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Despite What You Don't Hear In The Media, It's ALL OUT (Currency) WAR! Pt. 1
The premise of this book is that Western countries are ultimately controlled by a group of private banks, which, according to the book, runs their central banks. This book uses the claim that the Federal Reserve is a private body to support its role. The book's author correctly predicted a banking crisis in the US in 2008. More than one million copies of this book have been sold.
I've finally been convinced to manage others' money. This series of postsl outline my investment thesis going in .
The world is at war, yet it's citizens don't even know it!
First, a backgrounder, as excerpted from Wikipedia:
Currency war, also known as competitive devaluation, is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a particular currency falls so too does the real price of exports from the country. Imports become more expensive. So domestic industry, and thus employment, receives a boost in demand from both domestic and foreign markets. However, the price increase for imports can harm citizens' purchasing power. The policy can also trigger retaliatory action by other countries which in turn can lead to a general decline in international trade, harming all countries.
... currency war broke out in the 1930s. As countries abandoned the Gold Standard during the Great Depression, they used currency devaluations to stimulate their economies. Since this effectively pushes unemployment overseas, trading partners quickly retaliated with their own devaluations. The period is considered to have been an adverse situation for all concerned, as unpredictable changes in exchange rates reduced overall international trade.
... States engaging in competitive devaluation since 2010 have used a mix of policy tools, including direct government intervention, the imposition of capital controls, and, indirectly, quantitative easing. While many countries experienced undesirable upward pressure on their exchange rates and took part in the ongoing arguments, the most notable dimension of the 2010–11 episode was the rhetorical conflict between the United States and China over the valuation of the yuan. In January 2013, measures announced by Japan which were expected to devalue its currency sparked concern of a possible second 21st century currency war breaking out, this time with the principal source of tension being not China versus the US, but Japan versus the Eurozone.
... when a country is suffering from high unemployment or wishes to pursue a policy of export-led growth, a lower exchange rate can be seen as advantageous.
... Devaluation can be seen as an attractive solution to unemployment when other options, like increased public spending, are ruled out due to high public debt, or when a country has a balance of payments deficit which a devaluation would help correct. A reason for preferring devaluation common among emerging economies is that maintaining a relatively low exchange rate helps them build up foreign exchange reserves, which can protect against future financial crises.[4][5][6]
Of course, it seems to be lost on many that competitive devaluations (currency war) only really works for strong net export nations such as China, Japan, Germany and the US. If you are highly reliant on imports vs. exports and try to become a currency warrior then the Marshall–Lerner condition will likely occur. Best case scenario you get a significant lag in true economic benefits, likely scenario... You just piss off your neighbors and lose economic benefit as the higher price of your imports simply outweight the internal generation of economic activity and exports. After all, if you buy more than you sell, why raise the price of your purchases?
The Three Methods of Currency Manipulation
Countries and their central banks can:
Buy and sell currencies in the open market. This takes horsepower. Just ask the Swiss National Bank whose balance sheet swelled 3x in 2 years - and that's before the ECB QE announcement (which would have easily doubled the pressure, if not more). If you want to move upscale, ask the Bank of England after their conversation with Soros, et. al.
... Black Wednesday refers to 16 September 1992 when the British Conservative government was forced to withdraw the pound sterling from the European Exchange Rate Mechanism (ERM) after it was unable to keep the pound above its agreed lower limit in the ERM. George Soros, the most high profile of the currency market investors, made over 1 billion GBP[1] profit by short selling sterling.
In 1997 the UK Treasury estimated the cost of Black Wednesday at £3.4 billion, with other sources giving estimates as high as £27 billion. In 2005 documents released under theFreedom of Information Act revealed that the actual cost may have been £3.3 billion.[2]
The trading losses in August and September were estimated at £800 million, but the main loss to taxpayers arose because the devaluation could have made them a profit. The papers show that if the government had maintained $24 billion foreign currency reserves and the pound had fallen by the same amount, the UK would have made a £2.4 billion profit on sterling's devaluation.[3] Newspapers also revealed that the Treasury spent £27 billion of reserves in propping up the pound.
If you haven't picked up on the theme yet, this central bank buying currencies in an attempt to over power the markets (dirty float) stuff really just doesn't work. Over time, mother market takes charge and extracts one hell of a price in return.
Central banks can also just attempt to talk rates down or up. I'll not waste anymore words on this as CBs around the world have lost creditiblity. Talk is cheap!
