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The Desperate Suicide of Competitive Devaluation.....

Courtesy of the StealthFlation Blog
The zero sum game of competitive global currency devaluations is on like Donkey Kong. Anyone still sleeping comfortably, confident that all will end well, best brace themselves for a resounding wake up call. Be alarmed, Japan just jacked the joint, and the jerry rigged monetary jig is up. Moving forward, all the other Asian export centric economies will promptly be forced to keep up with their FUBAR neighbor, the juiced Japanese Joneses.

Each Nation State in the Far East is now completely compelled to competitively devalue in tandem, in order to maintain export market share, in a desperate attempt to avert their outbound container super ship cargoes from running westwards on empty.
Throughout the new millennium, China has made great technological strides, repositioning itself away from a predominantly low tech manufacturing economy, towards a value added high tech producing exporter. In this capacity it has converged with Japan. The Japanese, on the other hand, over the same time period, have seen both the Chinese and the Koreans, as well as the other Asian Tigers, ravenously devour more and more Hamachi and California rolls, promptly snatched from the stale sushi shop lunch box.
Take one quick look at the above chart and the official photo op below. You tell me why Mr. Xi nearly gagged when shaking hands with Mr. Abe the other day.
The following excerpt from a Bloomberg article titled; Japan's Export Reach Three Year Low as Recession Looms, published shortly before Abe's December 2012 election, clearly outlined the sagging soggy sushi state of affairs:
Japan is suffering its worst year for exports since the global contraction in 2009 as Europe’s crisis, China’s slowdown and a diplomatic dispute with the Chinese hurt manufacturers and deepen the risk of a recession.
Shipments totaled 53.5 trillion yen ($653 billion) for January through October, down 2.3 percent from the same period in 2011, according to data compiled by Bloomberg from Finance Ministry figures released in Tokyo today. The trade deficit for 2012 so far is a record 5.3 trillion Yen.
The so-called hollowing out of Japan’s export champions, highlighted by a cut in Panasonic Corp. (6752)’s debt rating to one step above junk status by Moody’s Investors Service yesterday, underscores the urgency of kindling domestic demand. Japan’s political parties are facing off ahead of an election next month on how hard to press the central bank to boost stimulus.
Japan’s exports fell for a fifth month, hampered by trade tensions with China and weak demand in Europe, pushing the world’s third-largest economy closer to recession ahead of December elections.
No wonder the hapless Captain Abe, slipping on the sinking deck of his stinky sashimi ship, immediately pulled the ripcord releasing the emergency currency life boat, in a desperate effort to rapidly inflate the fiat rescue raft with fresh Yen air. Can you really blame him? After all, the Chinese have been buying a gazillion dollars' worth of U.S. treasuries in order to suppress the value of their own Yuan for years now. Although, lately the politically charged Yuan soft peg to the dollar has become a real problem for them, acting as a straightjacket for the Chinese, who will have to renegg on the peg in short order, as their currency has now appreciated 50% against the Yen since mid-2012.
It was all good while Uncle Sam's force fed extreme global trade imbalances were rocking and rolling on seemingly endless cheap U.S. credit, but that free ride has been bouncing along the bottom of the ocean these days, and may well be about to hit some very jagged rocks. Be assured, extreme trade imbalances are not a good thing. As Aristotle once said; Extremes are bad". The massive capital and current account imbalances that global trading partners have been irresponsibly running over the past 25 years are coming home to roost. The end result will be nothing short of shock and awe.
This from Ambrose Evans-Pritchard at the Telegraph last week:
.................no country can stand idly by as neighbours dump toxic deflationary waste on their front lawn. Korea has threatened to force down the won, pari passu with the yen. The central bank of Taiwan has been intervening.
These skirmishes are happening in a region of festering grievances and territorial disputes, with no Nato-style security structure - or for that matter EU-style soft governance - to damp down fires. The spokes of the diplomatic wheel connect by a perverse geography to Washington, a city retreating from Pax Americana...............
...........China is in effect strapped to the rocketing dollar through its quasi-peg, increasingly a torture machine. George Magnus from UBS says this cannot continue. “What is happening in the property market is the tip of the iceberg for the whole economy. China will have to resort to monetary reflation over the winter, and I think this will include a lower yuan. We are heading into a currency war,” he said.
This looks all too like a replay the East Asia storm of 1998, when a tumbling yen triggered a Chinese banking bust and pushed Beijing to the brink of devaluation. Washington defused the crisis by stabilizing the yen, and by promising China membership of the World Trade Organisation.
It will be harder to repeat that trick in these deflationary times. The clear danger is that China will feel compelled to defend itself, throwing its huge weight into a beggar-thy-neighbour battle across East Asia.
