Sunday , 20 August 2017


The Currency War: Which Country Will End Up With the Fastest Currency in the Race to the Bottom?

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We believe that we are in the “competitive devaluation” stage presently [see graph below] as country after country is printing money in order to lower rates and doing whatever possible to devalue their currency – to have the fastest currency in the…race to the bottom – in order to export their goods and services. [The next stage will be protectionism and tariffs. This article gives an update on the race to debase.] 

So say Comstock Partners (http://comstockfunds.com) in edited excerpts from their original article* entitled Currency Wars will only get worse.

This article is presented compliments of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

The article goes on to say in further edited excerpts:

When massive private and public sector debts result in a credit collapse and recession, the efforts to pare down the debt is deflationary.  Measures to inflate…out of the situation are likely to fail as households attempt to pay down debt and increase savings, rather than start a new round of debt accumulation.

In addition, financial institutions are willing to lend to only the strongest borrowers…This is called a “liquidity trap” and it is very difficult to extricate from….

[As can be seen in the chart below] the public and private debt peaked at about 385% of GDP in 2008 and is not much better now.  Over time it has taken more and more debt to create a given amount of GDP growth, and when debt is declining, as it must, it is difficult to get any growth at all….

Total Credit to GDP

The Cycle of Deflation

Trying to remedy the significant amounts of debt the global economy[has] built up could lead to a debt collapse and depression if not dealt with aggressively….We have warned numerous times about the “Cycle of Deflation” and the potential “competitive devaluations”, and “beggar-thy-neighbor” policies that are all symptoms of the deflation we expect to take place very soon….

Deflation is a product of too much debt….[Countries must] either default on their debt or pay it off.  When we get to the dashed line in the “Cycle of Deflation” chart below, right after “protectionism and tariffs,” is when deflation sets in and economic pain becomes unbearable.

Cycle of Deflation

Different Race Strategies Abound

The main driver of the recent currency movements has been the various monetary policies of the world’s major central banks.  The U.S. Federal Reserve, the Bank of England, the Bank of Japan, the Peoples Bank of China, and the European Central Bank (ECB), are all attempting to grow their economies with different policies.  These are just the major central banks.  Actually, there are 38 central bankers around the world either printing money or initiating loose monetary policies.  Some, as was the case just a few days ago in Venezuela, just devalue their currency (the Bolivar).

The Euro Zone Has Fallen Behind

Some countries/zones have it easier than others.  In fact, because the ECB is not able to pinpoint exactly which of the 17 countries in the Euro Zone need the most help they were forced to offer three year loans to banks at the cheap interest rate of 1%….over a year ago but the Euro vs. the dollar…[has risen] by almost 10% since then, and…[has been] up more than 20% for the last 3 months.  This put the Euro Zone under economic pressure as they found it difficult to export goods to their trading partners with [such] an increasing currency.  In fact, the latest statistics…show the 4th quarter annualized GDP of Germany to be down 2.3%, France down 1.1%, Italy down 3.7%, Spain down 2.8%, and Portugal down 7.2 %.  Also, the ECB forecasted zero growth for the Euro Zone this year.

Japan Has Spurted Ahead

…[Recently] Japan, realizing that they were not aggressive enough with competitive devaluation over the past couple of decades, has decided to do whatever is possible to lower the value of the Yen and increase inflation. So far, they have been very successful…[but, as a result, have become] the target of all of their trading partners. It is clear this is not over yet.

Conclusion

The competition to have the fastest currency in the…race to the bottom is not over.  Stay tuned to the “Cycle of Deflation” as we continue to update it.

Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://comstockfunds.com/default.aspx?act=Newsletter.aspx&category=MarketCommentary&newsletterid=1703&menugroup=Home

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One comment

  1. Like children playing with wooden matches and daring their “friends” to strike theirs first, so the Central Banks are each playing a part in the devaluation of the Planet, as first one country then another devaluates their currency putting additional pressure upon the rest to do the same thing. The Ultra Wealthy (UW) with their insider connections while having far more to loose are much better positioned to escape getting burned and quite possibly be the ones to yell FIRE, once they have leveraged their money to take advantage of yet another “short” position.

    In short, we are now witnessing the “Third Worlding” of what is now known as the “Developed Countries”, as the UW continue to further raise their own standard of living at the expense of all those that used to be part of the middle class who are now all working longer for less and becoming part of the “New Poor”. As the existing home owners in the US retire and later split their assets with their now adult children and/or grandchildren, expect to see a dramatic shift DOWNWARD in personal wealth, as the true impact of our current monetary policies becomes clear.