Competitive Currency Devaluation commenced on September 14, 2013 with the sell of the Japanese Yen.
Back in 2009 the G20 agreed not to engage in competitive currency devaluation, and Ben Bernanke stepped up to the plate and came through with QE1, where “money good” US Treasuries, were traded out for Distressed Investments, like those traded in the Fidelity Mutual Fund, FAGIX, in order to restart the global economy. Trust in Major World Currencies, DBV, and Emerging Market Currencies, CEW, Nation Investment, EFA, Small Cap Nation Investment, IFSM, and in Global Producers, FXR, ensued. Speculative investment in Gaming Stocks, BJK, Vice Stocks, VICEX, and in Leveraged Buyouts, PSP, returned great rewards. And further trust in the most toxic of debt grew to include Junk Bonds, JNK, Senior Bank Loans, BKLN, and Emerging Market Bonds, EMB, which gave global seigniorage to Sovereign Debt, BWX, and International Corporate Bonds, PICB. As a result, Total Bonds, BND, inflated along with World Stocks, VT, in a massive global wealth bubble.
The beginning of Competitive Currency Devaluation is clearly seen in the evening star candlestick chart pattern of the Japanese Yen, FXY, on September 14, 2012. Anticipation that Japan would devalue its currency the Yen, FXY, which finally came with an announcement of Unlimited Quantitative Easing, and increasing PBOC Liquidiy Injections, as reported by Benson te, gave strong currency carry trade seigniorage to China Stocks, YAO, Nation Investment, EFA, and Global Producers, FXR, on November 19, 2012.
Now Venezuela, a communist country, has devalued its currency. Venezuela devalued its Bolivar to 6.3 per dollar from 4.3 per dollar, thus making its currency 46.5 percent less costly against the dollar. Venezuela makes its crude oil more attractive to refiners, at the expense of other crude oil producers and crude oil producing nations.
Doni Icha of Belajar Bisnis reports By boosting the Bolivar value of Venezuela’s dollar-denominated oil sales, the change is expected to help alleviate a difficult budget outlook for the government, which has turned increasingly to borrowing to meet its spending obligations. Venezuela’s government has had strict currency exchange controls since 2003 and maintains a fixed, government-set exchange rate. Under the controls, people and businesses must apply to a government currency agency to receive dollars at the official rate to import goods, pay for travel or cover other obligations. While those controls have restricted the amounts of dollars available at the official rate, an illegal black market has flourished and the value of the bolivar has recently been eroding. In black market street trading, dollars have recently been selling for more than four times the official exchange rate of 4.30 bolivars to the dollar. The devaluation had been widely expected by analysts in recent months, though experts had been unsure about whether the government would act while President Hugo Chavez remained out of sight in Cuba recovering from cancer surgery. The announcement came after the country’s Central Bank said annual inflation rose to 22.2 percent in January, up from 20.1 percent at the end of 2012. The oil-exporting country, a member of OPEC, has consistently had Latin America’s highest officially acknowledged inflation rates in recent years. Spiraling prices have come amid worsening shortages of some staple foods, such as cornmeal, chicken and sugar. Seeking to confront such shortages, the government last week announced plans to have the state oil company turn over more of its earnings in dollars to the Central Bank while reducing the amount injected into a fund used for various government programs and public works projects. Giordani said the government had also decided to do away with a second-tier rate that has hovered around 5.30 bolivars to the dollar, through a bond market administered by the Central Bank. That rate had been granted to some businesses that hadn’t been able to obtain dollars at the official rate. It was the fifth time that Chavez’s government has devalued the currency since establishing the currency exchange controls a decade ago in an attempt to combat capital flight.
Competitive currency devaluations will intensify, currency wars deepen, and beggar thy neighbour monetary policies will lead to debased currencies, inflation and an International Monetary Crisis.
Monetary inflation, coming through the world central banks’ monetary policies have driven the Major World Currencies, DBV, and Emering Market Currencies, CEW, higher. But their daily charts show these to peaking out and turning lower, on the exhaustion of the monetization of debt. Liberal central bank monetary policies, have crossed the rubicon of sound monetary policy and hav turned “money good” currencies, and “money good” investments, bad.