Lastly, and this is the kicker, banks can engage in quantitative easing (QE). QE is essentially the injection of money into the economy by openly purchasing public and private assets, oftentimes dead assets that no private entity would touch with a ten foot pole. The PC way of putting it is this is creating money, but more aptly put this bailing out failed institutions by creating a market for things that the actual market has priced at, or close to, economically nothing. This practice was invented by the Japanese, and it didn't work! Do you guys remember the 26 year lost decade? It's not that hard to rememer since, although it started in 1990, it's still ongoing. That's Japanese central banker math for you. As per Wikipedia:
The Lost Decade or the Lost 10 Years(????10? Ushinawareta J?nen?) is the time after the Japanese asset price bubble's collapse within theJapanese economy. The term originally referred to the years from 1991 to 2000,[1] but recently the decade from 2001 to 2010 is often included,[2] so that the whole period of the 1990s to the present is referred to as the Lost Two Decades or the Lost 20 Years (????20?, Ushinawareta Nij?nen). Over the period of 1995 to 2007, GDP fell from $5.33 to $4.36 trillion in nominal terms,[3] real wages fell around 5%,[4] while the country experienced a stagnant price level.[5] While there is some debate on the extent and measurement of Japan's setbacks,[6][7] the economic effect of the Lost Decade is well established and Japanese policymakers continue to grapple with its consequences.
Now, there are some who said Japan did start recovering earlier, but they used the very malleable (in terms of definition) GDP numbers to prove their point. Asset values didn't back the story...
QE was taken to the next level by the only central bank that I know of that is actually owned by, and controlled by, a coterie of private, for profit, publicly traded banks. It is also the most powerful central bank in the world, bar none. Here's a hint...
Between QE1/2/3, the Fed has injected well over $3 trillion dollars and has exploded its balance sheet both in terms of size and composition...
Despite many proclamations that things are getting better, the Fed has increased its purchases of both MBS (the housing market's financial underpinnings are still in trouble of the Fed wouldn't be doing this) and US Treasury securities (the treasury issues the securities to fund the US and the Fed creates money and buys them - as wel all know, we are financing our credit cards with newly acquired credit cards). It is the Fed that ISthis country (US), almost literally with a balance sheet that is over 25% of the US GDP. Remember who owns the Fed? Well, if you do you realize why the ECB is doing this QE thing to the level that it is. Their banks are still in trouble, material trouble. Reference "Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe" from 5 years ago and tell me if you think its gotten better...
Well, it's all relative. The banks are smaller, leverage is down - and that's after 6 years of global QE, ZIRP and now NIRP, yet each and every bank is big enough to collapse the country that it's domicled in... 
And since the big global banks are so interconnected as they daisychain their hedges and act as counterparties with each other (6 banks hold over 85% of the multi-trillion dollars global derivatives exposure), once one goes down hard, it brings the rest with them. And as you can see from the size of each individual bank relative to their domiciled country, such an event will still drag the countries down with them.
Okay, now back to this discussion of currency wars, something's got to give. Countries cannot (or at least, have never) successfully pursued all three methods of currency manipulation without failing. According to Wikipedia:
The Impossible trinity (also known as the Trilemma) is a trilemma in international economics which states that it is impossible to have all three of the following at the same time:
-
- A fixed exchange rate
- Free capital movement (absence of capital controls)
- An independent monetary policy
It is both a hypothesis based on the uncovered interest rate parity condition, and a finding from empirical studies where governments that have tried to simultaneously pursue all three goals have failed.
The Impossible Trinity or "The Trilemma", in which three policy positions are possible. If a nation were to adopt positiona, for example, then it would maintain a fixed exchange rate and allow free capital flows, the consequence of which would be loss of monetary sovereignty.
So, either balance sheets get burned trying to buy and sell currencies, capital controls are implemented, or QE (sovereign monetary policy) fails. All three are likely not going to succeed.
Stay tuned for part two of four of this series in roughly 24 hours. Anyone who wishes to chit-chat can reach me at reggie AT ultra-coin.com.
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Hey Reggie:
Been reading your blog for years. I don't follow every post, but every couple months I visit and catch up to you. I try to read as many different points of view from as many sources as possible. I am an investor but try to keep it simple since that seems to fit my macro vs. micro point of view. I'm an old engineer so I understand most of the complexities of Blockchain Technologies, but I can't really see around the corners yet. Right now I view Blockchain as a TRADE, not an investment. The primary risk and limitations from my point of view are the same as any competing currency to fiat. Blockchain does not even have pieces of paper, but relies exclusively on digital underpinnings. I understand this is a very simplistic view, but I'm a macro guy and am always wary of complex financial instruments where the 'devil' is often in the details.
Well, okay; I"ll just wait and see if I can understand any of this. but, really; I'm lucky I can find the ON button this thing. Chaining Blocks is probably going to be above my pay grade.
