Echoes of 1934 are thundering with increasing intensity.
In 1934, United States President Franklin Delano Roosevelt outlawed the private ownership of gold. After confiscating billions in bullion, Roosevelt shocked the world by revaluing it. The cost for an ounce of gold, previously set at $20.67, was suddenly $35. Overnight, Roosevelt devalued the dollar by 69 percent.
The president told the country that it was a radical effort to stimulate America’s economy. A cheaper dollar would make America’s exports less expensive and help American companies sell more products to the rest of the world, he said. More money would flow into America, and more jobs would be created.
It did those things. And it also marched the world another giant step closer to war.
From the world’s perspective, President Roosevelt’s actions felt like a full-on economic broadside designed to steal a bigger chunk of a stagnating global economy. To the world, it was another—albeit much bigger—salvo in an ongoing global currency and trade war! And it responded in kind.
Today, the economic guns of 1934 are thundering once more. The world’s economy is mired. China, Europe and America face sluggish growth. Commodity prices have cratered. And demand for materials has been blown to smithereens. Meanwhile, global debt is skyrocketing. And stock markets are rattled. Desperate nations are doing everything they can—including destroying their currencies—to stimulate their economies and keep disruptive internal social forces at bay.
Could we really be headed toward world war again? The parallels are ominous.
China’s Surprise for the World
It is in this current tense climate that, on August 11, China surprised the world by initiating the greatest single-day devaluation of the yuan in China’s history.
And that was just the warning shot. Over the next days, the yuan fell at an unprecedented rate—blowing multi-decade records for depreciation. The move was especially significant because, for the past several decades, China has made sure the value of the yuan closely tracked the dollar.
The fall of the yuan quickly mobilized other nations into action. Kazakhstan and Vietnam announced they would devalue their currencies in response. India, the world’s second-largest nation by population, did not even make an official announcement before it depreciated the rupee. Turkey let its lira slide for a record five days.
Reuters quoted unnamed “powerful voices” within China’s government who suggested the yuan needed to fall by 10 percent. Morgan Stanley predicted a 15 percent fall on August 12.
If this occurs, there will be retaliation. China’s currency bombardment is not happening in a vacuum—just as President Roosevelt’s action to devalue and outlaw private gold ownership did not happen in a vacuum.
Currency War Precedes World War
The lead-up to the second Great War began in a world of great economic excesses and speculative fervor. In America it was particularly evident in the growth of the real-estate bubble of 1921 to 1926 and the great stock market bubble of 1924 to 1929—both of which were fueled by easy borrowing. In Japan, during the 1920s, the national government spent massive amounts in a futile attempt to prop up commodity prices. It resulted in its great financial crash of 1927. In Europe too, the origin of the crisis can be pinned on excessive debt. The failure of little-known Austrian bank Credit-Anstalt triggered a wave of bank failures, and an economic downturn that swept the Continent.
When the debt bubbles exploded, the resulting economic downturns led to wave after wave of currency devaluation. Germany, Hungary and Italy virtually destroyed their currencies in an attempt to stimulate their economies.
In 1930, America responded by passing the Smoot-Hawley Act to protect American producers. Historian Richard Hofstadter called the law, which raised the tariffs on 20,000 imported goods to record levels, “a virtual declaration of economic war on the rest of the world.”
But the Smoot-Hawley Act was really just one shot in an ongoing economic war that was already hot and about to get hotter.
The ink was barely dry on Smoot-Hawley before Australia abandoned the gold standard by devaluing its dollar by more than 40 percent. Its economy experienced a boost as it immediately captured a greater share of global exports. New Zealand and Japan saw that success and devalued in 1931, each experiencing a similar result as their exporters gained temporary advantage over those in countries that had not recently devalued. Britain soon broke its peg to gold. France, seeing Britain’s economic problems, re-pegged the franc much lower to gold.
By 1933, at least nine major economies had enacted a currency devaluation to grab a greater share of shrinking global trade. Yet the competitive devaluations continued.
Yet the extreme over-indebtedness that precipitated the process was never really addressed, so the fundamental economic problems only intensified—until Germany invaded Poland in 1939.
That was then. Where are we now?
Goose-Stepping Toward War
“Unfortunately, there are parallels to that … period,” writes the Hoisington Quarterly Review and Outlook. “First, there is a global problem with debt and slow growth, and no country is immune. Second, the economic problems now, like then, are more serious and are more apparent outside the United States. However, due to negative income and price effects on our trade balance, foreign problems are transmitting into the U.S. and interacting with underlying structural problems. Third, overindebtedness is rampant today as it was in the 1920s and 1930s. Fourth, competitive currency devaluations are taking place today as they did in the earlier period” (Fourth Quarter, 2014).
So are we circa 1934, or 1939?
And when the global economy buckled in 2008, what was the response? Governments and investors simply added more debt. Under the guise of stimulation, the world’s biggest economies enacted the same type of “beggar thy neighbor” economic policies that led to World War ii.
China is no more or less to blame for the economic warfare than anyone else. But that doesn’t change the media narrative: Just as it was prior to World War ii when countries were denounced for devaluing their currencies to gain competitive advantage—the world’s reaction to China’s recent yuan devaluation continues to intensify.
China is today’s financial kamikaze. There will be others.
As former Pentagon financial warfare consultant James Rickards wrote, “While the outcome of the current currency war is not yet certain, some version of the worst-case scenario is almost inevitable if U.S. and world economic leaders fail to learn from the mistakes of their predecessors” (Daily Reckoning, Aug. 15, 2014).
The world is goose-stepping toward full-scale trade war—and ultimately World War iii.
Just as Forecast
Trumpet editor in chief Gerald Flurry wrote about this in our December 2014 issue: “America’s enemies are going to cause economic problems and bring on destruction in many ways ‘until thy high and fenced walls come down, wherein thou trustedst, throughout all thy land: and he shall besiege thee in all thy gates throughout all thy land, which the Lord thy God hath given thee’ (verse 52). The real pressure is coming from without. ‘In all thy gates’ refers to a trade war. The enemies of America, Britain and the Jews will attack their currencies, their financial markets, and their economic might.”
Fast-forward to today. That prophesied worldwide trade war has begun.
As history and prophecy both show, world war is next.
Full article: Currency War: Dragging the World Toward World War III (The Trumpet)