Disinvestment is now seen in the charts of Nation Investment, EFA, such as South Korea, EWY, Small Cap Nation Investment, IFSM, such as the Netherlands, EWN, and Peru, EPU, in Global Producers, FXR, such as LPP, PHG, SCCO, and in Consumer Staple Manufacturer, KCI, such as CL.
Trust in currencies is soon going to evaporate, as more countries announce competitive currency devaluations, and as investors derisk out of Nation Investment, EFA, and Small Cap Nation Investment, and deleverage out of Commodities. DBC, starting a natural process of Debt Deflation, that is currency deflation, which with increasing intensity, can only result in Financial Apocalypse, that is a global credit bust and financial system breakdown.
John Butler writes Countdown to collapse In 1967, France, already having indicated from early 1965 that it was dissatisfied with the dollar-centric Bretton Woods system, abruptly withdrew from the pool. While this was a clear message to all that the official $35/oz gold price was unsustainable, encouraging yet more speculation, at the same time it meant that the remaining London gold pool participants had to cover for France’s significant absence by making even more gold available to the growing number of buyers. This unsustainable arrangement lasted less than a year, with the pool collapsing entirely in 1968. The situation was now critical as the monetary system was without solid foundation. The upward pressure on the price of gold intensified yet again. The Federal Reserve was now frightened that a run on the dollar was imminent, with the pound sterling already under renewed attack. At one Fed meeting that year it was claimed that, “the international financial system was moving toward a crisis more dangerous than any since 1931.” By 1971 the day of reckoning had arrived. The US had continued to sell gold into the market to suppress the price and to convert foreign reserves on demand into gold since 1968 but when even the UK was asking for a substantial portion of its gold back in summer 1971, it was clear that this effort was futile. Either the US would run out of gold or it would allow the gold price to rise and the dollar to ‘float’, that is, to devalue substantially. President Nixon opted for the latter course, as he announced to the world on 15 August that year. The dollar was devalued and gold convertibility suspended indefinitely as a ‘temporary’ measure. But why did the world continue to use dollars as reserves when these were unbacked by gold? Because the US was still by far the largest economy in the world, the biggest importer and exporter. And while US finances were deteriorating at the time, they were in far, far better shape than they are today, with trade and budget deficits tiny as a percentage of GDP. Today, the picture is the complete opposite. US finances are in a far worse state than those of the BRICs.
Keep calm, buy gold, get out of bonds.
If the recommendation to accumulate gold in advance of its remonetisation for use as an international money seems obvious, perhaps less obvious is to reduce holdings of bonds. Why should a remonetisation of gold lead to higher bond yields/falling bond prices? After all, the economic dislocations associated with international monetary regime change could well tip the world into yet another recession as the associated economic rebalancing takes place. While we have come to associate rising yields with economic recoveries and falling yields with recessions, in fact, on a sound money foundation this relationship does not hold. Back when the world was on the gold standard, for example, yields sometimes rose in recessions and declined in recoveries. This is because the central bank was unable to manipulate the bond market with monetary policy. Take the euro-area today as a contemporary case in point. As Greece, Portugal and Spain have tipped into deep recessions, their bond yields have risen as they lack national central banks which can buy their bonds with printed money. And investors have a choice whether to hold these bonds, or to hold the bonds of sounder euro area governments, such as Germany, hence the wide spreads that investors demand in compensation. The US and other indebted countries may resort to capital controls and even to selective default on their debt, such as that held by foreigners abroad. If so, this will be another major escalation in the currency wars, one that will begin to resemble the 1920s and 1930s in its intensity. Those were sad decades, to be sure, in which much of the global middle class saw its savings wiped out at least once and, in some cases, twice. They didn’t care whether this occurred via inflation/devaluation or via deflation/default. Investors today shouldn’t care either. They should accumulate gold and certain other real assets in limited supply. These are the ultimate insurance policy against inflation, deflation, devaluation, currency and trade wars, financial crises, monetary collapse, you name it. The time to do so is running out.
