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China Enters Currency War - Devalues Yuan By Most On Record
Update: The Chinese currency complex is collapsing... 12 month NDFs just hit a new 5 year lows against the USD - biggest plunge since Lehman
S&P futures have retraced most of the day-session gains...
And Treasury yield stumble and have unwound Monday's losses...
And then there's this....
#China new loans 2x the size of Total Social Finance?! Do even THEY know what's going on post PPT & LGV bail-out? pic.twitter.com/QCkLWiI5TA
— Wild Goose (@TrueSinews) August 11, 2015
* * *
As we detailed earlier...
Chinese stocks are holding on to modest losses in the pre-open as, just as we have been warning, the PBOC weakens the Yuan fix by the most on record.
As we first warned in March, and as became abundantly clear over the weekend when weaker than expected export data as well as the steepest decline in factory gate prices in six years underscored the extent to which the engine of global growth and trade has officially stalled, Beijing has no choice but to join the global currency wars, as the yuan's dollar peg will ultimately prove to be too painful going forward. The renminbi has appreciated on a REER basis by double digits over the past 12 months, weighing heavily on already depressed exports. With multiple policy rate cuts having proven to be largely ineffective at resurrecting the flagging economy, the PBoC, despite the notion that this represents a "one-off"move, has been left with little choice. The bottom line: the danger posed by the country's deepening economic slump now definitively outweighs the risk of accelerating capital outflows - especially after the latter moderated slightly in Q2.
As we noted over the weekend, "one can repeat that the PBOC will have to lower rates again until one is blue in the face (even as out of control soaring pork prices make it virtually impossible for the local authorities to ease any more), the realty is that Chinese QE is now inevitable. Why? Because while the government is already clearly buying stocks thereby validating the "other" transmission mechanism, the only thing the PBOC still hasn't tried is to devalue the yuan. As global trade continues to disintegrate, and as a desperate China finally joins the global currency war, it will have no choice but to devalued next."
Recall also what SocGen's Albert Edwards said some five months ago:
We have long believed that China's growth and deflation problems will necessitate a devaluation of the renminbi in a strong dollar environment. There is mounting evidence that this process may already be underway as the currency falls to a 28-month low against the dollar…
In the current deflationary environment the Chinese authorities simply can no longer tolerate the continued appreciation of their real exchange rate caused by the dollar link.
The 1.9% devaluation sends the Yuan to its weakest since April 2013. Gold is leaking lower as the offshore Renminbi collapses by the most since Oct 2011.
PBOC weakens Yuan fix by 1.9% - the most ever...
Offshore Renminbi is plunging..
Quite a shocking move, clearly aimed at regaining some competitiveness, one must wonder, given the lackluster response in stocks whether this will merely exacerbate capital outflows... though it does make one wonder who was buying yesterday ahead of the news...
Given The IMF's delay decision, it seems that PBOC has decided maintaining a stable FX rate in the face of collapsing stock market is no longer in its best interest. Although the spin is already out...
- *PBOC SAYS YUAN EFFECTIVE FX RATE STRONGER THAN OTHER CURRENCIES
- *PBOC SAYS TODAY'S YUAN FIXING IS ONE-OFF ADJUSTMENT
- *CHINA TO KEEP YUAN STABLE AT REASONABLE, EQUILIBIRIUM LEVEL
- *PBOC SAYS YUAN EXCHANGE RATE DEVIATED FROM MARKET EXPECTATION
Officials say this is a one-off adjustment and we note that USDCNY has been trading 1t around 10 points cheap to the fix for 6 months.
- *PBOC PROPOSES TO EXTEND CNY TRADING HOURS
- *CHINA PBOC SAYS TO STRENGTHEN MARKET ROLE IN YUAN FIXING
- *PBOC TO PROMOTE CONVERGED ONSHORE, OFFSHORE YUAN EXCHANGE RATE
- *PBOC SAYS TO CONVERGE ONSHORE, OFFSHORE YUAN EXCHANGE RATES
And the reaction in gold:
* * *
1.Why choosing the current time to improve quotation of the central parity of RMB against US dollar?
Currently, the international economic and financial conditions are very complex. The U.S. economy is recovering and markets are expecting at least one interest rate hike by the FOMC this year. As such, the U.S. dollar is strengthening, while the Euro and Japanese Yen are weakening. Emerging market and commodities currencies are facing downward pressure, and we are seeing increasing volatilities in international capital flow. This complex situation is posing new challenges. As China is maintaining a relatively large trade surplus, RMB’s real effective exchange rate is relatively strong, which is not entirely consistent with market expectation. Therefore, it is a good time to improve quotation of the RMB central parity to make it more consistent with the needs of market development.
Since the reform of the foreign exchange rate formation mechanism in 2005, the RMB central parity, which serves as the benchmark of China’s exchange rate, has played an important role in market expectation and stabilizing RMB exchange rate. Recently, however, the central parity of RMB has deviated from the market rate to a large extent and with a larger duration, which, to some extent, has undermined the market benchmark status and the authority of the central parity. Currently, the foreign exchange market is developing in a sound manner, and market participants are increasingly strengthening their pricing and risk management capacities. The market expectation of RMB exchange rate is diverging, and the preconditions for improving quotation of the RMB central parity are becoming mature. Improving the market makers’ quotation will help enhance the market-orientation of RMB central parity, enlarging the operation room of market rate and enabling the exchange rate to play a key role in adjusting foreign exchange demand and supply.
