Debasement war?

[loosecannon]

We have been in a simmering debasement marathon for decades, in a slowly boiling debasement relay race for a year, and now comes the sprint toward the finish.

This will make tariffs look like what sissies did to prolong the Great Depression.

Analysis: Japan yen tactic muddles bid to drive yuan up | Reuters

Japan yen tactic muddles bid to drive yuan up

Japan's decision to single-handedly intervene in currency markets to drive down its currency's value complicates a U.S. and European bid to persuade export-powerhouse China to let its yuan appreciate.

Amid growing global pressure for Beijing to let its yuan rise in value to help rebalance uneven global trade, analysts warn that Japan's unilateral action risks spurring an era of beggar-thy-neighbor policies as countries try to devalue their way to prosperity.

Already on Wednesday, Colombia's central bank said it was starting to buy at least $20 million daily to slow the rise in its peso currency and Brazilian Finance Minister Guido Mantega said he was "watching the game" and wouldn't stand by if others weakened their currencies at Brazil's exporting expense.

In Thailand, business leaders are urging policymakers to keep the baht's value from rising excessively so that its industrial sector doesn't suffer, and analysts see a risk that Thailand and other Asian nations may follow Japan's path.

Tokyo's solo intervention in currency markets was not unexpected. The yen had hit a 15-year high that was a threat to Japan's recovery, and officials in Tokyo had been threatening to intervene for weeks.

U.S. lawmakers, embarking on the first of two days of hearings into China's currency policies, let their anger show on Wednesday at the two Asian trade giants while venting frustration at the difficulty in shrinking trade imbalances.

"China is not the only country with a predatory exchange rate policy," said U.S. House of Representatives' Ways and Means Committee Chairman Sander Levin, describing Japan's intervention as "a deeply disturbing development."

"What's happening is that China's actions have affected Japan, and now Japan's actions affect us," he said.

This could be a real shit hits fan event or it could be quickly addressed and resolved.

I am definitely betting on the former cuz China is not gonna depeg the yuan. And everybody else gets it.

 

[uscitizen]

There will be no war in debasement of my house.
Too damn noisy.

 

[loosecannon]

ok

 

[william the wie]

It will take weeks for this to shake out but debasement war is definitely a possibility.

 

[Mr. H.]

Relax, muthufukkas!

Obama to the rescue...

Administration signals tougher approach to China

WASHINGTON – The Obama administration on Wednesday signaled a new get-tough approach with China, filing two trade cases against the country before the World Trade Organization and also complaining that Beijing is moving too slowly to reform its currency system.

Treasury Secretary Timothy Geithner, in prepared testimony, said the administration is considering what tools it might use to push China to move more quickly to allow its currency to appreciate in value against the dollar.

"what tools" being the operative...

 

[loosecannon]

Relax, muthufukkas!

Obama to the rescue...

Administration signals tougher approach to China

WASHINGTON – The Obama administration on Wednesday signaled a new get-tough approach with China, filing two trade cases against the country before the World Trade Organization and also complaining that Beijing is moving too slowly to reform its currency system.

Treasury Secretary Timothy Geithner, in prepared testimony, said the administration is considering what tools it might use to push China to move more quickly to allow its currency to appreciate in value against the dollar.

"what tools" being the operative...

I sent this to a friend:

Yeah I predicted this shit about 12 hours before it happened. I found out last night that the Fed's move to buy up 10 year bonds kind of sealed the banks out of the bond market that they were gaming (borrowing at 1% from the fed direct only to purchase ten year notes that return 3.5%), instead of lending to us.

So the banks are now speculating on the yen instead of 10 year treasuries.

On a bright note John Williams from shadow stats is now reporting that all three (M1, M2, M3) are increasing due to the feds bonds purchases. Tho it looks to me as if all of that money is in the carry trade chasing bubbles. Yen bubbles esp.

This really shoots holes thru the Bernanke Quantitative Easing final solution. Bhat what's a fed to do? The People's republic of Chinks is doing currency manipulation, the Greeks sure did, as did the EU (imo) by promoting the PIIGS crisis as a crisis, driving the Euro into the toilet (wink, wink). That leaves the dollar and the yen fucked, so when Bernanke accidentally throws a wrench in the woks what is Japan supposed to do?

Or was it an accident? I would have done it on purpose and feigned that I was "shocked"! I might even "froth" at the mouth expressing my surprise!

We are already IN a race to the bottom currency debasement marathon. That's what globalization IS! And it is the reason why our economy (certainly our stimulus and our recovery) is being directly offshored.

So what's surprising about this going viral? In a way it is like Bernanke suddenly realized he is an American. And the Japanese realized that they aren't.

 

[loosecannon]

China Talk Resurfaces In Euro Market

-Speculation that China may be buying euros to indirectly hold down the yuan is once again circulating around the currency markets as observers struggle to explain a burst higher in the single currency Thursday.