Matthew Boesler of Business Insider writes Venezuela Devalues Its Currency. Venezuela undertook a massive currency devaluation and also announced that it would shutter the Venezuelan currency exchange system known as SITME. Given the currency devaluation underway in other economies around the world right now, perhaps most notably in Japan, a few are calling this Venezuela’s foray into the global “currency war” between countries trying to devalue their currencies in order to increase export competitiveness.
Omar Upegui R. writes Hugo Chavez is leading his country into the abyss. Venezuela’s economy is in shambles and experiencing a dramatic free fall. Even food is imported into the country and the crime rate is one of the highest in Latin America. Communism is not working, but Chavez is determined to continue socializing the Venezuelan economy following the tips from his Communist friend, Fidel Castro. Bolivia, Ecuador, and Nicaragua are following Hugo Chavez’s irrational ideology and leading their countries towards an economic pandemonium. The latest measure taken by Hugo Chavez to calm the stormy waters is to devaluate the bolívar from 4.3 to 6.3 to the U.S. dollar. President Hugo Chavez ordered the move from his sick-bed in Cuba, Finance Minister Jorge Giordani said. Venezuela relies heavily on crude oil exports to keep its economy afloat, and the devaluation will help the South American country to balance its books. The country is the fourth-largest foreign oil supplier to the United States. Pressure to devalue had built for months, as the black market exchange rate rose to more than four times the official rate. The imbalance was clear in the prices of many goods. A Big Mac at McDonald’s costs 70 bolívares, or $16.27, at the official pre-devaluation rate. But the devaluation will also make imported goods more expensive, which will probably make inflation worse. Inflation for the 12 months ended on January 31, 2013 was 22.2 percent, one of the highest rates in Latin America. Surging inflation could cause political problems for the government. But the exchange rate had reduced the dollars available to importers, leading to shortages of goods like sugar, chicken and toilet paper. Many analysts believe that voters blame the government more for shortages than for inflation. Sooner or later Venezuela will learn the hard way, that Communism is not the answer to solve its problems. Just ask Cuba and Russia if they were satisfied with their Communist dream. The whole house of cards crumbled down in Russia and Eastern Europe when Communism collapsed in 1989. China had to adopt Capitalism to avoid political and economic mayhem—“one country two systems” proposed Deng Xiaoping.
Joshua Goodman and Charlie Devereux of Bloomberg News report Hugo Chavez Implements Spending Cuts He Warned About. Hugo Chavez coasted to re-election last year warning Venezuelans that a victory for the opposition would lead to a “giant package” of spending cuts. Now his government is being forced to adopt the same strategy to stave off a budget crisis and devaluation. Last week the government cut by $2.9 billion Petroleos de Venezuela’s share of oil revenue it contributes to an off- budget fund that’s the second-biggest source of public spending. Central government outlays, which surged 26 percent in real terms in the year prior to the Oct. 7 vote, have declined 7 percent since then, according to Bank of America. At the same time, consumer prices jumped by the most in more than two years in December, pushing inflation to 20.1 percent. The austerity drive taking place as Chavez recovers from cancer surgery in Cuba should help narrow a budget deficit larger than that of the United States as a share of gross domestic product and delay a devaluation that analysts say is overdue.
Pan Kwan Yuk of FT writes Venezuela’s government announced that is devaluing the country’s currency. Aside from local who just lost a considerable amount of their purchasing power in Venezuela’s import dependent economy, there will also be some wailing and gnashing of teeth among foreign investors who have invested in the country’s local bolivar bonds. Global consumer goods company aren’t going to be too pleased either. Colgate-Palmolive, CL, which gets about 5 per cent of total sales from Venezuela, is probably the most vulnerable consumer company to a devaluation. A devaluation of the bolivar of 30-50 per cent early next year would wipe out between 1.5 and 2.5 per cent of revenues at Avon, and Colgate and trim earnings per share still more, according to Bernstein Research. McCormick, the spice maker and Heinz, HNZ, best known in the UK for its baked beans both make more than 3 per cent of sales from the country, Bernstein estimates. This, it says, is “despite a 50 per cent devaluation and a continually difficult operating environment over the past few years”.