2.Why did the central parity of RMB against US dollar of 11 August change by nearly 2% compared to that of 10 August?
We noticed that the central parity of RMB against US dollar of 11 August changed(in the depreciation direction) by nearly 2% compared to that of 10 August. The following two factors may be relevent. First, after the improvement of the quotation of the RMB central parity, the market makers may quote by reference to the closing rate of the previous day and, therefore, the accumulated gap between the central parity and the market rate received a one-time correction. Second, a series of macro economic and financial data released recently made the market expectation diverge. Market makers paid more attention to the changes of market demand and supply. Compared with the closing rate of 6.2097 Yuan per dollar in the previous day, today’s central parity depreciated by about 200 bps. The market still needs some time to adapt. The PBC will monitor the market condition closely, stabilizing the market expectation and ensuring the improvement of the formation mechanism of the RMB central parity in an orderly manner.
3.RMB exchange rate reform: what’s next?
Next, the reform of RMB exchange rate formation mechanism will continued to be pushed forward with a market orientation. Market will play a bigger role in exchange rate determination to facilitate the balancing of international payments. Foreign exchange market development will be accelerated and foreign exchange products will be enriched. In addition, the PBC will push forward the opening-up of the foreign exchange market, extending FX trading hours, introducing qualified foreign institutions and promoting the formation of a single exchange rate in both on-shore and off-shore markets. Based on the developing condition of foreign exchange market and the macroeconomic and financial, the PBC will enhance the flexibility of RMB exchange rate in both directions and keep the exchange rate basically stable at an adaptive and equilibrium level, enabling the market rate to play its role environment, retiring from the routine FX intervention, and improving the managed floating exchange rate regime based on market demand and supply.
Currently, under the complex international economic and financial condition, we are seeing increasingly large and volatile cross-border capital flow. As such, the PBC and SAFE will strengthen the examination of banks’ FX transactions according to relevant laws and regulations, adopt effective measures to fight money laundering, terrorist financing and tax evasion activities, and improve the monitoring of suspicious cross-border capital flow. The PBC and SAFE will severely punish illegal FX transactions, including underground banks, and maintain a compliant and orderly capital flow.
* * *
It is unclear what the potential losses for hedging/trading vehicles will be in the 'most stable carry currency' but as we noted in April 2014, TRF losses would be the 10s of billions...
The total size of the carry trade is hard to estimate although even just looking at some of the onshore CNY positions accumulated, DB Asia FX strategist Perry Kojodjojo estimates that corporate USD/CNY short positions are around $500bn. The size of the carry trade and the fact that China saw significant capital outflows during the last period of substantial Renminbi depreciation in the summer of 2012 has led to concerns over what this might mean for both the Chinese economy and financial markets as well as broader global financial implications.
Morgan Stanley believes that one such carry-trade structured product that will be the "pressure point" for this - should the Yuan continue to depreciate - is the Target Redemption Forward (TRF) which has a payoff that looks as follows...
While this is just an example of a product payoff matrix to the holder, the broader point is that the USD/CNH market has a particular level (or range of potential levels) at which three factors can create non-linear price action. These are:
1. Losses on TRF products will (on average) crystallize if USD/CNH goes above a certain level. This has implications for holders of TRF products, who are mostly corporates;
2. The hedging needs of writers of TRF products (banks) mean that there is a point of maximum vega for banks in USD/CNH. Below this level banks need to sell USD/CNH vol; above this level banks need to buy USD/CNH vol;
3. The delta-hedging needs of banks are complex. As we approach the average strike (the 6.15 in the theoretical point of Exhibit 1), banks need to buy spot USD/CNH. Above this point but below the European Knock-in (EKI) (i.e., between 6.15 and 6.20 in Exhibit 1), banks need to sell spot. Then above the EKI, banks don’t need to do anything in spot.
From internal Morgan Stanley data, we estimate that the point of maximum vega is somewhere in the range of 6.15-6.20, and that the 6.15-6.20 in Exhibit 1 is reasonably indicative of the average strikes and EKIs in the market.
In other words, so long as the TRF products remain in place (i.e., are not closed out) and we remain below the maximum vega point (somewhere between 6.15 and 6.20), there is natural selling pressure by banks in USD/CNH vol. When we get above that level, there is natural vol buying pressure.
Of course, in the scenario that USD/CNH keeps trading higher and goes above the average EKI level, the removal of spot selling flow by banks and the need to buy vol means the topside move may accelerate.
Simply put, if the CNY keeps going (whether by PBOC hand or a break of the virtuous cycle above), then things get ugly fast...
How Much Is at Stake?
In their previous note, MS estimated that US$350 billion of TRF have been sold since the beginning of 2013. When we dig deeper, we think it is reasonable to assume that most of what was sold in 2013 has been knocked out (at the lower knock-outs), given the price action seen in 2013.
Given that, and given what business we’ve done in 2014 calendar year to date, we think a reasonable estimate is that US$150 billion of product remains.
