdown
The Final Countdown's picture

Yeah and see where that got him

Fri, 07/05/2013 - 15:47 | 3724536 GMadScientist
GMadScientist's picture

That was Las Vegas!

LA tried repeatedly to no avail.

Fri, 07/05/2013 - 10:16 | 3723497 PhilofOz
PhilofOz's picture

As an Aussie that visited Vancouver last year, I thought it was a wonderful city... and voted top or near top livable city for years. Why would you even consider leaving that for LA? LA??

Fri, 07/05/2013 - 15:48 | 3724544 GMadScientist
GMadScientist's picture

Drug-induced gang wars and skyrocketing housing prices, for a start.

 

Fri, 07/05/2013 - 11:09 | 3723693 Kirk2NCC1701
Kirk2NCC1701's picture

L.A.? R U barking mad?
Move to the Okanagan and enjoy life.

You can always go to the tropics for a few months in the winter, if skiing on Big White is not your bag.

Fri, 07/05/2013 - 10:40 | 3723608 TrustWho
TrustWho's picture

What new normal?

After the financial crisis, the world needs a new locomotive. Surprise, surprise, everyone wants to export. Same as Great Depression around 1930-32. All the central banks have done is delay, because you can not turn a 30 year credit fuelled expansion around in a year without defaults. 

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