The euro surged against the dollar mid-way through European trading hours, and most analysts attributed the move to a successful auction of Spanish government debt. A number of pre-existing orders to buy, clustered just above $1.30, also appears to have played a role.

Some believe that curious forces could be at play, however. In particular, China is seen as a possible source of euro buying as it seeks to hold down the broad value of the yuan, which has recently hit a series of record highs against the dollar.

"You can never prove it, but maybe this is some Chinese buying," said Lutz Karpowitz, a currencies analyst at Commerzbank.

The People's Bank of China's news department couldn't be reached for comment Thursday.

Amid ever-increasing international pressure on China to allow greater and faster strength in the yuan, the PBOC has allowed the yuan to climb unusually quickly against the dollar of late, with its key dollar-fixing rate dropping to a record low of CNY6.7181 Thursday. That marks an appreciation of around 1% in the yuan over the last eight trading days--a small shift for most major currencies, but a significant move for the tightly controlled yuan.

That kind of currency strength, while modest, poses a risk to China's exports by making the country's products appear more expensive abroad.

A weaker dollar against other major currencies would be a neat way to counteract that pressure, as it dents the yuan's value on a trade-weighted basis. "It's very convenient for Beijing," said Karpowitz. Another investor, who didn't wish to be named, agreed that this explanation "makes sense."

Ideas such as these are common features of the rumor-packed currency markets, and China's involvement is all but impossible to prove or disprove.

Many analysts find this explanation for currency shifts farfetched. Nonetheless, this theory has cropped up a number of times since China dropped its direct dollar peg in June, particularly around intraday currency moves that are tough to explain.

Thursday's jump in the euro arguably fits that description.

China Talk Resurfaces In Euro Market - WSJ.com

 

[Paulie]

Meanwhile, gold continues higher.

 

[loosecannon]

yeah.

Geithner signals U.S. impatience on China currency

Striking his sharpest tone yet in what has long been a flashpoint in U.S.-China relations, Geithner planned to tell a Senate hearing that the yuan was strengthening too slowly and he was looking for ways to get Beijing to move faster.

Geithner's testimony could be critical to whether lawmakers, who say China hurts U.S. jobs and corporate profits by keeping its currency artificially cheap, decide to push ahead on legislation targeting Beijing's policies before November elections, which are being shaped by voter anguish over the economy.

"China needs to allow significant, sustained appreciation over time to correct this undervaluation and allow the exchange rate to fully reflect market forces," Geithner said in prepared remarks for the first of a pair of Capitol Hill appearances.

Signaling a reluctance to give in, China's Foreign Ministry said pressure over the yuan exchange rate "not only would fail to solve the problems; on the contrary, it could have the opposite effect."

It was unclear, however, whether Geithner's get-tough talk would be enough to overcome skepticism in Congress over the administration's approach and head off a bill that would slap punitive duties on Chinese goods.

Geithner signals U.S. impatience on China currency | Reuters

Can anybody explain the bolded statement from the Chinese foreign ministry above? Sure, China is leading the global recovery, at the direct expense of the US.

 

[Toro]

It will take weeks for this to shake out but debasement war is definitely a possibility.

Its already happening.

 

[loosecannon]

I agree.

 

[william the wie]

It will take weeks for this to shake out but debasement war is definitely a possibility.

Its already happening.

I suspect you are right but it will take the economic historians a while to decide on the starting date. Hell the fur war between Montreal, HBC, France, Spain/Mexico, Russia and the American fur company still does not have an official start and end date despite truly impressive casualty rates that included several accusations of Biological warfare and if those accusations are true it may have been the bloodiest war in North American history. Got to wait for those official dates or be called a Chicken Little.

 

[Toro]

I think this started ~2002, when the government said they were going to cut taxes and increase spending, and especially when the Fed lowered the funds rate to 1%.

When the anchor currency starts going down, it drags all the other currencies with it.

QE II ~$1,000,000,000,000? That'll help.

 

[william the wie]

I think this started ~2002, when the government said they were going to cut taxes and increase spending, and especially when the Fed lowered the funds rate to 1%.

When the anchor currency starts going down, it drags all the other currencies with it.

QE II ~$1,000,000,000,000? That'll help.

Of course it will. But the Russian or Icelandic defaults are more likely picks than 2002. You know that scholars will always discount the opinions of people working in the field.

 

[loosecannon]

I am not sure it matters so much when it began but how hot it gets now and whether t goes viral, which it looks to be on the brink of.

China has definitely been engaged in full on protectionist currency manipulation for many years. And since 2008 that has translated into robbing the developed nations of any means to stimulate a recovery with their own deficits.

China wants to be on friendly terms, and enjoys our trade, but their tactics are as cut throat as white collar crime.

