We have mentioned in several occasions that currency wars are gathering steam (see for example The Greatest Show On Earth, Currency Wars II and The Beginning Of Cryptocurrency Wars). Well… they are already here and gaining increasing momentum which means that we are all out of time.
But what are currency wars? Simple. They are a race to the bottom of the devaluation pit. Countries are pitted against each other to see who can devaluate their own currency faster. The idea being that cheap currencies will allow for higher exports. Basically, it is the process of lowering the exchange rate of one currency against the others through printing and mostly hidden printing. The idea is to "export" local economic debacles to the next sucker who hasn't devaluated fast enough.
When did currency wars started? Oh that's easy. When was fiat money invented? 2000+ years ago? Oh, you meant in current, modern history? Recently? Don't have a clue. Pick your date. Any time a Central Bank "print" they devaluate and create lite currency skirmishes. Every time government economists wish to "stimulate" the economy, they create currency fights. Every time a Central Bank "fixes" interest rates, they create currency bickering.
Eventually, over time, all this bullying and pushing and pulling erupts into a full-scale war. Well… we are there. Welcome to operation Scorched Earth. The new bullet-proof way to ensure the wellbeing of the human race by "manufacturing" wealth out of thin air through fiat money printing. Sounds stupid enough? Well, it is!
THIS TIME IS DIFFERENT
We know, it's a joke. But this time truly is and not in a good sense. According to the calculations performed with our state-of-the-art supercomputer (i.e. an Excel spreadsheet) the world has never ever found itself so deeply in debt in its entire history. Yes. The world. The entire world. That thing you are standing (or sitting) on right now.
We know that laughable "official" numbers puts government debt on the same footing as the world GDP (see Happy Breakeven Year) or about 17 Trillion USD. Officially. Allegedly. In reality who knows what is the real number. Three times this number? Not a chance. Waaaaay too low. Ten times? That's more likely but probably still too low. Place your bet ladies and gentlemen! Place your bets. Oh… what are you betting with? Your future, of course! And the future of your children. And the future of your children's children. No pressure.
All this money didn't just mysteriously "appear" one day, it was created over years and year of idiocy and lunatic mismanagement and utterly useless economic theories by the same people that brought you the 2008 preview. But now available on steroids.
Consider this. In the past (going as far as you would like to go) economic debacles were mostly isolated events. If country A collapsed, this did not much affect country B. However, in our recent history (let's say starting with the 1900's) the collapse of countries has increasingly become world affairs. Not only that, but these collapses have now the capacity to traverse any distance almost instantaneously, in a fraction of a millisecond. The entire world is today economically and financially linked beyond return. This phenomenon in and by itself is good and laudable but not when madman (and madwomen) are at the helm. Large and truly free markets with free movement of people, labour and capital operate at peak capacity. Large managed markets on the other hand, are fully in the hands of the managers and when they respond solely to "political needs" this means that their actions will reflect so-called "political realities" and not reality itself. When such markets collapse they do so in an instantaneous and precipitous manner (did you like our choice of words?). Basically, we are screwed. Royally. This time really is different. By the time this currency war is over we are all going to be casualties of war.
At the level at which governments are using printing and hidden-printing methods to conduct this war it will only cause monumental instabilities and cross-connected defaults. Again, basically, a financial chain reaction. Currency wars in and by themselves solve nothing and are only destructive, but this one will be fatal. In general terms when an average country prints money for currency devaluation, eventually inflation and the utter destruction of economic activities gets this country. Yes, there are effects felt in other countries, but the brunt of the debacle used to be felt in that country alone.
Not any longer. When countries that have what are considered "reserve currencies" engage in currency wars, the entire world is involved because the entire world is dependent upon those currencies. The USD, JPY, EUR, CNY, CHF, CDN, and a few minor others represent the bulk of world reserves because the Central Banks of the world have almost no gold (real one, not contracts) to begin with. Take a look at what's in the "vaults" of your Central Bank and you will be surprised! When "reserve currency" countries devaluate against each other in an orgy of competing stupidity we will all be doomed.
When the economic system of the entire world collapses, where do you hide?
THE WRITING ON THE WALL
Japan declared currency war in the 80's when they began to print like there is no tomorrow (because they could not see beyond Keynesianism).
US declared currency war in 2008 when they printed their way out from an economic debacle and right into Armageddon.
China declared war since the 70's when they discovered the fractional reserve system and they have been printing ever since.
EU declared war just recently with the formalization of their new-and-improved-now-overt QE operation.
And there you have it. The four biggest players in the "reserve" game at war with you! It does not matter who you are and where you live, they will get you.
Consider the multiple ways in which currency devaluation can be achieved:
- Outright printing (virtual or otherwise)
- Central Bank bond selling
- Forex Market selling
- Quantitative Easing
- Interest rate fixing
- Lowering of bank reserve requirements
And so on. Name an economic process that governments may implement and we will show you yet another potential mechanism that can be used to devaluate currency.
Don't believe us? Take a look at what your country is doing and keep watching. As this process gets fully underway, they will do something stupid. Guaranteed.
Of course, you may not see it because they are very, very good at misdirection; after all they had 200+ years to practice. They will call it a "crisis plan" or "action" and after that will come the "stabilization plan" and after that one the inevitable "shock plan" (i.e. reshuffling). Meanwhile, your wealth (whatever you had left) will be burned away "for the greater good".
