Trump About to Declare Currency War!
This post Trump About to Declare Currency War! appeared first on Daily Reckoning.
[Ed. Note: Jim Rickards latest New York Times best seller, The Road to Ruin: The Global Elites’ Secret Plan for the Next Financial Crisis (claim your free copy here) transcends politics and media to prepare you for the next crisis in the ice-nine lockdown.]
Six years ago in my first book, Currency Wars, I wrote, “There is nothing today that suggests the currency wars will end anytime soon.” Today, those words seem as true as ever.
A currency war is a battle, but it’s primarily economic. It’s about economic policy. The basic idea is that countries want to cheapen their currency. Now, they say they want to cheapen their currency to promote exports. Maybe it makes a Boeing more competitive internationally with Airbus.
But the real reason, the one that’s less talked about, is that countries actually want to import inflation. Take the United States for example. We have a trade deficit, not a surplus. If the dollar’s cheaper it may make our exports slightly more attractive.
It’s going to increase the price of the goods we buy — whether it’s manufactured good, textiles, electronics, etc. — and that inflation then feeds into the supply chain in the U.S. So, currency wars are actually a way of creating monetary ease and importing inflation.
How many times have you heard the Fed say they want 2% inflation? They analyze it over and over and over. They’re desperate to get there.
The problem is, once one country tries to cheapen their currency, another country cheapens its currency, and so on causing a race to the bottom.
Currency wars are like real wars in more ways than one. They can last longer than the combatants expect, and produce unexpected victories and losses. Real wars do not involve all fighting, all the time. There are quiet periods, punctuated by major battles, followed by new quiet periods as the armies rest and regroup.
There are critical turning points where a long-term directional trend is set to reverse. Today’s “winners” (the strong currencies) suddenly become “losers” (the weak currencies), contrary to most expectations and Wall Street forecasts. Today we could be at one of those turning points, which we’ll explore in a moment. But first, let’s see how we got here.
The currency wars of the early 1930s are potentially instructive for what we could be experiencing today. The U.K. devalued the pound sterling in 1931. Soon after, the U.S. devalued the dollar in 1933. Then France, which devalued the franc in the ‘20s, and the U.K. devalued again in 1936.
You had a period of successive currency devaluations and so-called “beggar-thy-neighbor” policies.
The result was, of course, one of the worst depressions in world history. There was skyrocketing unemployment and crushed industrial production that created a long period of very weak to negative growth. This currency war was not resolved until World War II and then, finally, at the Bretton Woods conference. That’s when the world was put on a new monetary standard.
The next currency war raged from 1967 to 1987. The seminal event in the middle of this war was Nixon’s taking the U.S., and ultimately the world, off the gold standard on August 15, 1971.
He did this to create jobs and promote exports to help the U.S. economy. What actually happened instead?
We had three recessions back to back, in 1974, 1979 and 1980.
Our stock market crashed in 1974. Unemployment skyrocketed, inflation flew out of control between 1977 and 1981 (U.S. inflation in that five-year period was 50%) and the value of the dollar was cut in half.
The real lesson of currency wars is that they don’t produce the results you expect which are increased exports and jobs and some growth. What they generally produce is extreme deflation, extreme inflation, recession, depression or economic catastrophe.
But they’re very, very appealing to politicians because they can stand up say, “Hey, it’s good to have a cheap dollar because we promote jobs.” But the reality is, it doesn’t promote jobs. It just promotes inflation.
You’re actually better off with a strong currency because that attracts capital from overseas. People want to invest in the strong currency area, and it’s that investment and those capital inflows that actually creates the jobs. So as usual, the politicians and the central bankers have it completely wrong. But they’re not listening to me or necessarily reading my newsletters.
The period between 1985 and 2010 was the age of what we call “King dollar” or the “strong dollar” policy. It was a period of very good growth, very good price stability and good economic performance around the world.
The United States agreed to maintain the purchasing power of the dollar and our trading partners could link to the dollar or plan their economies around some peg to the dollar. That gave us a generally stable system. It worked up until 2010 when the U.S. tore up the deal and basically declared another currency war to boost U.S. exports. President Obama did this in his State of the Union address in January 2010.
The currency wars have been ongoing ever since, with varying intensity. But with the election of Donald Trump, they look set to enter a new major battle.
Today, the currency wars have brought the U.S. to the cusp of a trade war. President Trump and several of his top advisers in recent days have complained that not only is China a currency manipulator, but so are Japan and Germany. It seems the U.S. is tired of the new “king dollar” phase it’s been in lately, and is willing to take action to cheapen the dollar.
But how can the administration actually do this?
The Fed will not lower rates because it is in a tightening cycle. The Fed will probably be raising rates in March and possibly later this year. That makes the dollar stronger.
China is trying to prop up the yuan but is running out of dollar reserves to do so and will have to devalue before they go broke. Germany might like a stronger euro to fight inflation, but the decision is not entirely in their hands — it’s up to the European Central Bank, and the ECB is still engaged in QE for the time being.
Japan cannot afford a stronger yen, because they have the highest debt-to-GDP ratio of any major economy and are desperate to get inflation. Japan needs inflation to lower the real value of that debt.
