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Page added on July 5, 2013
The Currency Wars Reignite
Via Mark J. Grant, author of Out of the Box,
“Always remember, your focus determines your reality.”
-George Lucas
Our reality has changed in the last twenty-four hours. The Bank of England and the European Central Bank have re-affirmed their old positions since the Fed has changed tacks. The initial reactions will be a spike in equities and a fall-off in the valuations of the Pound and the Euro to the Dollar. These, however, are first blush reactions as the color fades from the bloom.
It may well be, as Europe is in much worse financial condition than the United States, that there is a policy reason for the European positions but it may well also be a calculated move to devalue the major European currencies. Whatever the actual reasons, the European statements have certainly sounded the trumpet that the “Currency Wars” have reignited.
The impact of the Euro/Dollar at 1.25 and then 1.20 will be a positive for Europe as exports rise and a negative for America as exports fall and imports rise. The sword could be double edged though as the Fed, in response, begins to cull back on the more than $1 trillion that it has lent to the European banks. Many truths will be shrouded in mystery but the impact will be there regardless.
It is a dangerous game when the world’s central banks that have been working for the last five years in unison and now they head down different paths. You may expect tears at the seams and various ripping sounds as Europe moves away from the Fed. Mr. Carney and Mr. Draghi have buddied up while poor Ben is left to wander alone.
The trumpets that had heralded “The Three Kings” now sound just for two and the drums that have beat in unison now will sound a disconnected harmony. America has gone left and Europe has gone right and there will be consequences for both.
I mention one other thing this morning that is surely coming and it will be the hammering of the gong. The ECB has massive securitizations that are being carried at par (100 cents on the Dollar) at the ECB and at the European banks. The losses, with many tied to Real Estate, must be staggering. There will be a time, a moment, after “extend and pretend” runs out when these losses must be faced. These securitizations are guaranteed, in the case of Spain as one example, by the sovereign ($51.6 billion in the case of Spain). Others, I have heard, are guaranteed by the major European banks. The poorer nations in Europe will want the ECB to take the hits, shared losses, but Germany will vehemently object.
France, Italy, Spain, Portugal and Ireland cannot afford the losses. The hits would bankrupt or severely impair most of the European banks. The clock is running and midnight will be approaching sometime during the next twelve months.
I fear what we don’t know and what is hidden. Realization will eventually arrive because it must. A very unpleasant reality will surface. When you shout and scream and make false claims that the money is in the drawer the day will arrive, because you need the money, that you open the drawer and it is not there. That day is one of reckoning. The Europeans will not enjoy it!
9 Comments on "The Currency Wars Reignite"
BillT on Fri, 5th Jul 2013 5:35 pm
And the heat of summer continues to climb…
Plantagenet on Fri, 5th Jul 2013 6:46 pm
The US economy is in better shape than the UK or EU economies. Its not unreasonable that the US central bank and the UK and EU central banks would take slightly different tacks.
Diederik on Fri, 5th Jul 2013 9:40 pm
Filling gaps with gaps means just only one thing: eventually you fall from a steep cliff and have your brittle skull fall apart in thousand pieces. Those stupid western brains will be thrown out and the game is over. And happy the rest of the humanity will be.
J-Gav on Fri, 5th Jul 2013 10:08 pm
It’s not only the Europeans who won’t enjoy it, it’s China, India, Russia, American municipalities, etc, etc
Not quite sure what “devaluing the major European currencies” means here as there’s only one major EU currency – the euro. Sterling comes along only afterwards.
GregT on Fri, 5th Jul 2013 11:21 pm
The Us economy is not in better shape. The US has the distinct advantages of having the world’s reserve currency, and being able to print it’s own money and monetize it’s debt.
The US economy is on stimulated life support, and in reality, is already dead.