I relate that unfortunately, the devaluation of the Venezuelan Bolivar will only make the nation’s high rate of greater; hyperinflation will ensue as there will be an even greater shortage of dollars. It’s important to understand that Venezuela has a communist government led by Hugo Chavez and that his wild monetary policies, plus lack of trust in him as a leader, contributed to the inflation presented in Huffington Post report Venezuela’s Annual Inflation Soared 27 Percent In 2012. Venezuela’s Central Bank says the country finished the year with 27.6 percent inflation, the highest in Latin America. The oil-producing nation has had the highest inflation in the Americas for six years running. Inflation in 2010 was similar at 27.2 percent. Venezuela had the second-highest official inflation rate in the world as of November, surpassed only by Ethiopia’s 31.5 percent. President Hugo Chavez’s government and the Central Bank both predict inflation of between 20 percent and 22 percent this year. But analysts say inflation could rise above 30 percent, influenced by an expanding money supply and heavy government spending.
Competitive Currency Devaluation misery will increase as consumer will have to pay more for dollar denominated consumer goods, such as Colgate, CL, Toothpaste. I believe that Agricultural Commodities, JJA, are trading at strong support and will be going higher and consumers will be paying more for dollar denominated Food Commodities, FUD. In contrast, Natural Gas, UNG, will be a commodity loss leading sector once again. Base Metals, DBB, are at strong resistance, and will be going lower. Timber, CUT, has maxed out. Oil, USO, is at strong resistance and will be turning lower. One can follow US Commodities, USCI, and Commodities, DBC, with the use of this Finviz Screener.
Competitive currency devaluation, as well as a steepening of the 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, from its December 6, 2012 low, as is seen in the Steepner ETF, STPP, steepening; and the Interest Rate on the US Ten Year Interest Rate, ^TNX, rising above 1.95%, at the hand of bond vigilantes, will cause headline inflation, that is inflation experienced by consumers, to rise dramatically.
Clarity2012, in comment to an Arlen Williams article, writes The Austrian economists advocate a private competitive currency market, which you would know if you read any of their books, like Hayek’s The Denationalization Of Money or Lawrence White’s Competition And Currency. This notion of “sovereign money” ultimately leads us to the same predicament we are in now, it opens up the value of our money to debauchery and arbitrary devaluation, putting our economic health in the hands of central banker mad men that have ridden us on a on a harrowing roller coaster of booms and busts for the last century when that was precisely what they promised to be able to save us from. No sir, “sovereign money” is not nearly as important as SOUND money. Good money chases out bad, with competition in the marketplace, we the people will determine the best money to use.
John H. Cochrane writes Debauching the currency, the great bugaboo of gold-standard champions, will always remain a temptation. If the government can’t raise tax revenues, cut spending, or persuade investors to lend against credible future budget surpluses, it must print $15 trillion of cash not backed by gold, devalue the currency, or default on the debt. And Anonymous writes in comment, Many economists such as Friedrich Hayek (“The Denationalization of Money,” 1977) and Free Banking advocates such as George Selgin, Lawrence White, and Steve Horwitz have written compelling arguments about the benefits of allowing competing private currencies to exist concurrently.
Liberalism featured paper money issued by nation states and their central bankers, which gave rise to Inflationism through monetary policies of ZIRP and Quantitative Easing. State run monetary systems were a key feature of the Banker Regime.
Red State Electric provides the David Schlichter, Paper Money Collapse, pages 200 to-201, quote Money injection always leads to economic dislocation. The ongoing moderate inflationism that Monetarism prescribes is far from benign. By sanctioning the ongoing injection of new money into the economy, a Monetarist policy will lead to the accumulation of dislocations that make a crisis at a later stage unavoidable.