Should that happen, the mother of all deflationary shocks will roll over Europe before the EU authorities have even got out of bed.
Ok, so we get the picture, all the nations on the Pacific rim side of the Globe are now locked into a monumental mortal martial arts fiat food fight for the ages. As world GDP continues to falter, the gloves will come off, plates will start to fly, and eventually the zero sum situation will end up in crazed Kamikaze currency raids battling for each others industrial export capacity. The trouble with all of this, of course, is that for the overall world economy it's nothing short of committing Hari Kari. Let's move on to the west, and check in overthere, shall we.
Europe is certainly mired in what can only be viewed as a structurally cemented recession bordering on a depression. And guess what, the largest economic block on the planet exports a ton of stuff around the world. So, like China, they too will get swamped by Admiral Abe's crushing counterfeit currency wave. In fact, the Eurozone actually exports more to the USA than China does. Last year, the EU sent us a whopping total of just under $600 billion worth of merchandise, whereas the Chinese came in at a distant $440 billion. Make no mistake, as the Pacific rim fake fiat food fight heats up, you can bet your bottom EURO that the Frogs and assorted Eurotrash will join right in, heaving their devalued moldy Camembert and debased wienerschnitzel right over the counter towards the others.

Where's the end game in all of this you ask? Well, so far, the USD seems to have dodged the flying currency cup cakes. The strict adult monitor in the mess hall is not partaking in the flying fiat food fest. As such, many macro mavens are touting the second coming of king dollar as a sure sign of the rebirth of renown American exceptionalism which has brought about yet another economic renaissance, fantastically fueled by an endless reservoir of ingenious technology and new found shale energy. Myself, I wouldn't break out the pompoms quite so fast.
The last thing the U.S. needs is more hot money capital piling into the dollar from overseas, and the last thing faltering overseas economies need is massive capital flight due to the unwind of the gratuitous carry trade racket. Talk about the potential for an out of control capital flow velocity vortex. These thing have a tendency to pick up intense momentum all at once as they unwind themselves from years of being systematically methodically built up over time.
An appreciating dollar has several very serious unintended consequences. Clearly, one issue is that it will create headwinds for the newly revitalized export sector which had been one of the substantive bright spot for the U.S. economy over the past few years. Another prickly problem is as the devalued overseas capital flows seek refuge in the USD from the deliberate debasement abroad, it will serve to only exacerbate the already frothy asset bubbles which have been steadily forming in most asset classes (Stocks, Bonds, Real Estate, Art, Collectibles....etc).
Finally, and most importantly, it will create a massive deflationary wave, which is the last thing the largest debtor Nation in the history of the planet needs. In fact, this is the Fed's worst nightmare. Not only does it increase the real cost of our massive external sovereign debt loads, but also, the subsequent strong dollar deflation will further depress the velocity of money which already sits at historic lows. And therein lies the rub. How is the Fed going to achieve its wet dream of 2% inflation that it deems so crucial to generating the escape velocity essential for self sustaining economic growth?
I'm afraid, my friends, until we pry the printing press from their cold dead hands, the only answer the FED has in store for us will be more of the same. Can you say QE 4.0?
Welcome to the Keynesian circle jerk end game. Picture a dog chasing its own tail until it finally drops from exhaustion, let's call our dog "Fido Fed".
Les jeux sont fait, let the games begin. Got Gold?
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Having the dollar as the world reserve currency is both a blessing and a curse. The world is currently engaged in a massive game of speculation and chance that contains a lot of risk. Political considerations and insider deals between both nations and Central Banks play a big roll in this game.
A chart I saw recently touted how the percentage of funds held by foreign governments in dollars has fallen in recent years. Even after many countries have reduced their holdings in dollar reserves the dollar still carries a major wallop and place in the world economy and will effect everyone going forward. More on how the dollars role as the reserve currency effects all of us in the article below.
http://brucewilds.blogspot.com/2014/11/reserve-currency-status-both-blessing.html
https://www.youtube.com/watch?v=anwy2MPT5RE
The dollar is in a long-term bull market that will see other currencies debilitated as a result of its strength. Most of the world's debt is denominated in dollars. People will begin to pay doen debt and save like never before. As the global deflationary vortex increases in strength, so will the popularity of the dollar which will be seen as the safest haven available for wealth protection.
http://www.globaldeflationnews.com/u-s-dollar-indexelliott-wave-update-f...
The debt bubble is inescapable...
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
So, where to put my cash? That is the question. Should it be beans, beef, bullets, bullion, bourbon and bunkers or some other thing yet imagined?