Taking that as a base case, we can then estimate the size of potential losses to holders of these products if USD/CNH keeps trading higher.
In round numbers, we estimate that for every 0.1 move in USD/CNH above the average EKI (which we have assumed here is 6.20), corporates will lose US$200 million a month. The real pain comes if USD/CNH stays above this level, as these losses will accrue every month until the contract expires. Given contracts are 24 months in tenor, this implies around US$4.8 billion in total losses for every 0.1 above the average EKI.
Deutsche Bank concludes...
Looking forward it’s possible that the PBOC is not attempting to actively engineer a sustained depreciation of the Renminbi but rather is attempting to increase the level of two-way volatility in the market to discourage the carry trade and also excessive capital inflows. In terms of the broad risk going forward the sheer scale of the challenge the PBOC has set out to tackle likely means they will have to move with restraint. This is certainly a story to watch...
As Morgan Stanley warns however, this has much broader implications for China...
The potential for US$4.8 billion in losses for every 0.1 above the average EKI could have significant implications for corporate China in its own right, as could the need to post collateral on positions even if the EKI level is not breached.
However, the real concern for corporate China is linked to broader credit issues. On that, it’s worth reiterating that the corporate sector in China is the most leveraged in the world. Further loss due to structured products would add further stress to corporates and potentially some of those might get funding from the shadow banking sector. Investment loss would weaken their balance sheets further and increase repayment risk of their debt.
In this regard, it would potentially cause investors to become more concerned about trust products if any of these corporates get involved in borrowing through trust products. In this regard, this would raise concerns among investors, given that there is already significant risk of credit defaults to happen in 2014.
Remember, as we noted previously, these potential losses are pure levered derivative losses... not some "well we are losing so let's greatly rotate this bet to US equities" which means it has a real tightening impact on both collateral and liquidity around the world... yet again, as we noted previously, it appears the PBOC is trying to break the world's most profitable and easy carry trade - which has created a massive real estate bubble in their nation (and that will have consequences).
* * *
As we noted then, and seems just as applicable now, The Bottom Line is the question of whether the PBOC's engineering this CNY weakness is merely a strategy to increase volatility and thus deter carry-trade malevolence (in line with reform policies to tamp down bubbles) OR is it a more aggressive entry into the currency wars as China focuses on its trade (exports) and keeping the dream alive? (Or, one more thing, the former morphs into the latter as a vicious unwind ensues OR the market tests the PBOC's willingness to break their momentum spirit).
Finally, putting aside speculative trader P&L losses, many of which are said to be of Japanese origin and thus will hardly enjoy much or any PBOC sympathies, here is CLSA's Russel Napier on what the long-term fate of the Renminbi will be:
“Mercantilist alchemy transmutes China’s external surpluses into foreign exchange reserves and renminbi. But with capital outflows from China at record highs, those surpluses are only maintained due to its citizens’ foreign-currency borrowing. Bank-reserve and M2 growth are already near historical lows and are driving tighter monetary policy. This will lead to severe credit-quality issues and force the authorities to accept a credit crunch or opt for a major devaluation of the renminbi. They will do the latter; and despite five years of QE, the world will get deflation anyway.”
One now wonders how the Bank of Japan and The Bank of Korea will respond.. especially as protectionism rears it ugly head also...
- RTRS - CHINA TO RESUME 13 PCT VALUE ADDED TAX RATE ON FERTILISER IMPORTS AND SALES FROM SEPT 1 - GOVT
Charts: Bloomberg
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as said recently, they should devalue AGAINST GOLD to be more efficient.
reference of my previous post:
http://goldsurvivalguide.co.nz/china-play-gold-card-devalue-yuan-against...
Here is where the next recession will start:
http://michaelekelley.com/2015/04/28/next-recession-will-start-with-this-country/
Here is why gold prices are so low:
http://michaelekelley.com/2015/07/20/dear-fed-plz-raise-gold-price/
http://www.zerohedge.com/news/2015-07-09/are-big-banks-using-derivatives-suppress-bullion-prices/
Here are some more signs of a coming recession.
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record...
http://michaelekelley.com/2015/02/20/fed-warns-of-two-bubbles/
http://michaelekelley.com/2015/02/24/would-you-pay-39-more-than-asked/
http://www.zerohedge.com/news/2015-07-27/when-will-we-ever-learn/
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
I finally figured it out.. Zero Hedge is a Fed Sponsored think tank. they are clue less, so they post ideas on here, and the Readers
( god Bless them ) explain what might be going on.. and give advice and ideas...
your welcome.
Print MOAR
So it happened. China finally broke the peg to Dollar after Swiss broke the peg to euro declaring monetary policies dead. ECB and Japanese CB are printing like crazy in order to stop inflows of capital to Europe and Japan forcing dollar up since capital has nowhere to go for yield.
Hence export craze everywhere or Greek alternative of slavery the only thing that allows for governments and economies to fund themselves by printing trash.
What so-called economists are trying hard to overlook is severe “real” inflation of commodities required for basic human subsistence such as food, transportation, education, healthcare, home rent or lease, etc., not as much due to nominal prices increase but due to massive aggregated income collapse of working people all over the world.