Now, Inflationism no more. Competitive currency devaluation will be a leading factor in the Destructionism that will introduce the Beast Regime’s regional governance and totalitarian collectivism seen in Revelation 13:1-4. After the soon coming Financial Apocalypse, Revelation 13:3, regional commodity exchanges and regional public private partnerships will support trade and economic activity in un-dollar, that is dollar-less, transactions, as leaders will meet in summits to renounce national sovereignty, and pool sovereignty regionally. Regional leaders and diktat, will replace sovereign nation states and investment choice. Paper money no more, will be Authoritarianism’s banner. The fiat money system will soon be replaced by the diktat money system, where diktat serves as currency, credit, power and wealth. Under Authoritarianism’s Beast Regime of regional governance, the only money will be diktat as well as the physical possession of gold. The only money most will will come to know and experience will be diktat.
In today’s news
Doni Icha of Belajar Bisnis reports Canadians are paying far more than Americans for the same products because of a systemic and unjustifiable markup scheme by many manufacturers, a retail expert says. A Marketplace report on Canada-U.S. price gaps found Canadians paying higher prices, more than double in some cases, for the same retail goods because of an industry phenomenon called “country pricing.” “Multi-national brands, they have two different price lists … (one) for retailers in Canada, and (one) for retailers in the United States,” says Diane Brisebois, president of the Retail Council of Canada. “And I can guarantee you that the price lists for retailers in Canada [have] prices that are between 10 to 50 per cent higher than the prices in the United States.” In some cases, the final sale price is much more.
Country pricing is literally driving Vancouver Canada residents to shop in Bellingham Washington. It’s just a short drive down I-5 to the retailers in North Bellingham, which include Fred Meyers, for groceries, Costco for business supplies and gasoline, Marshalls, Kohl’s, and Macy’s for clothing, Target for housewares, as Tracy Sherlock of Vancouver Sun reports Overnight travel to US at record high. Since the duty free exemptions were raised on June 1, 2012, overnight travel by Canadians to the U.S. has reached its highest level since record-keeping began. It appears Canadians are embracing these new limits, especially since goods are often cheaper in the U.S. with the Canadian dollar at, or near, parity with the U.S. dollar. A BMO report released in May found the overall price gap is now 14 per cent, down from 20 per cent last year but still significant. At the time the report was released, Doug Porter, deputy chief economist at the Bank of Montreal, said cross-border shopping may be costing the Canadian economy as much as $20 billion a year, and he predicted that the new duty-free limits would make the problem worse.
I live in the City of Subdued Excitement, and can testify the benefits of a literal flood of money coming to Whatcom County beginning in 2010, with road improvements to Guide Meridian, the main north south road in the County, with the Vancouver Winter Olympics. Since then the City of Bellingham Public Works Department has spent huge sums improving local street intersections with round-a-bouts, as well as by improving neighborhood sidewalks. The stimulus of US Fed M2 Money Growth are undeniable, Dave Gallagher reports Whatcom county Real Estate Recovering: Agents Report Busiest January Since 2008. And Ralph Schwartz reports Whatcom Ranks 5th Among State’s Healthiest Counties. And Ralph Schwartz reports Focus On Alabama Street Project Draws Interest: Traffic corridor slated for bike lanes and other safety improvements. And Ralph Schwartz reports City May Allow Big Box Retail Stores At Site In Costco Talks: The City will consider removing size limits on big box retail stores for a property that has been the subject of negotiations between City officials and Costco.
Doni Icha of Belajar Bisnis reports Toyota surpasses GM as world’s biggest car seller. Toyota has against caught up with GM to become the world’s largest automobile seller (Vincent Kessler/Reuters). I comment that shares of Toyota, TOYT, soared 1.6% on Friday, 6.4% for the week, driving up the Automobile ETF, CARZ, to participate in a record breaking S&P 500, SPY. What a difference between Yen based Toyota, TOYT, and Indian Rupe based Tata Motors, TTM, which declined 0.5% and 2.6% for the week. Toyota experienced carry trade seigniorage coming from monetary policy, while Tata Motors saw disinvestment from the unwinding of currency carry trade investment, which can be seen in the ongoing Yahoo Finance Chart of TTM and TOYT.
Dr. Housing Bubble reports The massive jump in list prices for Culver City
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