Well done! But have you considered putting your money into things that start with the letter "C"? Some good ideas might be cats, commodities, clothes, cars, cabins, cake, and cookies. LOL
Podcast Infotrap: Anthony Freda’s 9/11 Truth art accepted in official museum, remixes Kim Kardashian pic
When China no longer accepts USD in payment and demands Yuan, I think it starts to get seriously interesting, especially if they turn in all their US Treasuries at the same time.
There can't be any harm to anything if you replace one fiat-money with another one. It's all the same. One has to start thinking of any country large enough starts using PM as money again. That'll break the others, sooner or later. My hopes are in the Swiss to disempower their central bank. But I don't see this kind of vieww in any other country in the world. They do all want to have central banks and fiat-money. They know for sure why the fight against currencies bount to anything else but their promises.
Competative devaluation,
The biggest and most widespread myth in economics today.Couldn't they get into dollars by approaching the Fed's window to turn in their bonds? It's not exactly the carry trade, but it gets them into dollars.
What happens in that scenario? Isn't that the hyperinflation scenario?
You got too laugh at the fuckers ... :-)
All banksters and politicians are running round screaming "we want free trade" and this is precisely the mechanism that allows the massive flows too occur.
Shutting down all the free trade mechanisms might be a start and that includes trading blocks such as the EU because beggar thy neighbour policies are unavoidable.
In the end all nations after this has occurred might just start to sort out their own economic issues and stop passing the buck! No pun there neither.
"we want free trade" and this is precisely the mechanism that allows the massive flows too occur."
With respect, but it is the flow of "printed" lucre in the form of cheap capital and rigged exchange rates that enables the whole trade portion of the ponzi. It begins and ends with the theft by the banksters that is supported and backed up by the violence of governmnet.
1) This book explorers free-trade, and has a wonderful short article on what would happen to Indiana if the same managed-trade nonsense that national governments push were adopted by Indiana. Apendix II, p.72 of this PDF: https://mises.org/books/game.pdf
2) Rothbard, the authority on the subject: https://mises.org/books/whathasgovernmentdone.pdf
3) Summary of Griffin"s book, Creature From Jekyll Island: http://www.germanvictims.com/wp-content/uploads/2013/06/TheCreatureFromJ...
Read them, don't necessarily agree with them, but know them.
An American, not US subject.
"Sure going around the wall works, and is easier, but going over it is more informative."
If you read Michael Hudson's, Trade, Development and Foreign Debt and his America's Protectionist Take-off, you learn that when America was developing and wanted to protect its industries, it did it through Protectionism. The US and EU want free trade because they are/were in the cat bird seat because they had protected their industries while they were creating manufacturing juggernauts.
Now the US and the EU are the prophets of free trade, which is code for globalization rape and burn.
If I remember right, the banksters' ponzi collapsed in 1929 taking down the economy TEMPORARILY*. Then nations and governments began to competitive devalue their currencies. Then the DC US went with the Smoot-Hawley tariff, and it was game over.
So, I'd imagine the fraying of the world economy will become a tear when managed-trade begins to give way to blocked-trade with tariffs, etc.
An American, not US subject.
"I plan on jump-starting American manufacturing with a guillotine factory. ROI will be measured in gold and heads."
*https://mises.org/media/4325/Why-Youve-Never-Heard-of-the-Great-Depressi...
The Feds absolutely cannot tolerate deflation ( a rising dollar). They have fought it for years. So, yes, I can say QE4. Technically it might be 5 (or 6?)
But other central banks will continue to counter and the dollar will still go up just like it has already.
not sure about that froggy talk at the end but in answer to the last question.....maybe...
Couldn't figure out how you could keep adding debt to stimulate growth. With the 18 trillion dent in the U.S and climbing how do we stimulate growth? Good trading all on the strong dollar!
Nice view of core of the problem. As long as China accepts USD for payment and therefore carries the currency risk, the game will go on. Alternative: China wants to be paid in Renminbi (or Gold) an US has to carry the exchange risk- than we will see game over within months.
"Welcome to the Keynesian circle jerk end game. Picture a dog chasing its own tail until it finally drops from exhaustion, let's call our dog 'Fido Fed'."
Yup, and te FED is a rabid Chihuahua, biting us, our kids, and our Parents and Grandparents.
Central Banks are lackeys for private banks rabidly collecting wealth and pushing families and individuals into debt serfdom. It's a plan, not happenstance.