The so-called economists also trying hard to overlook severe deflation and depreciation of assets own by majority of working people, such as labor power, skills and education, conservative retirement assets, savings, value of work benefits, value of social programs, consumer services, land lease value, furniture, electronics, used cars mobile, phones and gadgets, computers and software, used clothes, memorabilia, low brow art and antics, etc. not as much due to loss of value of these assets but because of massive aggregated “real” income collapse due to “real” inflation and over-leverage affecting working people all over the world. In other words money circulation in second tier economy of 99% almost came to standstill. Almost all income was distributed up to 1% or rather 0.1%.
This is double whammy of “real” income and asset deflation and hence working people “net worth” spiraled down, accelerating toward collapse. The process of pauperization of western societies not only affected middle class but working class people when it initiated in US over three decades ago.
Very few emphasize enough that core of the issue is utter collapse of demand (due to collapse of income and value of assets) for anything throughout the world due to massive over-leveraging of business of all sizes and households often in US dollars/Euro/Yen not in domestic currencies leaving CBs helpless.
People simply paying off their loans and obligations and have nothing left for consumption or investment. This catastrophic collapse of world demand (pointed out by Russia and China) for most goods including food and oil causes, continuing for almost a decade now, dramatic flight of capital resulting in recalling massive amounts of speculative capital back to US. Japan and Europe refused to accept returning yen and euro assets desperately seeking shelter in panic. They are trying to accomplish it via QEs and NegIRP. They are trying to erect barrier to capital inflows in order to avoid surging of their currencies and killing their economies, meaning reminder of industries capable to export since domestic income and demand is dead.
This leaves, commodity driven, emerging markets in conundrum. Their currency is weak vs. dollar but they do not trade that much with US to take any significant advantage (US is a significant exporter of commodities itself), but if currency of a country to which they sell is weaker than their currency vs. dollar, their sales collapse. And that’s really the case throughout the world. So they fight a currency war indirectly among themselves, through FX dollar, by collapsing their CB interest rates while facing collapse of their own currencies vs. dollar due to capital flight. All that against common wisdom, which would suggest rate hikes instead.
That’s why while 75% of world currencies lost to dollar, 75% of all worlds CBs lowered interest rate within in last 12 months and they keep lowering to out-export each other giving up on domestic demand and growth or even preventing any significant growth in first place to avoid their currency surge. Even China accepts much lower growth, to talk yuan down, and Russia lowered the interest rates twice while was under FX attack and massive capital outflows, and was happy with rubel about half of its value 12 months ago. And with Rubel gains this year so far, there is talk of further easing to keep it correlated with price of oil at 60 Rb level.
More recently Central Bank of Vietnam and RBA were other CBs to devalue their currencies, the only remedy possible for tens of central banks in the world, which already drop their interest rates within last 12 months in order to prevent further collapse of their export driven economies. More to follow.
To defend themselves many countries, also in the west, abandon FX market monopoly and set up huge currency swap lines, or join newly created independent of Washington and dollar, international financial institutions to limit this spiral of death. Ironically swap lines actually boosts dollar since in addition to non-US$ denominated capital flight into US$ assets, there is shortage of FX dollar funding since nobody needs to sell dollars to buy other currencies if they have swap lines, with “fixed” exchange rate, open. In strange ways globalization makes de-dollarization inevitable one way or another. Dollar strength is in part result of dollar shortage at FX but not because everybody wants dollars but because nobody needs it any more as intermediary in FX exchange because it is overpriced to its value. It is classical FX market failure, similar to that of 2008 when FED open massive swap lines with worlds CBs to squash dramatic raise in dollar.
But why? What’s going on?
The general answer is that national economies and sovereign states (with few exception) are illusions. Their domestic markets are illusions, their economic and social policies are illusions maintained for domestic political audience. Global integration has been accomplished. Only global economy exists now. And unified global capital rules the world.
Production is distributed so much all over the world that no country controls production of nothing but some small subsystem, one of thousands parts from all over the world assembled in final product with no true ownership and no country of production. Just few multinationals are richer than GDP of at least bottom 120 countries in the world and have no national allegiance of any kind.
This serves purpose of practically eliminating any political leverage that country may have over world production. But now with ZIRP nobody has any leverage over global elites who print their profits. In other words countries (with few partial exceptions) cannot reestablish control over their economies and social policies by imposing tariffs, trade barriers, capital, labor controls, specific social, economic, military, foreign policies or whatever in any way that would not result in collapse of their “hollow” economies and painful political turmoil at least during transition.
Even countries at war cannot stop cooperating economically, close borders or limit civilian trade, thing unheard off 50 years ago. The unimpeded and even increasing cross border trade and people movement between Russia and Ukraine continues, Poroshenko candy factories in Russia are making profit while they are on war footing. US increased exports to Russia in last 12 months while spewing apocalyptic rhetoric of WWIII. Germany owned factories in Russia dramatically increased investment of their profits in Russia to avoid losses of manipulated currency play. And it paid off handsomely so far. These are examples of global integration paralyzing the social or international policies.
This has most corruptive influence of national politics. That’s why all politicians that promised economic growth, betrayed the people as soon as they got in power since they knew the only way to the growth in global economy is to export if not they have to cut expenses, collapsing governmental and private social programs and dismantling democratic institutions that still left, to pretend to pay un-payable debt.
