Prepare for a Chinese Maxi-devaluation

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The news is being dominated by breathless headlines about the new trade war between the U.S. and China. But this trade war has been brewing for years and came as no surprise to readers of my newsletter, Project Prophesy. In fact, the new trade war is simply a continuation of the currency wars that began in 2010.

I’ve warned for over a year that President Trump’s threats of tariffs should be taken seriously, while most of Wall Street discounted Trump’s talk as mere bluster. Now the trade wars are here as we expected, and they will get much worse before they are resolved.

Currency wars arise in a condition of too much debt and too little growth. Economic powers try to steal growth from their trading partners by devaluing their currencies to promote exports and import inflation.

Return to the Pentagon

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In my 2011 book, Currency Wars, I gave a detailed description of the first-ever financial war game sponsored by the Department of Defense.

This financial war game took place in 2009 at the top-secret Applied Physics Laboratory located about twenty miles north of Washington, D.C. in the Maryland countryside.

Unlike typical war games, the “rules of engagement” for this financial exercise did not permit the use of any kinetic weapons such as bombs, missiles or drones.

The only weapons allowed were financial instrument including stocks, bonds, currencies, commodities and derivatives.

World War III Has Begun — Paul Craig Roberts

The Third World War is currently being fought. How long before it moves into its hot stage?

Washington is currently conducting economic and propaganda warfare against four members of the five bloc group of countries known as BRICS—Brazil, Russia, India, China, and South Africa. Brazil and South Africa are being destabilized with fabricated political scandals. Both countries are rife with Washington-financed politicians and Non-Governmental Organizations (NGOs). Washington concocts a scandal, sends its political agents into action demanding action against the government and its NGOs into the streets in protests.

Wayne Jett: Strong Dollar Fools Gold

Jett’s statements were made during an interview with Rick Wiles of TRUNEWS  on Wednesday, while discussing how on going international currency wars are destroying the international competitiveness of U.S. manufacturing exports.

Forgetting National Security, Ignoring Truth

 

The 1992 presidential election turned on one key phrase: “It’s the economy, stupid.” The Cold War had been won. America was the sole superpower of the world. We had just won the Gulf War. And, Americans were tired. We wanted to enjoy our prosperity. It was at that moment that we officially began to separate and silo the critical issues of the day. President Reagan, twelve years before, had integrated three critical issues and focused the whole of his administration on them. These were known collectively as Reagan’s “three-legged stool.” Judeo-Christian Values. Free Market Economics. Strong National Defense. But when Clinton arrived, we were told that the economy mattered most. What a President does in his private life is irrelevant so long as the economy is booming, or so we were told. Who cares if something called al Qaeda attacks targets overseas? Why should that matter as long as we have the most powerful weapons?

China Has Officially Joined the Currency Wars

The only thing China had to wait for was the official inclusion into the International Monetary Fund’s (IMF) reserve currency basket. Now it can devalue its currency as it pleases—and it may not even have a choice.

“A devaluation could be as much as 20 percent against the U.S. dollar because in real effective exchange rate terms the yuan is about 15 percent overvalued at the moment,” says Diana Choyleva, chief economist at Lombard Street Research.

The Chinese currency has gained 15 percent against other major currencies since the middle of last year, according to an analysis by Westpac Strategy Group.

The Shot Not Heard Around the World

China’s recent move to devalue the yuan has sent shock waves through the global financial markets and has convinced most observers that a new front in the global currency wars has begun. The move has caused many observes to envision a new round of competitive devaluations around the globe in which the race to the bottom will intensify. In this scenario they envision that the U.S. dollar will solidify its standing as the only strong currency. This misses the point entirely.

In the past, most of the action in the “currency wars” had been focused on the efforts that many nations undertook to prevent their currencies from rising against the U.S. dollar, which itself was being weakened by a perpetually easy Federal Reserve and persistently negative U.S. trade and budget deficits. But with the dollar now strengthening significantly, the Chinese government has become concerned that the yuan, which has remained largely tethered to the dollar, had become too strong against other currencies, particularly its primary trading partners in Asia and the Pacific. To remain competitive locally, it decided to ease the tether to the dollar and instead let its currency float more freely. The purpose and implications of this significant pivot has largely escaped the U.S. media. In reality, the move raises the likelihood that the yuan will rise significantly when the dollar resumes its long-term bear market, not that it will remain weak forever.

Currency Wars Back As Russia Buys One Million Ounces of Gold in March

– Russia buys one million ounces and increases gold reserves by another 2.6% in March
– Russia sees gold as important monetary and strategic asset in stealth currency wars
– Large purchase by Russia who normally buy some 300,000 ounces a month
– Russian gold reserves, at nearly 40 million ounces, are now fifth largest in the world
– Russia likely coordinating gold reserve accumulation with ex-Soviet States
– Concerns regarding euro and crisis in erstwhile reserve currency, the dollar
– Gold remains central to international monetary system
– Central banks continue to accumulate large volumes

Russia increased its gold holdings by one million ounces in March, bringing its total reserves to nearly 40 million ounces or 1,238 metric tonnes. The Russian one million ounce gold purchase is a large one even by Russian standards as in recent years they have consistently been buying roughly 300,000 ounces per month.