Look...the banks are pure evil...I'll spot you that...BUT...most of what they hold are what the average American considers to be their wealth, their pensions and savings. If you expect the populace to rise up angry about an institution that promises to hide the horrible truth...you are crazy. The average citizen will cheer as the Fed does 'whatever it takes' to continue to enable the average citizen to believe that their paper wealth is still real. It isn't of course. It was inflated away years ago but as long as only a few began to test whether they could still gets stuff for all that paper then the illusion remained intact. As the bills come due however the grim reality that the dollar will not buy everyone the whole world will reveal itself and one weekend there will be problems in the banking system.
No doubt the boomers and older have and will continue to lock arms with the Fed and banks in solidarity. It is the younger generations with no inheritance, debt coming out of their eyeballs and few opportunities in a hollowed out economy that should take up arms.
Speaking as a boomer, you forget that it was the boomers who held mass demonstrations in cities across the US in the 1960s against the war in Vietnam. It was and is the first generation that questioned the goals of what was then referred to as the "Establishment" and now the OLigarchy.
You are out of your mind if you think boomers have faith in banks or the Government.
By the way, I haven't seen any mass demonstrations by your generation addressing the issues of the day.
The Boomer revolt was and is the Tea Party. Look at the age of the folks at the protests. The youngsters Occupied Wall Street. They have more in common than many will admit.
the fed wants to kill the $ & will fail so sell your pms morons
LOL hardest I've laughed in days. That could be the first post if ZH ever starts an official joke thread.
I think we're all "FED"-UP!
I don't understand why the Dollars coming back to the us will necessarly create deflation. I thought it would be the contrary : inflation.
I thought it was the whole purpose of having a petro reserve currency: export your inflation abroad. So, now the flow is reversing, more dollar are rappatried in the US economy: real estate, stocks, etc....
Even though I understand commodities and imported goods will be cheaper, I don't see why it will be necessarly stronger than the inflation pressure I just described.
Someone can explain to me?
IPUR
It is not dollars coming back to the US. It is the purchase of dollars with other currency. This makes the dollar worth more compared to other currencies. It is deflation, the illusion that the dollar is scarce and valuable. This has been expected as people buy what they perceive is able to hold it's value. It will force the expected response from the Fed....a huge pile of cash on your front lawn, worthless cash but cash none-the-less. This is how those wheelbarrows full of cash come into play because the money the Fed creates is base money, the kind that commercial bank can demand cash for. If there are trust issues then the Fed will be forced to deliver those paper dollars and if trust issues persist then we will need the wheelbarrows.
My bet is a breakdown well before that stage because we have all seen this movie before and I just don't see everyone waiting for the cash...but it could happen. It happened in Weimar but then again it has happened to 30+ other currencies since. So who knows but what is happening is, as they say, classic.
But it isn't a good thing for the fed then?
This deflationnary environement give then a great opportunity to launch QE4, with the inflationnary pressure that goes along with it being neutralized by the rise of the dollar.
The only thing that makes any sense to me is that people are hoarding more and more of something (US dollars) that is worth less and less every day, because they perceive if they hoard it long enough it will somehow, someday...become more valuable, and when it does they think they will be able to spend it when they hope it will be worth more.
There is no end to a currency war until a "winner" and relative "winners" (runners up) have achieved their goals.
Until such a point, which could be many years away, especially given the drastic woes of export-dependent economies such as Japan, Germany, China, South Korea, et al., game theory is in play.
For Japan, in particular, it really is debase or die given their 255% (official) debt to GDP ratio (they have no accumulated surplus to draw down).
http://beforeitsnews.com/banksters/2014/11/the-money-in-your-bank-accoun...
More "puke on a page" from TD.net. I didn't understand a single sentence in this entire pile of verbal barf.
In the meantime "how is one to know anything about anything"? So the dollar has surged higher (again). Who knows why? So it has enormous implications! Who knows that or even what they are?
The only change I have seen is that gasoline prices have plunged in the USA and the corn stays in the field instead of being harvested.
Cadillac sales have gone through the roof as well...which doesn't sound like people have suddenly stopped buying conspicuously either.
And maybe someday the environmentalists will started complaining about the trillions in cubic feet of natural gas that is being flared daily in North Dakota alone.
dv
I know you read ZH. They have dealt with each of your points multiple times.
The US economy is a fraud. If it were not then taxes would cover the expenses and all would be well.
Dollars are sought as other currencies begin to inflate. Folks are moving towards the apex of Exter's pyramid. They want security and believe the dollar offers just that. Think Argentina...better to hold a dollar that a peso. This time the dollars strength is simply relative. A strong dollar will absolutely kill the US economy and the government's ability to make it's payments. It was counting on inflation itself and now it faces deflation.