The fallacy of debt based global economic system is only too apparent.
There is no way out of world pauperization and death spiral except to break through globalism in very painful ways. Unfortunately, people rather believe in illusion than face pain of reality and turn around to stop this genocidal system of alien class of global oligarchy directed towards human extermination, all other priorities rescinded.
For brief discussion of inflation/deflation as well as so-called “free” markets, benchmarks and indices I suggest fresh look at financial propaganda of deceit at:
https://contrarianopinion.wordpress.com/2015/01/29/invisible-hand-and-other-paranoid-delusions/
For those believing that economy is rational science and economic conditions are result of laws or rules of economy I suggest interesting read on wage economy at:
https://contrarianopinion.wordpress.com/2015/01/28/slaves-of-wage/
For some more background on Japan political and economic situation in historical context:
https://contrarianopinion.wordpress.com/2015/02/20/japan-miracle-that-wasnt/
Damn was that a Long but Good article.. Kudos man..
Jury is out on SDR
The difference between the US currency policy and the Chinese currency policy is that if this neverending global recession ever ends and when (deus ex machina) a global recovery takes hold, the US is expecting an economy completely different that the one it destroyed in the first decade of the 21st century. An new economy of its own making.
The Chinese are assuming the recovery will take us back to where we left off in 2007.
For example, it is the business of nations to import and export and make sure the price paid for imports does not exceed the price received for exports.
It follows that a strong currency is poison to exporters of a nation.
The US dollar has been gaining in value since the events in the Maidan in February 2014.
And here timing is everything.
Baiting the Russian bear in Ukraine, whipping up of fear of Russia in Eastern Europe, and Washington's order for NATO to arm itself to the tits, have created a demand for American weapons abroad.
EXPORTING WEAPONRY SOLD FOR A STRONG DOLLAR LOOKS MIGHTY FINE.
And with a locked in customer base of NATO, Japan, South Korea, Canada, Australia, Saudi Arabia, while the US bangs the drum about the evil Russians ready to swallow up the Baltic States, even F-35s would be flying off the shelf, if only they could fly.
And if the markets at home need to be goosed, the Fed is right there with digital gutenbergery.
The Chinese, on the other hand, are assuming that if there is a recovery, the object will still be to export as much as possible, as rising exports lifts all boats.
However, the economy the US expects is one of military nature based on perpetual war.
jest sayin'
Bid...,
don't know why you were down voted, your logic is solid state. furthermore, you weren't even making value judgements...as you said, you were "just sayin".
it's a complicated world. most don't understand (or will not accept) that human beings love to make war and that nations are premised on the principal of 'security'. there is a primordial hierarchy of anthropological advance: food, energy and warfare...in that order, and ordered around that priority.
down-vote all you want, imbeciles. but until you can re-jigger the human organism, that's how shit will always 'advance'.
america is (and always will be) in the business of food, energy and security...and we also grow some mighty-fine tobacco.
peace & luv,
janus
EXPORTING WEAPONRY SOLD FOR A STRONG DOLLAR LOOKS MIGHTY FINE.
Not to the Allies purchasing Weapons. Weak USD would allow them to purchase more and pick US Weapons in a cost analysis to justify not buying European/Japanese/South Korean Weapons.
I have no idea what a World War strategy would be if USA wanted to sell weapons to Europe. Weak USD or Strong USD?
Probably there would be a treaty to fix a stable exchange rate, or maybe they would negotiate on a yearly basis?
But I figure USA would have to Conscript Fighters and Nationalize some industries... And remember the Recycling programs, collection of metals for national defense, rationing, maybe building materials would be rationed or controlled by FEMA,...
USA was in Depression before WWII, so my vision my be wrong. Some how I just see collapse of economy & wages and deflation with low velocity other than MIC.
Q: If we have Global Depression, would all currencies shrink in supply but increase purchase power? No idea why it would have to. Big money supply, low wages, few jobs outside of MIC, and low purchase power and few goods?
just thinkin'
I do apologize for being so pessimistic.
Nothing good awaits mankind today. All is dreadful.
And it took a turn for the worst with the new millennium Y2K. The dot.com crash, Bush's election by SCOTUS, 911, the US withdrawal from the ABM treaty, our invasion of Iraq.....
The National Debt was $5.5 trillion in 2000. Today we round it up in units of 5. we're practically at $20 trillion, 15 years later. 25 is just around the corner.
The neocons brought in by Reagan never left. When they destroyed our economy, they destroyed the global one as well.
Members of the Reagan administration along with officers in the military tasked Greenspan with conceiving a plan (subprime mortgage securities) to ruin the banking system of the world, except for the US system which would be rescued by the strongest central bank electronically printing more reserve currency.
The economy we have known since Adam Smith is done. Kaput. I'm not sure how the Fed is keeping the dollar so strong. The buyers of the dollar have to sell something to buy it and must have no idea how many are in circulation.
At the moment the Fed has that number hidden in M3, with its repurchase agreements on the balance sheet. But soon, unless we're already there now, the Fed will start printing money which it will hold as cash or it will make not effort to hide the fact that one arm of the government is buying bonds from another arm simply by printing the money to buy them.