OUR CRYSTAL BALL
No, we don't have one, but we have Argentina; a suitable substitute because Argentina has gone when no country has gone before…recently. As this debacle unravels we know how it will play out:
- More Inflation
- Less Economic Activity
- Even More Inflation
- Even Less Economic Activity
- Accelerating Inflation
- Fully Depressed Economic Activity
What kind of crisis? Who knows. We don't know what will happen first; which financial time bomb will go off first. Will it be the Bond Bubble? The Derivatives Time Bomb? The Real Estate Explosive? The Credit Crunch IED? The Inflation Implosion? The Unemployment Detonation? All of the above? Your guess is as good as their guess but the difference is that they are at the helm. Feeling safe yet?
And before you start laughing at the concept that there will be inflation when there clearly isn't, you would do well remembering that inflation is already here. Right now is mostly hidden as asset inflation and ever decreasing standards of living (see for example Inflation Inflation Inflation). This is so because most of the money is sitting in virtual vaults in banks as they are too afraid to loan. But eventually it will come out and when that happens we will be pointing to this article and tell you: we told you so.
As all this comes to pass, you would do well to remember that what lies ahead is scorched earth indeed. Beyond this point there is hope, however. Albeit temporary. And you thought you would be OK. Not a chance! What lies ahead is the same as what has been happening in Argentina for the last 70 or so years: the permanent Economic Cycle of Hell (see Argentine Default - What A Depression Looks Like).
In this day and age currency wars are indeed "Scorched Earth" policies because that's exactly what they generate.
FUTURE NOT REQUIRED
But in order to fully appreciate the enormity of the upcoming destruction, take a step back and ask yourself: is this really necessary? When government debts are hundred or thousand times the amount of money required to provide the most basic goods and services politicians say that we "deserve", what's the point of keeping going? Forget for a second that this supposed "need" was generated by "economic managers" in the first place and it would not have existed should free markets would have been allowed to operate. Let's assume for a second and for argument's sake that governments need to deliver certain basic goods and services…for whatever reason… and ask yourself, what price are you willing to pay for this "privilege". At what point the risks and actual destruction outweigh the benefits? At what point does your immediate future become too risky? That's right; we are not talking about some distant future a few generations from now. We are talking about tomorrow or the day after tomorrow in your life. Wouldn't we all be all better off without the upcoming gargantuan economic destruction? Of course we would. Wouldn't we all be better off without the upcoming and now permanent destructive economic cycle of hell? Of course we would. Why do we have to endure the endless upcoming decades of misery and pain? There is no reason other than people won't let go. It is simply political evolution, we are not there yet. People are still clinging to the old political model. They still believe in politicians instead of themselves. That's all.
And what's the alternative? Let governments fail. Let banks fail. Let companies fail. Quickly. Efficiently. Don't worry, the economy will recover. Quickly. Efficiently. Do you honestly believe that artificial "economic policies" for "progress" are a match for the free market? Do you honestly believe that a few thousand people (those who actually make the crucial decisions) can do a better job than the rest of the 7 billion of us? We can do it, they can't.
In order to fully appreciate the astronomical level of destruction, pain and hopelessness that's coming, we need to compare it with the fact that truly free markets could have this sorted out in a few years "ushering a new era of riches and prosperity" (as Hollywood would put it). And we are not joking. Take a look at history books. Take a look at every economic debacle where governments were simply ignored and truly free markets were allowed to operate and you would be surprised. A few years is all it takes. Two, three at most. This is not a mystery, this is what people do. You, us and everybody else. Now take a look at what will happen; we will be locked-in into this hellish cycle of destruction for the foreseeable future. Argentina has been in it for 70+ years and counting. Now compare 70+ years versus 2 or 3. That's the real comparison that needs to be made when talking about the upcoming debacle. That's the difference in magnitude between what's coming and what could be.
We are not saying that people has a choice; they clearly do not. They have not yet evolved out of it. What we are saying is that this is an educational process and we are here to educate. Over the next decades we will continue to point out that we said so. Eventually, with the help of other sites and people just like you and us, humanity will finally evolve and this will be good. Meanwhile, it would be wise to prepare yourself for scorched earth. What should you do? What can you do. If you are good at market timing, as madness progresses there will be incredible opportunities to accumulate wealth for those who are clever enough. And what about the rest of us? Invest in wealth. True wealth. Things that cannot be destroyed. Fads and perceptions will fall. Services will become luxuries that nobody can afford. Invest in things that will provide you with a modicum of profit every year but, more importantly, that will keep your wealth safe. You are not looking at becoming wealthy and well-off, you are looking at being able to feed, clothe and shelter your family on an ongoing basis. That's it. And yes, you will make mistakes and you will lose some money. It is unavoidable. But you won't be poor. You will have enough and that's the absolute best that you can hope for. For some people this investment is real estate and if you buy in a geographic location that has an established rental market, you will do OK. However, if you invest in places where there are fads and luxury and expansion for expansion's sake, you will lose your money. The problem is not losing money when the real estate collapses (as it will), because you won't be selling. The problem is to be able to continue to rent when the real estate collapses. If you have chosen wisely, you will do OK because in ultimate analysis, people still need to rent. A rental property is true wealth… for as long as you can rent it.
Going forward will be all about conserving your wealth through ensuring it is not based on political promises or hopes and dreams. Going forward will be all about ignoring politicians and looking at basic human needs and satisfying them. That's how you protect your wealth and, incidentally, that's also the way of the true free market.
Although there is another way of looking at the upcoming mega-disaster. The way of politicians. The way of governments. The way of thinking that a crisis is there and it needs to be fought. That's fair enough. Just one question, if neither you nor us created this crisis, where did it come from?
Note: please see the Glossary if you are unfamiliar with certain words.