Don't worry though. The Fed can fix this easy. It will buy up whatever it must and pay cash (or cash equivalents) for what they buy. One day there will be a bank failure, maybe in Hong Kong. The Fed will fly them cash. Then it begins.
Long wheelbarrows.
Makes sense to me, maybe you need to check your glasses.
A lot of what we see happening today in world trade and currencies helped to bring on the great depression. However you look at it all is some form of "protectionism" your neighbors be damned. Recently released minutes from the last Federal Reserve meeting confirmed growing concern about the pressure a stronger dollar is putting on other currencies around the world.
Bottom-line is other currencies are under assault because both economies are weak and countries are buried in debt they can never repay at real market interest rates. When investors become unwilling to buy the bonds of heavily indebted nations causing the bond bubble to burst the values of currencies in those countries will tumble. While there are not many Bond Vigilantes there are a slew of Currency Vigilantes and they are ready to make their presence known. Recent weakness in the value of the Yen, Pound, and Euro must not go unnoticed.
The Currency Vigilantes are acutely aware of when a currency is overvalued or ready to be re-pegged and pounce on the weak currency to tear it apart. The article below questions just how stable the currency markets really are and it may be a signal that currency trading is about to get very wild. Please note, this may also be sending a signal that the whole system is unstable and the stock market is about to be hit with contagion and drop like a stone.
http://brucewilds.blogspot.com/2014/10/fed-concerned-that-stong-dollar.h...
A currency War will soon degenerate into a hot war
See
https://www.academia.edu/9289413/Relative_advantage_leads_to_war_
See who the real enemies are
https://www.academia.edu/9160541/Laundry_Economics_
The is a way out :
http://andreswhy.blogspot.com/2014/06/the-quiet-revolution.html
after reading.... sort of... your .... a c a d e m i a . e d u ....
i conclude....
u r a MORON
geeezzzuzzz h krissssst....
the human race ***given the 80%/20% rule *** (i.e. 80% of ANY population are IDIOTS 20% are producers)....
we are soooooo FUCKED.... YOUR SAMPLE IS..... exhibit "A" of my case....
yeah
there a couple of 'regulars' here who always click bait us with their comments. I fell for it a few times. After trying to read what was there I felt stupid...and used, dirty...and almost unclean.
So now I just ignore their comments. I want to feel health and clean.
Only one way out for west : Debt jubilee and closing down the Banksta casino.
All other solutions add fuel to the fire.
If I remember right this is exactly the scenario of the 1930s and Keynes said then : "Our only way out is government spend."
That is not possible today as both State and Private money ledgers are corrupted by debt all over first world.
At least that is my take. We have to bake a new cake not reheat the old one.
The current growth and financial paradigm is broken. Both as energy is now finite and pollution infinite.
Banks are working under the law. So closing banks will need to close government first. As long as defraud is backed by laws, banks to not work against the law. The governement granted banks quite few things:
1) The can lend out the money of their customers WITHOUT having to ask
2) They grant banks to stay in business even if they are bankrupt.
3) They installed the fractional reserve system which allows private banks to even lend more then they have.
So states to back banks with laws and by that it means the banks do not work outside the laws. The laws are way to convenient for them to break them, because they gain extremly big. And even better if the card houses fall, they can confiscace the deposits of their customers again without breaking any laws. The are a not bankstas, they are houses lending not existent money on the behalf and with allowance of the government.
Well seems banks are going to Highlander Deal, There Can be only one...
Commercial Banks in the U.S.
2014:Q3: 5,636 Number
Quarterly, End of Period, Not Seasonally Adjusted, USNUM, Updated: 2014-11-14
http://research.stlouisfed.org/fred2/series/USNUM
http://research.stlouisfed.org/fred2/series/LNS12027714 (self employed unincorporated)
http://research.stlouisfed.org/fred2/series/LNU02048984 (self employed incorporated)
fp
The problem with a jubilee is that my mortgage note is your pension plan.
All this 'evil bankstra' wealth is really the world's savings.
A Jubilee will only happen when its taken from the lenders cold dead hands.
on a smoking pile of rubble....
Last Asian financial crisis was somewhat cushioned by a a more benign China in not devaluing and gained goodwill from its Asian neighbors in the aftermath.
Don't bet on it this time with China's own debt ridden export machine that need to be kept on life support in order not to trigger domestic social unrests.
Even before the TPP is inked, it is being undermined by the currency war in which the rest of Asia (ex Japan) have no control but to see a devaluation whether sanctioned or forced upon by the market.
Pop goes the Asian Growth Story. The bright side is that the cronies there shall get the hits first together with their clueless foreign muppets that have been sipping these snake oils.
No market infrastructure there together with acceptable proxies to break any free falls.