Currency Wars

[Book Review: Currency Wars: The Making of the Next Global Crisis • By James Rickards • Portfolio, 2011 • 304 pages]

“Rickards gets the reader’s pulse surging…, telling readers that Fed chair Ben Bernanke “is engaged in the greatest gamble in the history of finance.”

“Bernanke’s attempt to print America’s way out of its economic jam is in essence the declaration of a currency war on the entire world.”

The talk is all about jobs, jobs, jobs in Washington and on the campaign trail as the unemployment rate continues to be elevated and long-term unemployment is higher than ever. Since getting government out of the way isn’t an option, late last year congressional leaders decided to turn up the volume while crying that American workers are being damaged by China’s undervalued currency — the renminbi (or yuan).

Bipartisan support was summoned to declare China a currency manipulator, triggering retaliatory tariffs on Chinese imports in hopes that China would allow the renminbi to rise against the dollar.   Read more»

FEDging the figures

Both the US Federal Reserve and the European Central Bank are now offering limitless quantities of new money – the ECB to support the banks, and the Fed for reasons (despite explanations) that are not entirely clear. The Fed in its press release announced that it expected interest rates to “warrant exceptionally low levels for the Federal Funds Rate at least through late 2014.” The fact that the central banks governing the two most important currencies in the world are issuing money to all-comers at very little interest cost for up three years has not been lost on gold and silver, whose prices shot up in response to the Fed’s announcement.   Read more»

Will on KMED with Bill Meyer on 1/27/2012

What’s going on with Ben Bernanke’s latest move to keep interest rates at, wel….zero until 2014. Will Reishman from Strategic Financial has analysis.

Fed ‘activism’ harms U.S. growth – ex-Fed’s Warsh

The Federal Reserve’s latest efforts to bolster the recovery with unprecedented policy tools will hurt the U.S. economy in the long run, a former member of Fed Chairman Ben Bernanke’s inner circle suggested on Thursday.

In his first public comments since stepping down as a Fed governor last March, Kevin Warsh said there is a place for exceptionally accommodative monetary policy to provide “important transitional support for an economy.”   Read more»

The Demise of the Petrodollar

Rumors are swirling that India and Iran are at the negotiating table right now, hammering out a deal to trade oil for gold. Why does that matter, you ask? Only because it strikes at the heart of both the value of the US dollar and today’s high-tension standoff with Iran.

Tehran Pushes to Ditch the US Dollar

The official line from the United States and the European Union is that Tehran must be punished for continuing its efforts to develop a nuclear weapon. The punishment: sanctions on Iran’s oil exports, which are meant to isolate Iran and depress the value of its currency to such a point that the country crumbles.

But that line doesn’t make sense, and the sanctions will not achieve their goals. Iran is far from isolated and its friends – like India – will stand by the oil-producing nation until the US either backs down or acknowledges the real matter at hand. That matter is the American dollar and its role as the global reserve currency.   Read more»

Doug Noland’s Credit Bubble Bulletin

Selected Notes

January 26 – Bloomberg (Camila Russo): “Argentines are borrowing record amounts to buy cars as they park their savings in Volkswagens, Chevrolets and Fords to protect against inflation that economists say is running at about 25 percent a year. Secured loans… soared 61% last year to 16.6 billion pesos ($3.8bn), the biggest jump and the highest total in at least a decade… Vehicle sales in Argentina jumped 30% last year to a record…”

M2 (narrow) “money” supply rose $8.0bn to a record $9.763 TN. “Narrow money” expanded 10.2% from a year ago…[And still the Fed announces it will keep the Funds  rate at 0-.25% till late 2014...!!!]   Read more»

Policy Deserving of a Rant

It has been labeled an intellectual exercise and ridiculed as “intelligentsia.” I’ll stick defiantly to the view that it remains one of the most important issues of our time: Are the Treasury and government-related debt markets part of a historic Credit Bubble and global financial mania?

There are reasons why Jean-Claude Trichet over the years repeatedly stated “the ECB would never pre-commit” on interest-rate policy. The Federal Reserve this week moved further to the opposite polar extreme, essentially pre-committing to near-zero rates through late-2014. The ECB has historically believed that market speculation based upon future policy expectations works to foment market excesses, imbalances and attendant fragilities. In contrast, the activist Federal Reserve believes that it has a fundamental obligation to intervene and manipulate to achieve market outcomes the committee believes will spur growth.

Unprecedented operations back in late-2008 took the Fed’s balance sheet from about $900bn to $2.2 TN. We were assured that the Fed had an “exit strategy.” I’ve always presumed “no exit,” and here we are today with Fed holdings at $2.9 TN. The economy is expanding, financial markets are strong and consumer price inflation is rather undeflationary – yet Dr. Bernanke is again signaling he is prepared for additional monetization.   Read more»

Is the United States in a Liquidity Trap?

In his New York Times article of January 11, 2012, the Nobel laureate Paul Krugman wrote,

If nothing else, we’ve learned that the liquidity trap is neither a figment of our imaginations nor something that only happens in Japan; it’s a very real threat, and if and when it ends we should nonetheless be guarding against its return — which means that there’s a very strong case both for a higher inflation target, and for aggressive policy when unemployment is high at low inflation.

The bottom line is that the Fed almost surely won’t, and very surely shouldn’t, start raising interest rates any time soon.

But does it make sense that by means of more inflation the US economy could be pulled out of the liquidity trap?   Read more»

India To Buy Iran Oil in Gold not Dollars

“…[T]he vast sums involved in these transactions are expected to boost the price of gold and depress the value of the dollar on world markets.”

India has agreed to pay the price of crude oil it imports from Iran in gold, which makes it the first country to drop the US dollar for purchasing the Iranian oil. According to a report published by DEBKAfile news website, unnamed sources have stressed that China is also expected to follow suit.

India and China take about one million barrels per day (bpd), or 40 percent of Iran’s total exports of 2.5 million bpd and both of them have huge reserves of gold.   Read more»

Gentlemen, Start Your Printing Presses!

Whoops!…Oh dear!…It looks like Ben fell off the wagon again!

Such a shame. He had been doing so well ever since he put that bottle of “Old Q.E.” back on the shelf last June… and got sober. But a few weeks back, he tripped up on his 12-step program and started nipping at the bottle again. Slowly at first… then to excess.

Yes, it’s true, dear reader, Federal Reserve Chairman Ben Bernanke, is printing money again. That’s bad enough. But this time, after he prints it, he sends it over to Europe. Crazy, but true. The chart below tells the tale. It shows the quantity of currency swaps on the Fed’s balance sheet.   Read more»