SÃO PAULO—A global “currency war” will intensify this year as
the world economy slows, Brazilian Finance Minister Guido Mantega said,
adding that Brazil is “well prepared” to defend its currency against
unwanted appreciation.
“Global economic growth in 2012 will be below that of 2011,” Mr.
Mantega said ahead of his participation at a meeting of finance and
monetary officials from the Group of 20 nations this weekend in Mexico
City. “One of the results of the slowdown is that the global currency
war is intensifying.”
As developed economies have aggressively eased monetary policies in a
bid to revive their sputtering economies, their currencies have
weakened. That, in turn, has made their exports more competitive and has
prompted investors to move money into higher-yielding assets—in many
cases in emerging markets such as Brazil, where economic growth and base
interest rates are considerably higher.
Japan’s stock market is going nuts today.
The Nikkei is up 2.3%
The main reason?
This weekend, Japan’s economic minister Akira Amrai said that it was a goal for the Nikkei to hit 13,000 by the end of March.
Japan’s market has already been on a mega-tear, and now the economic
minister is aiming for another 17% rally by the end of March?
We have no recollection of a senior economic official in a developed economy saying anything like this before.
So is it smart?
Felix Salmon says it’s worth a shot, based on wealth effect argument.
I like this move: it shows imagination, and the upside is
much bigger than the downside. The worst that can happen is that it
doesn’t work, and the stock market ends up doing what the stock market
would have done anyway; the best that can happen is that it helps
accelerate the broad recovery that everybody in Japan is hoping for this
year.
….
In an unprecedented and surprising move, the Federal Reserve
announced on Wednesday that it will keep interest rates near zero and
will purchase $85 billion in bonds every month until unemployment falls
from its present 7.7% to 6.5%.
The new plan will maintain the $40 billion a month of mortgage-backed
bond buying it began in September while adding another $45 billion in
Treasuries.
Where will the cash to bankroll the $85 billion-a-month bond-buying binge come from? The Fed plans to
expand its $2.8 trillion balance sheet.
European Central Bank chief Mario Draghi on Thursday overrode
German concerns and announced a program allowing for unlimited
purchases of sovereign bonds from struggling euro-zone member states.
The plan, however, is not without conditions.
The European Central Bank has resembled a sieve this week. Ahead of
Thursday’s much anticipated press conference, financial websites and
business papers were full of reports detailing ECB President Mario
Draghi’s plan for holding down the borrowing costs of debt-plagued
euro-zone member states. Discretion was in short supply.
When Draghi did finally step in front of the microphone on Thursday,
he confirmed what most already knew. The ECB is to launch a new
bond-buying program to hold interest rates on euro-zone sovereign bonds
in check. The program, called Outright Monetary Transactions (OMTs),
allows for unlimited ECB purchases of sovereign bonds on the secondary
market. The program is to focus on bonds with a period of three years
and less.
While the rest of the developed world is scrambling here and there,
politely prodding its central bankers to destroy their relative
currencies, all the while naming said devaluation assorted names,
“quantitative easing” being the most popular, here comes Venezuela and
shows the banana republics of the developed world what lobbing a nuclear
bomb into a currency war knife fight looks like:
- VENEZUELA DEVALUES FROM 4.30 TO 6.30 BOLIVARS
- VENEZUELA NEW CURRENCY BODY TO MANAGE DOLLAR INFLOWS
- CARACAS CONSUMER PRICES ROSE 3.3% IN JAN.
Late on Friday Venezuela shocked the world when instead of reporting
an update on the ailing health of its leader, as many expected it would,
it
announced the official devaluation of its currency,
the Bolivar by nearly 50% against the dollar yet still well below the
unofficial black market exchange rate. By doing so, it may have set off a
chain reaction among the
secondary sovereigns in the world,
those who have so far stayed away from the “big boys” currency wars, or
those waged by the Big 6 “developed world” central banks, in an attempt
to also “devalue their way to prosperity” and boost their economies by
encouraging exports even as the local population sees a major drop in
its purchasing power and living standards. So in the game, where the
last player to crush their currency inevitably loses, the question is
who is next. The answer may well be America’s latest best north African
friend, and custodian of the Suez Canal:
Egypt.
The G20 group of richest nations must act to avoid a currency
war and halt a damaging drift toward fragmented regulation, the world’s
leading banks said Monday.
The Institute of International Finance, representing more than 470
financial firms, warned of the consequences of “possible discord on
exchange rates” as countries rely on monetary policy easing to get their
economies growing again.
“We believe major central banks should focus on enhancing their
cooperation, especially of their communication strategies, to guide
market expectations and thus help avoid a disorderly interest rate
adjustment process and undue exchange rate volatility,” the IIF wrote in
a letter to Russian Finance Minister Anton Siluanov, who is chairing
the G20 meeting later this week.
A regular feature back in 2010 when we had our first taste of global currency warfare as Brazil’s
finance minister accurately summarized when he said “
a currency war has broken out” (and yes: currency war existed then, and
especially in the 1930s which
led to the Great Depression, long before the recent eponymous book came
out desperate to take credit for this simplistic concept) were the
global FX heatmaps which showed how any given currency is doing on any
given day. Since currency warfare is now back and more violent than at
any time in the past 80 years, it only makes sense to bring back a
long-time reader favorite:
the currency warfare heatmaps which
show who, on any given day, is winning and losing, the global race to
debase and in the process beggar all globalized and SWIFT-interlinked
neighbors. But don’t forget: in a relativistic fiat world, nobody can
actually win the global race to debase. Well, not nobody: gold (and
other precious metals) can, assuming it is not confiscated as it was the
last time the US ended the global currency war with a 50%+ devaluation
of the USD relative to gold… and promptly confiscated all gold.
Legend for the charts below for any given currency:
- red indicates a given country/insolvent monetary union is winning the FX debasement war relative to any given currency;
- green indicates it is losing it.
Below are the currency warfare charts for today:
USD - doing solidly well, trouncing Brazil,
South Africa, India, Canada and Russia showing Europe who is boss. The
only clear winners against King Dollar: tiny Iceland.
….
Our friend Sean from the SGTReport.com has released a local coin show
update titled Coin Show Ghost Town. The next time CNBC attempts to
claim that gold or silver are in a bubble, please remember that less
than 1% of American’s assets are held in gold or silver- while the
percentage was nearly 26% at the top of the last precious metals bull
market in the early 19080?s.
Coin show ghost town in the US. As the Banksters debase
currencies worldwide, the sheeple people slumber, blindly grasping their
fiat dollars as the FED “monetizes” the debt and spends this and future
generations of Americans into economic oblivion. Last week,
Venezuela devalued its currency by 46% overnight, while Argentina tries
to implement price controls to prevent hyperinflation as social chaos
erupts. By the time the average American sheeple wakes up to the
realities we face, the empty coin shows will be long gone – and it will
be too late to prepare.
Got PHYSICAL?
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