The Global Endgame: The Dollar’s Days As The Preeminent Currency Are Coming To An End And Escalating Currency Wars Are Throwing The World Into Chaos And Retaliation
There’s plenty of evidence supporting the belief that the dollar’s days as the preeminent currency are coming to an end, a development that would be catastrophic for the world’s largest economy.
“Generally speaking, it is not believed by the vast majority that the American dollar will be overthrown,” Dick Bove, vice president of equity research at Rafferty Capital Markets, said in a note obtained by CNBC. “But it will be, and this defrocking may occur in as short a period as five to 10 years.”
The greenback is declining as a percentage of the world’s currency supply. Compared with its peers, it has dropped to a 15-year low, as nations show a willingness to use other currencies to conduct business, according to the International Monetary Fund.
The world economy faces a new threat. Instead of a banking collapse or too much debt, fears are growing that countries are using their currencies as an economic weapon.
History suggests that’s never a good thing.
If too many countries try to weaken their currencies for economic gain — sparking a so-called “currency war” — then the fragile global economic recovery could be derailed and the international financial system thrown into chaos.
Financial representatives from the world’s leading 20 industrial and developing nations are gathering in Moscow for a meeting this weekend that looks set to be dominated by these concerns and they will have their work cut out to douse the fires.
Why is everyone suddenly talking about currencies?
• During the financial crisis of the past few years, the value of currencies wasn’t a high priority — governments and central banks around the world co-operated to fix the global economy. But, five years down the line, a full recovery is still a long way off.
To encourage their consumers and businesses to keep spending, central banks in the U.S., Europe and beyond have made it a priority to keep interest rates extremely low. One way of doing this it to use their power to print money to buy up large quantities of bonds. Boosting the amount of currency in circulation also has a knock-on effect: it can drive down the value of that currency.
Central banks around the world are meddling with their currencies through massive easing, none more so than Federal Reserve Chairman Ben Bernanke, according to a Wall Street Journal editorial.
“The Fed is supposed to be the steward of the dollar, which is still the world’s reserve currency,” Journal editors write. “But since the crisis Mr. Bernanke has all but declared that the rest of the world can take care of itself.”
Central banks around the world have had to respond to the Fed’s easing program with easing of their own “to keep their currencies from rising too fast,” the editorial states. “Mr. Bernanke is the band leader in this round of monetary nationalism.
Meanwhile, editors of The New York Times argue against government manipulation of currencies in an editorial of their own.
“Such misguided thinking can lead only to chaos and retaliation,” The Times editorial reads. “If all countries were to competitively devalue their currencies, the result would be a downward spiral that would benefit no one, but could lead to high inflation.”
We’ve received numerous feedbacks from our weekly comments regarding the fact that we used the “Cycle of Deflation” (attached) numerous times over the past few years and warned about potential “competitive devaluations”, and “beggar-thy-neighbor” policies that are all symptoms of the deflation we expect to take place very soon. Most of the feedback received gave us credit for bringing up these terms years ago, when they never heard of them before. Now they are being used in the financial media every day. Actually, we believe that we are in the “competitive devaluation” stage presently as country after country is printing money in order to lower rates and doing whatever possible to devalue their currency in order to export their goods and services. Remember, deflation is a product of too much debt in the U.S. and we either default on the debt or pay it off. When we get to the dashed line in the “Cycle of Deflation” chart, right after “protectionism and tariffs,” is when the deflation sets in and economic pain becomes unbearable.
Guess where the U.S. ranks.
Total gold demand in dollar terms increased in 2012, but declined in tonnage. This is according to the World Gold Council.
The world’s central banks were among the biggest customers, buying 534.6 metric tons of gold last year.
And the buying has continued into this year.
The world can expect a full Blown breakout of the so-called Currency Wars soon enough. Japanese currency – the Yen & the nations monetary policy have become the focus of the global Currency tensions ahead of a meeting of G20 finance ministers and central bankers later this week in Moscow. The statements out of the G7 meet (Finance ministers and central bank governors of the US, Japan, UK, France, Germany, Italy and Canada) were aimed at cooling the Currency Wars tensions; it instead triggered fresh concerns on the same. It seems that a misinterpretation of a statement intended to discourage Currency Wars, undid the entire upside spike seen a day before. A joint statement by the world’s richest nations roiled the markets after an attempt to soothe global Currency tensions backfired today at the G7 summit. Currency markets roiled amid conflicting messages on how much of an economic threat is posed by the weakening yen….
An over-indebted, overcapacity economy cannot generate real expansion. It can only generate speculative asset bubbles that will implode, destroying the latest round of phantom collateral.
by Charles Hugh Smith, Of Two Minds:
I have endeavored to lay out the global endgame in four recent entries:
For those seeking a summary, here is the global endgame in fourteen points:
1. In the initial “boost phase” of credit expansion, credit-based capital ( i.e. debt-money) pours into expanding production and increasing productivity
2. As credit continues to expand, competitors can easily borrow the capital needed to push into every profitable sector.
The net result: an over-indebted, overcapacity economy cannot generate real expansion. It can only generate speculative asset bubbles that will implode, destroying the latest round of phantom collateral.