The currency of the US soon will become more worthless than that of the Byzantine Empire in the 11th century
Eat, drink and be merry, TV88, for who knows what tomorrow will bring. :o/
Thanks for your reply, janus
There's a little lawyer in me. I like to introduce evidence (usually circumstantial) and let a judge and jury decide its relevance.
Strong dollar, many exports of armaments, fearmongering of Russia and China. Red Meat, for me.
All of which would have had to have been on the drawing board before Noodleman and her nazis encamped in the Maidan. Perhaps even before Snowden arrived in Moscow.
On the other hand, one doesn't have to be a conspiracy theorist to see that when the US began its military build up in South East Asia in 1963, it was necessary for the Russian and Chinese communists to feign a major rift to prevent LeMayism, MacArthurism and McCarthyism from bulldozing the US into a major war in Asia.
The obvious coincidence there was the build up of Soviet troops on the Amur which mirrored the build up of American troops in South Vietnam. In the early 70's when the war wasn't going well for the US, the build down of both the American and Soviet forces mirrored one another.
Beijing came out of its rift with Moscow as Nixon's favorite, and the China we know today is a result of Nixon and Kissinger's misreading the events.
Does it matter if any one else agrees with me? Nah.
Until the Maidan, the US wanted China to lift the value of the yuan so that American products were more competitive with products from China. The US intentionally kept the dollar weak to compete with the yuan.
It all disappeared in February 2014 when the American backed nazis took control of Kiev and the Rada. And that change in currency policy was obscured by the mobilization of NATO, and the anti-Russian propaganda and the anti-Chinese propaganda about the South China Sea.
That change in economic outlook by the world's largest economy and the world's most powerful military bodes badly for everyone.
I can only leave you with two oldies, but goodies, from the Bard.
peace & luv unto you too
Race to the bottom, a race no country really wants to win (or lose).
Greece has been bailed out. BTFD Greece is not going to default.
Banksters win. Truth loses again.
The Chinese are not just morons but apparently deranged subhuman creatures.
Now you will give for free ("sell") even more stuff to the Americans?
You disgusting Chinese dogs,
if you want to give stuff away for free,
why don't you just give it to your own people?
You'll be richer and more prosperous that way, by virtue of at least not losing what you have.
But the Chinese are retarded.
YOU expect these assholes to back their currency with gold or monetize gold in some other fashion?
Then YOU are just as stupid as they are.
NO government or nation will use gold as money again.
Until they destroy themselves.
There is no hope for humanity.
And,
Fuck the Chinese.
Gold shooting up!
You got your currency war, your culture war, your race war...
You got your war on women, war on men, war on kids, war on humans...
You got your war on drugs, war on poverty, war on crime, war on gangs...
You got your war on cancer, war on Ebola, war on AIDS...
You got your was on Christmas, war on Easter, war on Halloween....
You got your war on terrorism, war on democracy, war on cash....
You got your war on breasteraunts, war on invasive species...
You got your war on coal, war on nuclear, war on wheat...
You got your war on science, war on reason, war on learning, war on welfare
You got your war on taxes, war on guns, war on freedom...
So many wars, so little time...
We only really need one war to cure all those above... War on liberalism.
In the global mercantilist model this means the $ appreciates even more and China's exports will put pressure on Germany other big exporter and Japan.
Japan is already cribbing that its Trans Pacific Partnership is now dead as it cannot fight alone the export of China's deflation woes in Asia. Looks like the Chinese now attack the alliance around the USD reserve and its Far East partnership.
Whatever the short term fall out of this mercantilist currency war the strategic aim of China rests to PEG the Yuan to a gold type standard and to DILUTE the hold of $ as Reserve in the IMF type world that conditions EM relations to DC alliances around the Reserve.
WHat will this do to the Euro, more and more sandwiched?
What will it do to Brazil's currency desperately needing to survive the current political and financial crisis centered around Petrobras and now around Dilma's hold on the political construct?
The world's EM ship becomes fragile.
this s exactly my motivation for stacking gold; and reading the charts above, im stacking more. This devulation is going to end badly
www.teamramgold.com contact us for advice on how to use the karatbar system to acquire your gold way below advertised price
Why not put the 3rd biggest economic entity Japan's currency into the chart. That would be fun.
Awesome. Good computer sales this X-mas.
Please, NO CRASH for the next 7-10 years. I want to retire and live a regular everyday retired guys life.
You can do what YOU want, own what you want. Hell! You can have your own personal Harrier Jet to fly porn stars back and forth to your mansion on your own private island if you want.
Just leave me, my 14 ft aluminum boat and vegetable garden alone. ok.
sum ting wong.....somebody had to say it.
this strength in dollar was so the niggers in furguson now feel richer and can stop burning stuff down..moar free china stuff, bling coated gold china chains just got a lot cheaper...usa jungle bunnies love cheap yuan.
TD,
classic Hedgery, my brother(s).
and though the article was serious-minded and thorough in every way, i found myself laughing throughout every paragraph. i could quote portion upon portion upon portion...but the best janus can do is to post a song from the way-back...wonder how "Marla's" doing?
anyway, this is my prediction for the RMB by sometime in the spring, 2016.
call me an esoterist or what-have-you, and deutche-bankers can apply their slide rules all day, but janus sez the point of disintegration comes at a sinister peg -- somewhere near 6.66. call me crazy, but janus is still laughing...and will be before 2016's spring (and long thereafter).
https://www.youtube.com/watch?v=_yHrEykOGpo
...then the devil is 6/
and the devil is 6/
and the devil is 6,
...then God is 7/
this monkey's gone to heaven,
janus
All those countries who hate the dollar and started settling in yuan are really, really happy today.