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Since 2005, Russia’s gold reserves have increased three-fold. As a comparison, in the second quarter of 2009, Russia only had 550 tonnes of gold in its official reserves meaning that their reserves have doubled in recent years.

China may be ending dollar’s hold on reserve currency as early as September

On March 9, sources within China provided new information that validates that the Far Eastern economy is now ready to compete with, or even supplant, the dollar as the sole global reserve currency as early as September of this year. Having already completed a message interchange system that mirrors the same one in the West, the Chinese equivalent of SWIFT is now ready and is expected to be fully operational by the 3rd quarter of 2015, which will allow other nations to transact with the world’s largest economy without the need to purchase dollars as a medium of exchange.

Did the Fed Just Enter the Currency Wars?

(Bloomberg) — The minutes from the Federal Reserve’s meeting last month have foreign-exchange traders wondering whether Janet Yellen has joined the currency wars.

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Central bankers from Europe to Australia have engaged this year in bouts of rate-cutting oneupmanship, leaving the U.S., and possibly Britain, as the only developed nations seen as likely to raise borrowing costs in 2015. The dollar climbed to its strongest in more than a decade as a result, prompting billionaire Warren Buffett and Goldman Sachs Group Inc. President Gary Cohn to question whether the Fed can now increase rates without damaging the U.S. economy.

Sweden cuts rates below zero as global currency wars spread

Morgan Stanley warns that the world is revisiting the “ghosts of the 1930s” as one country after another tries to steal a march on others by devaluing first

Sweden has cut interest rates below zero and launched quantitative easing to fight deflation, becoming the latest Scandinavian state to join Europe’s escalating currency wars.

The Riksbank caught markets by surprise, reducing the benchmark lending rate to minus 0.10pc and unveiled its first asset purchases, vowing to take further action at any time to stop the country falling into a deflationary trap. The bank presented the move as precautionary step due to rising risks of a “poorer outcome abroad” and the crisis in Greece.

The Currency Wars’ “Pearl Harbor”

Switzerland had just abandoned its peg of the Swiss Franc to the Euro. The result was mayhem with an immediate 30% drop in the value of the Euro against the Franc, and billions of dollars of trading losses by banks and investors around the world.Several foreign exchange brokers went bankrupt because their customers could not settle their losing trades. The Swiss operated in total secrecy.

Currency wars resemble real wars in the sense that they do not involve continuous fighting all the time. At certain times, there are intense battles, followed by lulls, followed by more intense battles.

US and China: The Fight for Latin America

According to Robert Valencia, China is vying for greater economic influence in Latin America, to include possibly constructing and operating an alternative ‘Panama Canal’ through Nicaragua. One unanticipated consequence of this burgeoning US-China rivalry, Valencia observes, is that it might push Latin American countries closer together.

During the first weekend of June, U.S. President Barack Obama and Chinese President Xi Jinping met in California to discuss cyber espionage and territorial claims in the Pacific Rim. While tension on these topics has hogged the headlines, the fight for influence in another area could be even more important—Latin America. Other emerging markets in Africa, where China has an overwhelming influence due to foreign direct investment in mining and oil, also offer economic opportunities, but Latin America has an abundance of natural resources, greater purchasing power, and geographic proximity to the United States, which has long considered Latin America as its “backyard.”

Euro Rises as Sweden Threatens to Join Currency Wars

In case anyone didn’t catch last week’s currency news:

The so-called currency wars progressed further in today’s session, as two new countries jumped on the bandwagon of selling or threatening to sell its own currency to unwind recent strength.

Overnight, RBNZ Governor Wheeler announced that the central bank had already once intervened in Forex markets to bring down the price of the New Zealand Dollar. During European trading hours, Swedish Finance Minister Borg said the Krona’s strength may become an issue for the country’s central bank.

The Day the Dollar Dies

Twenty-one men representing China’s most powerful institutions file into a conference room atop the icc Tower looming over Victoria Harbor. The Politburo Standing Committee has mustered the ceos of China’s four largest banks, Sinopec, and several other state-owned multinationals, plus officers from the Central Military Commission and a pair of academics from China’s top technology universities.

The general secretary formally opens the meeting. “As you know, the United States of America continues to manipulate its currency,” he begins. “It is devaluing its dollar, which steals away trade and reduces the value of its debts. The Standing Committee manages the yuan’s value to protect our manufacturing base and support employment.”

The secretary leans back ever so slightly to say what everyone in the room already knows, and the reason why they are here. “Three days ago, the Federal Reserve System announced its sixth quantitative easing policy in the past seven years.”

And now, the marching orders.