Recently installed Bank of England Governor Mark Carney, is a former Goldman Sachs senior executive, and a Harvard educated economist. As noted from Wikipedia, some of his previous ventures:
Carney spent thirteen years with Goldman Sachs in its London, Tokyo, New York and Toronto offices. His progressively more senior positions included co-head of sovereign risk; executive director, emerging debt capital markets; and managing director, investment banking. He worked on South Africa’s post-apartheid venture into international bond markets, and was involved in Goldman’s work with the 1998 Russian financial crisis.
Goldman’s role in the Russian crisis was criticized at the time because while the company was advising Russia it was simultaneously betting against the country’s ability to repay its debt.
To believe that Carney has somehow separated himself from the world’s central banking cartel is simply ridiculous. They have a plan and they are sticking to it.
BillT on Sat, 6th Jul 2013 3:09 am
GregT, as usual, you are correct. There is a plan and I suspect, and have suspected for some time, that it is called ‘level the playing field’. You cannot have a large mass of middle class with some financial clout if you want to have a OW government and financial system. The lower classes will be allowed to move up a bit, and the rest come down to meet them.
China has a growing middle class but they are a long way from America’s, for now. America and Europe is being systematically destroyed but it will take some time as there is still a lot of wealth to move up to the 1% who plan to rule. I an using an educated guess, but the average is probably somewhere around $5,000. US/2013 dollars/person/year as their goal.
Still retirement accounts and large savings to plunder and a lot of private property/homes to get back under the bank’s control. It may take another decade, but it will happen. We are running out of resources so they have to speed up the process, even if it then becomes visible even to the sheeple. I hope I am wrong … for my grand kids sake.
Arthur on Sat, 6th Jul 2013 10:00 am
http://deepresource.wordpress.com/2012/12/11/the-real-state-of-western-finances/
In the short run their is not that much difference between US and EU. Debt level at 90-100% GDP, big deal.
The difference is that the EU has much more modest objectives as it does not try to conquer the world, trade and fiscal balances are more in equilibrium and, naughty remark, the US has a much higher ‘third world coefficient’, which is good news for the rap industry, but not much else.
Zerohedge can dream on. Sure, European banks can fold. So what? Savers above 100k euro get a ‘hair cut’ (I love that expression), boohoo. Or maybe the garlic belt will get it’s way and the ECB will mimic the FED and start to QE. So far the Germans knew to prevent that banana republic behavior. We will see.
BillT on Sat, 6th Jul 2013 2:06 pm
Arthur, the EU is being propped up by the US. When we go, you go. Europe has no advantages the US doesn’t have. The EU cannot print money to cover debts like the US can. The EU cannot do much of anything without bringing riots into the streets. Soon they will become violent and not what you have ever experienced, I am sure. What ever choices the Fed makes, it will take down all of the 1st world in one quick collapse when it goes. Whether it is this year or 2020, it is going to happen.
Arthur on Sat, 6th Jul 2013 3:44 pm
“Arthur, the EU is being propped up by the US.”
You are refering to that outstanding opportunity the FED had when 1 trillion ‘worth’ of US mortgages turned out to be worthless, uhh I am sorry, subprime…, and had to be written off from EU banks assets? So the FED could create money out of thin air and locate it at EU-banks against interest? And you call that ‘propping up’? At whose expense other than European banks?
“Europe has no advantages the US doesn’t have. ”
You are ignoring my arguments.
“The EU cannot print money to cover debts like the US can.”
Of course it can, that’s what the Greeks and Italians want, but the Germans are preventing it.
“The EU cannot do much of anything without bringing riots into the streets.”
The Greeks are really hurt. Where are the riots? Instead they become really rightwing.
“What ever choices the Fed makes, it will take down all of the 1st world in one quick collapse when it goes. ”
Never heard of anybody contemplating dumping the euro. Instead several parties contemplated replacing the dollar with the euro. The smaller ones could be bombed into submission (Iraq and Lybia), but not countries like Russia. Russia/China will dump the dollar at a moment they see fit, like when the US should consider bombing Iran. I do not see that happening any time soon though (attacking Iran I mean).