I believe that the EU, US and now Japan have begun aggressive efforts to debase their own currencies in response, and if cooler heads don't prevail we could end up making the protectionism of the 30's look tame and cautious.

 

[Mr. H.]

BOSS!

DEBASEMENT!

 

[william the wie]

I am not sure it matters so much when it began but how hot it gets now and whether t goes viral, which it looks to be on the brink of.

China has definitely been engaged in full on protectionist currency manipulation for many years. And since 2008 that has translated into robbing the developed nations of any means to stimulate a recovery with their own deficits.

China wants to be on friendly terms, and enjoys our trade, but their tactics are as cut throat as white collar crime.

I believe that the EU, US and now Japan have begun aggressive efforts to debase their own currencies in response, and if cooler heads don't prevail we could end up making the protectionism of the 30's look tame and cautious.

You got that right

 

[loosecannon]

You got that right

The more I think about it the more interesting this becomes. It's real high risk/reward terrain and a great temptation exists to level the playing field with the Chinese.

What I am reading says that if China doesn't speed up the uncoupling of the yuan, escalating debasement is a certainty.

But the potential for unintended consequences is huge. Anything from a world Weimar meltdown to total war or a second World wide Depression on the one hand. A solution to most of the west's debt problems on the other.

But my gut says we will get something other instead.

If no one takes on China, currency wars still loom

Commentary: Everyone wants lower currencies to boost exports

NEW YORK (MarketWatch) — Treasury Secretary Timothy Geithner this week gave a timid nudge to China to do more about lifting the value of the yuan, which is widely recognized to be kept artificially, and vastly, undervalued to the benefit of Chinese exporters and at the expense of almost everybody else.

Even the International Monetary Fund estimates the yuan to be currently undervalued by as much as 27%. Other economists not bound by diplomacy say this could be as much as 40%.

But if China, as is likely, continues to let the yuan appreciate at a snail’s pace, competition between other major exporters is only going to intensify.

Japan’s intervention to weaken the yen /quotes/comstock/21o!x:susdjpy (USDYEN 85.8000, +0.0300, +0.0350%) on Wednesday, its first such move in six years, may very well have been the first concrete sign of currency wars likely to take hold over the coming years if nothing is done.

Major industrialized nations are more than ever dependent on exports to kick-start their weak economies and boost employment.

On Thursday, National Economic Council Director Lawrence Summers, speaking on business news channel CNBC, reiterated the Obama administration’s goal to double exports within five years.

A noble goal, no doubt, except that every other country also wants to do the same.

U.S. exports were helped by a weakening dollar in 2009, as the U.S. currency gave back the safe-haven flows it received as the financial crisis hit in 2008. But this year, the dollar index /quotes/comstock/11j!i:dxy0 (DXY 81.37, +0.13, +0.16%) , which measures the U.S. unit against a basket of six major counterparts, remains mostly higher.

That’s in large part due to the euro /quotes/comstock/21o!x:seurusd (EURUSD 1.3049, -0.0027, -0.2065%) . Europe, and especially Germany, has already benefited from the euro sliding 20% during the Greek crisis earlier this year. But the euro has since bounced back to some degree and many European countries would like to see the single currency remain under pressure or move lower.

Growth will remain subpar in Europe, thanks to ill-timed austerity measures that have only worsened prospects. The way out? Exports.

As a matter of fact, given weak growth prospects, all the major economic players – the EU, the U.S., Japan, and China – want to have a competitive edge through their currencies.

That used to work as long as U.S. consumption fed by credit could mop up production from the rest of the world. But that’s not happening any more.

And China remains the 10-pound gorilla in the story. The U.S., the E.U. and other nations, we’re told, are afraid of confronting China on their own for fear of losing precious business deals. In the meantime, jobs are being lost everywhere.

Absent individual nations taking on China through tariffs, the Group of 20 major economies meeting next month in South Korea should take a common hard line to put pressure on Beijing.

If no one takes on China, currency wars still loom MarketWatch First Take - MarketWatch

 

[loosecannon]

Gold is the final refuge against universal currency debasement

States accounting for two-thirds of the global economy are either holding down their exchange rates by direct intervention or steering currencies lower in an attempt to shift problems on to somebody else, each with their own plausible justification. Nothing like this has been seen since the 1930s.

“We live in an amazing world. Everybody has big budget deficits and big easy money but somehow the world as a whole cannot fully employ itself,” said former Fed chair Paul Volcker in Chris Whalen’s new book Inflated: How Money and Debt Built the American Dream.

“It is a serious question. We are no longer talking about a single country having a big depression but the entire world.”

The US and Britain are debasing coinage to alleviate the pain of debt-busts, and to revive their export industries: China is debasing to off-load its manufacturing overcapacity on to the rest of the world, though it has a trade surplus with the US of $20bn (£12.6bn) a month.