How's that 'reserve' fiat plan going Xi?
Sucks for GM and Ford.
A strong dolla should really help USA exports.....
... oh, wait a sec....
I don't have time to post - I am going over to Walmart and buy some cheaper devalued plastic Chinese crap!
It's officially over. I have arrived.
More ammunition for Trump. He has been criticizing US government for allowing competitive currency devaluation that harms US exports.
China has just given him an instance to play on that makes him look smart and the establishment politicians look dumb (well they are but it's being rubbed in).
According to Larry Berman of ETF Capital Management:
http://www.bnn.ca/News/2015/8/10/To-say-the-US-economy-is-healthy-is-lau...
“To say the U.S. economy is healthy is laughable”: Larry Berman
ANALYSIS: It is amazing to us that so many smart people think the U.S. economy is doing just fine. Let's look at the facts. The-debt-to-GDP ratio at the end of 2007 was 64 percent as calculated by the IMF. It is currently expected to be 105 percent by the end of 2015. With the U.S. 2016 election heating up as we saw last week in the Republican debate and "The Donald" being very overt that the US is in trouble fiscally, we thought we would run some numbers for a dose of reality.
Of course, overnight interest rates have been zero over this period, which has helped to stimulate demand, to be sure. If the debt ratio held constant around 64 percent (the average of the previous 20 years (post-Reagan), the U.S. would have spent almost 7 trillion less. The debt at Jan 1, 2008 was about 9.2 trillion and it is currently 18.2 trillion. If we backed out about 1 trillion per year on average from GDP and consider zero interest rates (not to mention the QE pushing long bond yields lower) and you conservatively have a U.S. GDP at less that it was in 2007 and about a 3 percent per year contraction. The problem as Trump knows, is that the spending cannot continue. Rand Paul knows this too, but his hardline right policies scare too many people to be a President. Inflation during the period has averaged 1.6 percent and GDP has been about 2 percent (the 1 trillion per year adjusted for inflation (real) is about 5-6 percent per year.
To say the U.S. economy is healthy is laughable. Debt cannot keep growing for much longer and if it does, a Japan-like stagnation seems inevitable. It is likely to be a massive headwind for decades and the aging population demographic suggests we cannot grow out of it like in past cycles. All the smart people in Washington know this (or ought to) and fingers are crossed because they don't know how to fix it without causing a recession. If we are likely heading for a Japan style economic stagnation in a new normal era of sluggish growth, investors should not hide from this or put their head in the sand, or put their cash in GICs. They just need to understand what it means for returns going forward and how to navigate the new normal. I could easily paint a picture where stimulus continues for years and corporations continue to squeeze out EPS by buying back shares and operating very lean. The new normal does not mean stocks can't perform, but it does mean that at the higher end of valuation, a correction (10-20 percent) is increasingly likely and volatility is likely to pick up if the Fed's rate hike experiment slows the economy even more. We believe interest rates need to stay low just to grow at 2 percent so while the Fed looks to nudge rates higher, we do not see things normalizing for decades.
U.S. 10-year yields will likely stay in a range between 1.5 percent on the low end and 3.5 percent on the high end. This is a very long-term view, and we have been in this range since the 2008 crisis, and we will only know if it is correct 20-30 years from now with the benefit of hindsight.
According to Larry Berman of ETF Capital Management:
http://www.bnn.ca/News/2015/8/10/To-say-the-US-economy-is-healthy-is-lau...
“To say the U.S. economy is healthy is laughable”: Larry Berman
ANALYSIS: It is amazing to us that so many smart people think the U.S. economy is doing just fine. Let's look at the facts. The-debt-to-GDP ratio at the end of 2007 was 64 percent as calculated by the IMF. It is currently expected to be 105 percent by the end of 2015. With the U.S. 2016 election heating up as we saw last week in the Republican debate and "The Donald" being very overt that the US is in trouble fiscally, we thought we would run some numbers for a dose of reality.
Of course, overnight interest rates have been zero over this period, which has helped to stimulate demand, to be sure. If the debt ratio held constant around 64 percent (the average of the previous 20 years (post-Reagan), the U.S. would have spent almost 7 trillion less. The debt at Jan 1, 2008 was about 9.2 trillion and it is currently 18.2 trillion. If we backed out about 1 trillion per year on average from GDP and consider zero interest rates (not to mention the QE pushing long bond yields lower) and you conservatively have a U.S. GDP at less that it was in 2007 and about a 3 percent per year contraction. The problem as Trump knows, is that the spending cannot continue. Rand Paul knows this too, but his hardline right policies scare too many people to be a President. Inflation during the period has averaged 1.6 percent and GDP has been about 2 percent (the 1 trillion per year adjusted for inflation (real) is about 5-6 percent per year.