The future is coming with or without your understanding of what it is that makes bitcoin specie money. Leave it at that and live with your comfortable traditions.
If digital currency didn't rely on their electricity supplies and ISP's and infrastructure I'd completely agree.
& an OS + hardware
Silver Bullion Bitchez'
That's all I'm gonna say
And indeed that's all that's necessary to say.
Until you properly address the ownership, control and right to access the internet, digital currencies are a folly at best.
http://www.theblaze.com/stories/2015/01/24/bill-gates-says-the-government-needs-to-be-able-to-see-digital-currency-transactions/
Boom!!!
First U.S. Bitcoin Exchange Set to Open
Coinbase Has Backing From the NYSE, Banks and Venture Capitalists
http://www.wsj.com/articles/first-u-s-bitcoin-exchange-set-to-open-14222...
Don't think the sheeple can live without the internet anymore, they would get ornery if it shut down. Not to mention global commerce and everything else. Once the wire is up and running, and these days it has to be, cryptocurrencies will always find a way to move across it, darknet style. The wire is a commons resource, it has no owner.
edit. Fuck Bill Gates
Nah . . . People would do just fine without the internet.
Maybe all those young Japanese guys not getting any would get fired up and motivated if the Internet porn was turned off.
And.... You don't need the internet to use cryptocurrencies. They are fungible just like a digital dollar can be represented by a piece of paper.
I do not understand how I can go to my neighbor, and buy firewood from him using bitcoin - if he does not have a computer. How does he know/verify that the piece of paper with my bitcoin unit details hasn't been "spent" already? ie I have made two copies of the same bitcoin unit.
It is a little known feature of blockchain that you can have a completely disconnected, off-line system while still being perfectly safe accepting transactions. It would not be a simple "paper wallet" (often used for keeping bitcoin units safely, off-the-grid), but still doable. Basically, in blockchain-based systems you don't have to trust the piece of paper is legit. Instead, the computational proof on that paper confirms its correctness. As long as the so called "proof of work" function can be verified, you have no reason to not accept a transaction.
Make no mistake, this is quite a revolution in maths and computer science, as the old paradigm "do not trust the client" no longer applies.
Can you provide a real world example, using my fire-wood scenario?
Straight from the foul horse's mouth: cheap digital debit card cellphone - the final frontier. "It makes your life easy, and it's great. How can you beat value like that? Now, here's one for free. Use it, or else."
The first comment in that article sums it up best: "go to hell, bill gates!"
You mean like the USD, EUR or YEN? All major currencies are digital, and yes, I agree that they are a folly at best. Even worse, they don't have a blockchain!
Ever worse, fiat currencies have no value. Woops! No digital currencies do! And while "blockchain" is interesting and in some contexts perhaps useful, nobody will ever convince me what really matters is anything but "real value" and "anonymity".
So remember, holders of gold, silver, platinum... wipe off your fingerprints before you exchange for other real, physical goods! Gotta stay anonymous! :-)
One of the great features of precious metals are this: no counterparty risk. But I like to say that a different way, namely "once a transaction is done... it is DONE". I want my transactions done when they're done. That's important to anonymity and to basic security, especially in a world where the predators-that-be are happy to create new (and completely absurd) rules and requirements at their whim and convenience.
Which just goes to show, when I've finished exchanging something of real value for something else of real value... I want no further trace, and no blockchain. One important aspect of an exchange of value for value is... it is a transaction exclusively between two individuals, not the entire universe and all of history. I like it that way. If you want to trust vapor bits, go right ahead. At least we agree you (and I and everyone) should be free to "do it their own way"... and enjoy/bare/suffer the consequences.
yes, PMs have "no counterparty risk," provided that the offering party can be trusted to offer a veritable PM ...
A practical concern. If the SHTF for an extended period, I suppose that PM-verifying services will become more common. I wonder if this has already happened in places like Argentina.
Yup, lots of testers around, but most aren't operated 99.9% of the time. When the SHTF, most likely those folks who have them, will keep them busier. Actually, the ultrasonic units are reasonably priced now, so in any SHTF scenario, they'd probably be all over the place in short order.
If you can't even answer that without some bogus deflection, i'll try another one, How's your short on RCL panning out?
Oh, I see. It's a bogus deflection if you can't understand it. The USD, EUR, YEN, RMB and GBP are all digital currencies without a blockchain. If you don't understand what you are saying, then don't say anything. As for your RCL comment, I'm assuming your trolling because you feel you found a trade that didn't go my way. It happens, but I tell you that I'm right a whole lot more than I'm wrong - which is why trolls like you need to cherry pick just to be able to troll.