Premier Wen Jiabao confesses that China’s ability to maintain social order depends on a suppressed currency. A 20pc revaluation would be unbearable. “I can’t imagine how many Chinese factories will go bankrupt, how many Chinese workers will lose their jobs,” he said.

Plead he might, but tempers in Washington are rising. Congress will vote next week on the Currency Reform for Fair Trade Act, intended to make it much harder for the Commerce Department to avoid imposing “remedial tariffs” on Chinese goods deemed to be receiving “benefit” from an unduly weak currency.

Japan has intervened to stop the strong yen tipping the country into a deflation death spiral, though it too has a trade surplus. There is suspicion in Tokyo that Beijing’s record purchase of Japanese debt in June, July, and August was not entirely friendly, intended to secure yuan-yen advantage and perhaps to damage Japan’s industry at a time of escalating strategic tensions in the Pacific region.

Brazil dived into the markets on Friday to weaken the real. The Swiss have been doing it for months, accumulating reserves equal to 40pc of GDP in a forlorn attempt to stem capital flight from Euroland. Like the Chinese and Japanese, they too are battling to stop the rest of the world taking away their structural surplus.

The exception is Germany, which protects its surplus ($179bn, or 5.2pc of GDP) by means of an undervalued exchange rate within EMU. The global game of pass the unemployment parcel has to end somewhere. It ends in Greece, Portugal, Spain, Ireland, parts of Eastern Europe, and will end in France and Italy too, at least until their democracies object.

It is no mystery why so many states around the world are trying to steal a march on others by debasement, or to stop debasers stealing a march on them. The three pillars of global demand at the height of the credit bubble in 2007 were – by deficits – the US ($793bn), Spain ($126bn), UK ($87bn). These have shrunk to $431bn, $75bn, and $33bn respectively as we sinners tighten our belts in the aftermath of debt bubbles.. The Brazils and Indias of the world are replacing some of this half trillion lost juice, but not all.

East Asia’s surplus states seem structurally incapable of compensating for austerity in the West, whether because of the Confucian saving ethic, or the habits of mercantilist practice, or in China’s case by the lack of a welfare net. Their export models rely on the willingness of Anglo-PIGS to bankrupt themselves.

So we have an early 1930s world where surplus states are hoarding money, instead of recycling it. A solution of sorts in the Great Depression was for each deficit country to devalue, breaking out of the trap (then enforced by the Gold Standard). This turned the deflation tables on the surplus powers – France and the US from 1929-1931 – forcing them to reflate as well (the US in 1933) or collapse (France in 1936). Contrary to myth, beggar-thy-neighbour policy was the global cure.

A variant of this may now occur. If China continues to hold down its currency, the country will import excess US liquidity, overheat, and lose wage competitiveness. This is the default cure if all else fails, and I believe it is well under way.

The latest Fed minutes are remarkable. They add a new doctrine, that a fresh monetary blitz – or QE2 – will be used to stop inflation falling much below 1.5pc. Surely the Fed has not become so reckless that it really aims to use emergency measures to create inflation, rather preventing deflation? This must be a cover-story. Ben Bernanke’s real purpose – as he aired in his November 2002 speech on deflation – is to weaken the dollar.

If so, he has succeeded. The Swiss franc smashed through parity last week as investors digested the message. But the swissie is an over-rated refuge. The franc cannot go much further without destabilizing Switzerland itself.

Gold has no such limits. It hit $1300 an ounce last week, still well shy of the $2,200-2,400 range reached in the late Medieval era of the 14th and 15th Centuries.

This is not to say that gold has any particular "intrinsic value"’. It is subject to supply and demand like everything else. It crashed after the gold discoveries of Spain’s Conquistadores in the New World, and slid further after finds in Australia and South Africa. It ultimately lost 90pc of its value – hitting rock-bottom a decade ago when central banks succumbed to fiat hubris and began to sell their bullion. Gold hit a millennium-low on the day that Gordon Brown auctioned the first tranche of Britain’s gold. It has risen five-fold since then.

We have a new world order where China and India are buying gold on every dip, where the West faces an ageing crisis, and where the sovereign states of the US, Japan, and most of Western Europe have public debt trajectories near or beyond the point of no return.

The managers of all four reserve currencies are playing fast and loose: the Fed is clipping the dollar; the Bank of England is clipping sterling; the European Central Bank is buying the bonds of EMU debtors to stave off insolvency, something it vowed never to do just months ago; and the Bank of Japan has just carried out two trillion yen of “unsterilized” intervention.

Of course, gold can go higher.

Gold is the final refuge against universal currency debasement - Telegraph

 

[william the wie]

Just as a personal comment if gold rises to DJIA= 1 oz AU in the next two years the Democratic party might become a third party but if the Dow falls to that bottom then we are in a great depression.