Tag Archives: Currency

Is This How the Next Global Financial Meltdown Will Unfold?

currencyCharles Hugh Smith – I have long maintained that the structural imbalances of debt and risk that triggered the Global Financial Meltdown of 2008-2009 have effectively been transferred to the foreign exchange (FX) markets.

This creates a problem for the central banks that have orchestrated the “recovery” by goosing asset bubbles in stocks, real estate and bonds: unlike these markets, the currency-FX market is too big for even the Federal Reserve to manipulate for long.

The FX market trades roughly the entire Fed balance sheet of $4.5 trillion every day or two.

Currencies are in the midst of multi-year revaluations that will destabilize the tottering towers of debt, leverage and risk that have propped up global growth since 2009.

Though the relative value of currencies is discovered in the global FX market, there are four fundamental factors that influence the value of any currency:

1. Capital flows into and out of the currency (and the nation issuing it).

2. Perceived risk, specifically, will this currency preserve my global purchasing power (i.e. capital) or erode it?

3. The yield or interest rate paid on bonds denominated in this currency.

4. The scarcity or over-abundance of the currency. Continue reading

What China’s Devaluation Means For The Future Of The Dollar

Simon Black – As the saying goes, “Fool me once, shame on you. Fool me twice, shame on me.” (… to which George W. Bush famously added after flubbing the aphorism on live TV, “can’t fool me again!”)

currencyFor months, despite every shred of data pointing to a weaker economy, China’s currency has been strengthening.

This was really counterintuitive. When an economy is weak, its currency tends to suffer.

But that didn’t happen in China.

Even when China’s stock market suffered one of the biggest crashes in history a few weeks ago, the currency barely moved.

None of this made any sense.

Just look at Greece– problems in that single nation, one of the smallest economies in Europe, dragged down the currency used by 18 other nations in Europe to its lowest level in more than a decade.

But when problems broke in China, the renminbi actually got stronger. And party bosses insisted that they would not devalue their currency.

Fool me once.

Yesterday they showed the world what their promises really mean: nothing. And in a surprise announcement, they devalued the renminbi by roughly 2%.

2% might not sound like very much. But in currency markets, especially for a major one like China’s, 2% is a huge move.

Curiously, in the very same announcement, Chinese officials stated that they would not devalue the currency again, and that Tuesday’s move was a one-time thing.

Fool me twice.

Less than 24-hours later they did it again — a second devaluation that saw the renminbi tumble to as low as 6.57 per US dollar, a 6% decline in roughly 36 hours.

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Gold & Silver Money Has Devolved Into Debt and Plastic

goldGary Christenson –  Central banks will disagree; Keynesian economists probably disagree; Too-Big-To-Fail banks don’t care; but I think the following is generally accurate regarding the devolution of gold and silver money.

In The Beginning: Gold and silver coins were used as real money for several thousand years. Gold and silver were universally recognized as a store of value.

140 Years Ago: The $20 Gold Double Eagle Coin was globally recognized as money. It contained 0.9675 ounces of gold and its purchasing power was unquestioned.

gold137 Years Ago: The $1 Morgan Silver Dollar was universally appreciated and valued. The silver dollars contained 0.77 ounces of silver, were pretty, used in daily commerce, and minted by the millions in the U.S.

goldAnd Then Came Paper Money Continue reading

Guess How Many Nations In The World Do Not Have A Central Bank?

central bankMichael Snyder –  Central banking has truly taken over the entire planet.  At this point, the only major nation on the globe that does not have a central bank is North Korea.

Yes, there are some small island countries such as the Federated States of Micronesia that do not have a central bank, but even if you count them, more than 99.9% of the population of the world still lives in a country that has a central bank.

So how has this happened?  How have we gotten the entire planet to agree that central banking is the best system?  Did the people of the world willingly choose this?  Of course not.  To my knowledge, there has never been a single vote where the people of a nation have willingly chosen to establish a central bank.  Instead, what has happened is that central banks have been imposed on all of us.  All over the world, people have been told that monetary issues are “too important” to be subject to politics, and that the only solution is to have a group of unelected, unaccountable bankers control those things for us.

So precisely what does a central bank do?

You would be surprised at how few people can actually answer that question accurately.  The following is how Wikipedia describes what a central bank does…

A central bank, reserve bank, or monetary authority is an institution that manages a state’s currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, and usually also prints the national currency, which usually serves as the state’s legal tender. Examples include the European Central Bank (ECB), the Bank of England, the Federal Reserve of the United States and the People’s Bank of China. Continue reading

$60,000 Gold May Be Laughably Low [Video]

ChinaGreg Hunter – Recent Bloomberg analysis says if China backed its currency with gold, the price would need to be 50 times higher than it is today.  According to Bloomberg, that would be a gold price of around $64,000 per ounce, which is much more than gold expert Jim Sinclair predicted a few years ago.

Financial writer Bill Holter weighs in, “That was a few years ago, before some of the QE, and Jim has said that $50,000 gold may turn out to be laughably low. . . . I think it is very curious that Bloomberg would run this because Bloomberg is as mainstream Wall Street as you are going to get. . . . It would be my guess that Bloomberg has some type of information that China is going to announce their holdings.  I can show you that China has 10,000 tons of gold.  That’s pretty easy to do.  I use the figure of 10,000 tons, and oddly enough, that is the figure that Bloomberg used.”

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Today’s Money Regimes Are Doomed To Failure

A Thought Experiment on Money

moneyLet’s imagine a small mountain kingdom with only ten very scarce and thus highly valued seashells in circulation. These few shells are certainly valuable in terms of scarcity, but there aren’t enough of them to act as a means of exchange.

One solution to this innate problem of scarcity—money has to be scarce enough to retain value but not so scarce that there isn’t enough of it in circulation to grease trade—is for the kingdom to issue 100 slips of paper for each shell, each slip of paper representing 1/100thof the shell’s value. Now there is enough money in circulation to facilitate trade and each slip retains a store of value equal to 1/100th of a shell. The slips are paper money, i.e. currency.

This system works well, but the rulers of the kingdom aspire to consume goods and services in excess of what their share of the shell-backed money can buy in the open market. The kingdom’s leaders print another 100 slips of paper without acquiring a shell to back the new slips with intrinsic value. Nobody seems to notice, and so the leaders print another 100 slips. Note that the kingdom didn’t produce more goods and services; its leaders simply produced more money.

Eventually this excess of paper slips reduces the value of each slip in circulation. What once cost 10 slips now costs 20 slips. This reduction in the purchasing power of money is called inflation, as the price of goods inflates as the money supply is increased while the production of goods and services remains unchanged.

Let’s assume the kingdom’s leaders avoid the temptation to expand their consumption by printing money rather than first increasing the production of goods and services.

As the kingdom expands its production of goods and services and its population, the original 1,000 slips of paper are no longer enough to facilitate trade: lacking money, people revert to the clumsy alternative of bartering goods and services or issuing letters of credit. The purchasing power of the existing money might well increase due to the imbalance between the demand for money (high) and the supply (limited); what once cost 10 slips now costs only five slips.

The value of each slip has now detached from the underlying value of the shell. It’s not the scarcity of the shell that is creating the paper’s value—it’s the scarcity of paper money itself which is creating the paper money’s store of value.

Continue reading