Monday, October 11, 2010

Currency war? Sure, those are fun

Let’s create some wealth!

As I predicted long before Gorgon Brownie solemnly declared back in 2009 that he and his soul-sucking pals would make $1.1 trillion available for the world market to curve a depression - protectionism is on the rise today. And as expected they try to hide the trade barriers and the extra taxation on foreign goods through currency manipulations.

No-one wants to be protectionist, not openly, so instead they employ shadowy deals behind the curtain or simply let the central bank do what they do best – print money.

The debt-strapped households of America and Britain can no longer hold up the dysfunctional house of cards. PIGS were a nice, and fairly accurate, acronym to point out the Mediterranean screw-ups, and who can forget the madness of Ireland or the banking cartels robbery of Eastern Europe?

As pointed out several times before, not only by me on this blog but by several thinking adults who have the math-skill to pass 3rd grade, the world is in deep, deep trouble. Financially it’s hard to find something from history that comes close. Some have made references to the collapse of ancient Rome, others point to the Great Depression, but none of those economic calamities from the past can really measure up.

I am not going to, again, lift all the facts out in the open. If you haven’t got it by now, you probably won’t until you are forced to eat your young.

In short; we’re screwed. Big Time.

Many within the elitist sphere know this or at least suspect it. Sadly for them they have already played out every card they had, and they know this too. They borrowed, printed, and spent trillions. They imposed regulations to ease the mind of a stupefied public, and they have used every spin-doctor on the planet to assure that things are fixed and that we are heading for better times. What more can they do?

And it is here protectionism comes in.

Sure they could borrow more money, at least some of the countries could, and more regulations are always on the table, but they went all in last year to shock start consumers and banks to start spending again, so even the dumbest of Keynesians (except Krugman and Co, of course) should know by now that if that didn’t work, not a thing they do now will work either. That is if they had any money left to take us another circle around the asylum, which they don’t.

So that leaves only three options.

When they went all in, mortgaging our future several times over, most of them probably felt they would win the game. Shockingly Truth called them, then Mathematics put in a raise, and if that wasn’t enough; reality in turn also raised. With red faces and spinning eyes revealing the bad hand they are stuck with, another plan hast to be conjured up. (You might think that they have wives and children left to bet, but no, they were put into the pot as ante.)

When all else fails, governments, throughout history, have always resorted to war. War however has its time, and we are not really there yet. So they cannot pull out a gun and start shooting other players, at least not until the people have been groomed to accept it.

That leaves only protectionism and the printing press.

Protectionism isn’t really a good word today. Many out there know protectionism is wrong, and governments have gone great lengths to prove themselves to be eager proponents of free trade. One of the reasons the European Union was formed was to stop European countries from using barriers against each other since those, historically speaking, often lead to conflict.

But even more than that, all countries have countless diplomatic entanglements and the world economy is a complicated thing with trade being one of the important parts. If a country starts doing too much to protect domestic jobs or whatnot they will suffer greatly for it and there are very few that can get away with even slight alterations.

With this in mind only very slim protectionist actions can be taken and then only under the disguise of something else. Like a ‘Car for Clunkers’ program, or a bailout. Not to worry though, the further down this road we go the more openly they will impose restrictions, taxes and tolls, but not really yet...

This means that, in the eyes of our puppet masters, there’s really only one way to go right now. This choice is also something that seemingly can be used to, indirectly, protect domestic industry and jobs. And, if handled correctly, some part of the Debt Mountain can be paid off. But most importantly it can be use as an illusionary trick to cover up what really is going on.

For example journalists who never check any fact, and only report what they are told or what others already have reported, can be used to sell high numbers to the public. If the powers that be throw out billions claiming it is to save jobs or support healthcare, no-one questions were the money comes from. Taxes weren’t raised, no real cutbacks were made, but somehow billion upon billion pours down from above. It’s magic!

Rulers of all ages have not only fooled their people with this trickery, they often also fool themselves. Once they start using the printing press as a way out, they won’t stop. It’s an easy fix. Conjure up lots of money from thin air, give it away like Santa and accept the praise from a happy populace. No cuts in welfare, no extra taxes, only more money in circulation. Happy times.

The problem with this madness if of course inflation. It usually takes 1-2 years for the money to really reach the entire economy hence it takes a while for savings to wither and prices to go up, but it will happen. And the longer this enchantment last, the worse it gets. And the bigger the pile of phantom money is, the worse it gets.

What they have done so far was done almost in complete unison. Everybody printed hence everybody’s money lost in value, but since a currency is seen in relation to other currencies, the trickery reached a global level. If the dollars loses in value and inflation sets in, but the same happens to the Euro, the Yen and so on, there are hardly any detectable signs. The status que remains, or at least no real hick-ups is shown. Prices go up and so on, but the relation between currencies stays about the same.

This is what is about to change.

The countries actively intervening in exchange markets to suppress their currencies – China, Japan, Korea, Thailand, even Switzerland, to name a few – are all too often the same ones that have the biggest trade surpluses with the US. They are taking active steps to prevent America from using inflation to magically extricate itself from the worst unemployment since the Great Depression, now 17.1% in the latest U6 index.

Each country is doing so for "understandable reasons": Japan to avoid a deflationary crisis, China to hold together a political order that is more fragile than it looks. And since the Dollar is the world’s reserve currency, and everyone needs to have them and many have a lot of them, countries want the status que to remain.

The Euro has problems for yet other reasons. The asymmetric shocks that comes from a too diversified union with huge trouble for one reason in one set of countries, other huge problems for another reason in other countries while the very few that behave fight to not be stuck with the bill.

With this in mind currency devaluation and inflationary policies becomes reasonable solutions for those in charge. So of course they will print money, of course they will try to keep interests rates low, of course they will devalue their money. And of course they want to stay ahead of other countries – so of course there will be ‘currency wars’.

Our masters have run out of options, and they are starting to run out of time. Sooner or later (likely very soon) this castle of sand will be engulfed by a financial Tsunami of the likes no-one has ever seen. Before that happen you can be absolutely sure that printing machines will overheat across the globe.

This really is the worst nightmare of them all - a giant inflationary depression on a worldwide scale. And that’s where we’re heading folks.

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