To say the U.S. economy is healthy is laughable. Debt cannot keep growing for much longer and if it does, a Japan-like stagnation seems inevitable. It is likely to be a massive headwind for decades and the aging population demographic suggests we cannot grow out of it like in past cycles. All the smart people in Washington know this (or ought to) and fingers are crossed because they don't know how to fix it without causing a recession. If we are likely heading for a Japan style economic stagnation in a new normal era of sluggish growth, investors should not hide from this or put their head in the sand, or put their cash in GICs. They just need to understand what it means for returns going forward and how to navigate the new normal. I could easily paint a picture where stimulus continues for years and corporations continue to squeeze out EPS by buying back shares and operating very lean. The new normal does not mean stocks can't perform, but it does mean that at the higher end of valuation, a correction (10-20 percent) is increasingly likely and volatility is likely to pick up if the Fed's rate hike experiment slows the economy even more. We believe interest rates need to stay low just to grow at 2 percent so while the Fed looks to nudge rates higher, we do not see things normalizing for decades.
U.S. 10-year yields will likely stay in a range between 1.5 percent on the low end and 3.5 percent on the high end. This is a very long-term view, and we have been in this range since the 2008 crisis, and we will only know if it is correct 20-30 years from now with the benefit of hindsight.
Someone should tell China it wasn't their turn. DAX is getting pummelled.
If the Chinese are not controlled by western banking interests and if economic turmoil is inevitable why would the Chinese want to allow the West to choose the time and place of the collapse? Why not initiate it early to remove at least that one advantage? If you were in their place would you not try to pull the plug early?
This is GREAT news. You'll finally be able to afford that industrial grade, steam powered pipe bender you've been admiring down at Harbor Freight. Make room in the garage.
Another good post ZH.
I am reposting a response that I made to one of your previous articles today, because I believe that it is equally relevant to this article. The only thing that I would add is that the fake media-stoked bounce in GOOG today supports my cabalist desperation thesis.
----------------------------
Good post ZH. Not trying to pretend to be a sage about these things (you know how much you paid for this advice), but as I look at the new terrain, post Yuan devaluation, I have revised my strategy slightly.
I now think that while investors should continue to accumulate PM's as a portion of their portfolio because prices at these levels are tempting, the funds that they are trading might now be better allocated to shorting the Nasdaq 100 (or the S&P 500 for the more faint of heart) than longing PM's over the next 6-18 months. In other words, for a while, US equities are more overvalued, than PM’s are undervalued.
I say this because with the collapse of trade and the resultant economic contraction, we may initially see increased deflation of asset prices, including PM's for a while yet. However, during this timeframe, stock earnings will collapse (as we have already witnessed to a more limited degree) and the long overdue dramatic correction of US equity prices will begin. Because of the stress in the economy, I think that there will be enough stress liquidation of PM's to offset increased fear demand, at least until a capitulation in the stock market occurs, at which time more stock/bond investors will throw in the towel and become buy-side PM investors.
Another factor that influenced this shift in my view is political. I believe the Trump phenomenon (who still does not have my endorsement, given his cabalist links), and the ludicrous attempt by Fox to squelch it at the last debate, is further evidence of cabalist desperation, and that they will continue to "burn the furniture" at an accelerating rate in a futile attempt to protect the dollar and front run for their insider trading cronies.
This means the likelihood of more mass paper PM dumping in the short run, which could put a lid on PM pricing. While they have also been trying to prop up of the equities markets while suppressing PM’s, the total amount of capital (and/or assumed derivatives risk) required to continue that exercise, given the total size of the equities markets (as compared to the PM markets) will become overwhelming, and they will not succeed.
This is good news for the American peoples of white European descent in the long run, because wealth has been redistributed to the cabal via paper asset channels. Destruction of this paper wealth will disproportionately hurt the cabal.
Timing will be difficult, but I think we need to see more capitulation in equities and bonds before a sustained bull market in PM's is possible.
Ferris Bernanke's day off. Bernanke? Bernanke?
So how did they do it this time? What did they swap for their $USD reserves to inflate the Yuan?
China devalues Yuan by most in 28 months... sounds like sensationalism to me.
Waaa, Waaa, China tweeked it Economy.
Here is another one: How can Militia/armed white men cause unease in the middle of a Riot?? Ain't that impossible?
- FERGUSON BLOWS AGAIN...
- Another state of emergency...
- RIOTERS: 'We're Ready for War'...
- Dozens Arrested at Federal Courthouse...
- #BlackLivesMatter Mob Shuts Down I-70...
- Cop Supporters Cheer Arrests Of Activists...
- Militia patrols streets...
- Heavily armed 'Oath Keepers'...
- Fights among migrants break out on Greek island of Kos...
- /Europe-s-migrant-crisis-turns-violent-Police-Kos-attack-refugees-batons-fire-extinguishers-fights-broke-1-500-strong-sit-protest-demanding-food-shelter-registration
What are we paying Saudi Arabia for or US Military Retirees in the Carlyle Group for... if SA is going to Drive our Economy into Oil Based Black Swan Event??
Here's an important idea: TRUMP: MAKE TAX CODE SIMPLER...
What does this mean for the big gas pipeline deal between Russia and China? The western pipeline through western China has been indefinitely postponed, but the eastern pipeline was still under construction last I heard.