I don't see you asking how my Bear Stearns, Lehman, GGP, AAPL, Blackberry, etc. shorts went. Or how my Google, etc. longs went.
Troll elsewhere...
Fair enough, I promise never ever to comment on any of your contributions ever again, if you stop misrepresenting your Ultra coin as a Gold coin in colour. It could be a piece a paper as you say, but for some reason you chose to represent it as a Gold coin.
Actually, if you bothered to read, its a "smart contract" ecosytem based on the blockchain. So discussions of gold, colors, papers simply don't apply. Unbeakable promises, no counterparty or credit risk - now were talking...
"Of course, it seems to be lost on many that competitive devaluations (currency war) only really works for strong net export nations such as China, Japan, Germany and the US"
The US is a strong export nation? Interesting,...I thought we were a strong leech importer.
The US is a strong export nation?
Sure, the US is a net exporter of... currency.
ie - it's a net importer of everything else.
Reggie - wtf were you thinking?
The rule is "screw unto others before they screw unto you". Yes, we're a big exporter but the more we import the more we send out into the world for our wonderful dollar exchange. When everybody is holding your money, you have a very strong influence on the world. This is how and why we became the reserve currency.
Not quite true.
The US. became the world Reserve currency after the war when the US had all the gold and backed the dollar with gold.
This is why all Countries liked to do business in US dollars, because it was gold backed. Then the US started printing more dollars than they had gold "Counterfeit unbacked currency, because they did not have the gold to back it up, and other countries found out about this and wanted to cash in their dollars for the gold,The US did not have that much gold, so Nixon closed the gold window "temporarily" HA. And stole purchasing power from all of the world.
There should have been wwIII right there, all of the countries against the US for closing the promised gold for your US dollar.
So you see Whether by hook or by crook "Economic Hit Men" the US .gov leaves a trail of theivery, and murder behind them, that is how they became so strong, not by good honest hard work.
When everybody is holding your money, you have a very strong influence on the world...
I would contend this is a yes and no proposition. I've seen plenty of Zimbabwe trillions in the hands of US citizens, but that doesn't mean Zimbabwe's vying to overtake the US in reserve currency status.
The key to our / the US reserve currency status is our historical commitment to a republic / rule of law form of government. Having our neighbors employed to perform local law enforcement and other judicial duties, and (previously) high regard for fellow citizens have been the envy of developing nations for decades and our current malaise is primarily attributed to the loss of our “peg” through the financialization of our middle class wealth anchor with the development of a faulty MERS construct.
I’m as ignorant as anyone regarding your soon to be disclosed roll out program of zero party risk crypto currency but if it’s anything like the electronic recordation system that destroyed the middle class of the US, I hope it’s stillborn and dies in the womb.
Jmo.
this is one of the bullshit arguments that professors tried to and succesfully did brainwash students with at the top law/business school i went to.
it's total bullshit self serving MBA/JD type stuff that professors in schools love. they are wrong. simply ; . mao said it best; all political power comes from a gun barrel.
rule of law is just an outgrowth of that, and the supposedly lawful systems we have are in many ways not the vaunted systems they are sold as bieng (english corporate law is not a unique butterfly) but rather they are more or less aribtary variations upon the basic theme.
the institutions that can be built and nurtured under the auspices of a soveriegn are then free to build all the legal frameworks and business frameworks they want. frankly, i believe standard industry commercial practice is the underlying basis for much of what passes for commercial and corporate law, and as such, is very self organizing once the more primary condition of STABLE RULERSHIP is met.
the issue with stable rulership is ALWAYS the quesiton of succession . if there is ONE area where the 'rule of law' is truly and ultimately at issue, it is the laws about how the executive leaderhsip is chosen to succeed the previous leadershipp.
if an unpredictable ruler takes the reigns , the bankers can take their money and run if they see it coming. those who don't can get scalped.
all political power comes from a gun barrel...
I don't agree with that assessment. There are at least 2 different types of "power", if you insist on the English definition.
The first type of power is associated with the "authority" to request a specific action, the second is the definition you refer to, that which emanates from the barrel of a gun.
This is best illustrated from the saying “a man convinced from outside his will, holds his opinion still”.
In other words, kill me if you want, you’re still wrong.
The “Christian” response is found in John 19:11… “Jesus answered, Thou couldest have no power at all against me, except it were given thee from above…”
Again, jmo.
Hey Reggie, why am I getting a virus warning from boombustblog from your image?
I don't know but I replaced the graphic and cleaned it.
Because you don't have a Linux operating system ?
because reggie picked up a little bug?
good to see you back anyway reg - always liked your style.