If China, Germany and Japan cannot give Trump what he wants in the foreign exchange markets, what options does the U.S. have?
The main option is tariffs, exactly what Richard Nixon did on Aug. 15, 1971.
You may remember that date as the day Nixon ended the convertibility of dollars for gold. But he also imposed a 10% across-the-board tariff on all imported goods as part of his New Economic Plan. Nixon combined the currency wars and trade wars in one policy by hoarding gold and imposing tariffs.
Historically, currency wars do lead to trade wars and, ultimately, to some form of systemic collapse. That seems to be happening again. I’ll be analyzing each side of this coin in the coming weeks.
Regards,
Jim Rickards
for The Daily Reckoning
The post Trump About to Declare Currency War! appeared first on Daily Reckoning.
This story originally appeared in the Daily Reckoning
Source: https://dailyreckoning.com/trump-declare-currency-war/
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Whistler Blowers, Insiders
Trump’s just doing what he was put there to do; he is the self-declared King of Debt and Bankruptcy, after all. Between his deregulation of the banks and Wall Street—which his economic team of Goldman Sachs executives are working hot and heavy on and will lead to an even worse collapse than 2007-2008—and his “tariffs” which frankly will just make everything we buy cost more considering almost EVERYTHING IS MADE IN CHINA at this point, it won’t take long and the final nails will be hammered into the coffin containing what’s left of our economy.
Yes Morgana, I agree, but it’s far worse than that. Here is a really scary summary piece from Veterans Today . . . .
. . . In back-channel discussions with high level military and special operations experts two days ago, this is what they had to say: Despite the chaos, clownishness and seeming idiocy coming out of Washington, there are some very talented and capable people involved in the mix.
The real experts say they are seeing a plan, long in preparation, coming together and orchestration of events beyond the simple finger-pointing and usual conspiracy theories.
They say the signs are there, the moves in the global markets, they see it in key controlled media assets, they see it in a dozen ways none of us would ever put together, that decades of Chaos Theory planning are moving forward an agenda that, once it comes together, few will survive unharmed.
Let me digress and give you some real intelligence on the recent American election. First, I need to define what real intelligence is, as you’re not going to know. You see, what is put in print, what people get to read, is what has been engineered for them to read in order to predispose or inculcate interest sectors towards serving their required role in response to orchestrated events. Yes, the whole thing is theatre, but you’d wish you stayed home and watched TV instead.
The whole idea that the ‘election’ was hacked, as the media tells us hacking exists, is childish insanity; there is no Wikileaks, there is no Anonymous, there is no mainstream media, there is no alternative media, there is no Facebook, there is no Google, the whole interplay has been scripted from day number one.
What can be controlled is controlled and anything can be controlled, thus everything is controlled.
Here is how the American ‘election’ was turned on it’s ear: The Federalist Society, a dozen thinktanks and in particular the FBI and CIA control the physical mechanisms of American elections down to precinct level. Highly organised groups under active direct control, sometimes political parties, religious groups, veterans groups, social organisations, all under singular command, control every voting machine, all software, the handling of all paper ballots and even more sinister, tabulation, recording and more, to a large extent they control the media reporting of the elections which are, in actuality, scripts written in advance to create a feeling of drama.
Remember on 9-11 when a BBC reporter described seeing building seven collapse twenty minutes early, with the standing building clearly visible behind her? This was a scripted event, just as the elections are scripted events. No-one oversees an American election, they are the least supervised and accountable in the world, the Federalist Society, a sinister group under total and absolute Rothschild control, yes we’re talking Freemasons, Illuminati, all of that, controls not only the courts, but also the law firms which bring the cases before the courts.
This is all theatre too, there are no ‘closed system’ computers and no hacking, the malicious programmes used in this election were handed out on thumbdrives and installed by electoral officials, thousands of whom are openly corrupt. It started way back in Tammany Hall and before and has never changed, the most corrupt institutions at every level in the United States oversee polling, thus American elections are not contests between candidates but in reality, contests between what are now global criminal gangs.
The theatre in this election began with Bannon, the Mossad and their Macedonian Fake News sites, we saw the corrupt FBI’s hand over and over, but to get a real understanding all you need is for one statistician to point out what is an inexorable singular fact, even with the idiocy of the electoral college, purposefully written into the constitution to corrupt American ‘democracy’ it is impossible to lose an election by over 3 million popular votes and win an electoral victory, just as it is impossible, as we learned in 2000 and 2004, for exit polls to be more than 1% wrong. 95% of the people involved in rigging the American election were paid civil servants, not Russian hackers or Mossad spies.
Back in 2000 and 2004 it was Mike Connell who wrote the malicious software that flipped millions of votes in thousands of precincts. When Connell went to the FBI, reporting that he had been hired by Karl Rove to hack the election and that Rove had threatened to kill him.
It was agreed that Connell would go into witness protection, but alas suffered the same tragic fate as Senator Paul Wellstone and his family.
What the world is doing right now is writing off the United States. Trump’s waffling has, in less than two weeks, made the words and promises of the United States Of America utterly worthless.
America’s military suffered a Pearl Harbour level disaster to its credibility and it’s only going to get worse.