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XMFSinchiruna (27.59)

The Mother of All Currency Crises

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March 27, 2009 – Comments (17)

This encompasses nearly everything I have to say about the U.S. dollar at this juncture.

http://www.fool.com/investing/international/2009/03/27/the-mother-of-all-currency-crises.aspx

I urge every Fool to read this article, spend some time chewing on the topic, and consider the ramifications of a world unwilling to bankroll the outlays already committed to by those in charge.

The fundamental case for gold and silver has never been more rock-solid, and the dip into quantitative easing will be shown to have placed a cement floor beneath gold prices that will not be breached again for many years. With a caveat of extreme volatility to come, all commodities related to human necessities such as food, fuel, and the core industrial metals like copper will see a resumption of the multi-year bull market even in the face of dwindling demand from the (former) Western economic powers.

Like it or not, Fools, this is the new economic reality of the 21st century. The USD, as discussed here, is doomed. The $1+ quadrillion market for derivatives set the stage for the collapse of the currency, and the bankers and bureaucrats chased the things right into the void with $13.5 trillion to date and much much more to come. Fellow Fool Alyce lays out here some other things to be thinking about in this context, and I hope many of you will give it serious consideration.

Last year many headlines instructed you that it was time to panic. Well, it never was. It has always only been a time to prepare. Good luck to all Fools.

17 Comments – Post Your Own

#1) On March 27, 2009 at 4:26 PM, binve (< 20) wrote:

TMFSinchiruna, Excellent post. It really puts the global financial crises and the ever-worsening proposals on how to fix it. Every plan that is being proposed is by definition highly inflationary. Which means maybe these currencies (or if we go to and SDR-type system) all stay at the same level relative to eachother.

But they will all devalue relative to assets with real value, namely gold and commodities. You had a quote in one of your last 2 posts the everybody who called Peter Schiff an idiot because of the commodity crash (which was really a global margin call) was being extremely short-sighted. I couldn't agree with you more.

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#2) On March 27, 2009 at 4:37 PM, dudemonkey (37.14) wrote:

These articles are good for perspective.  While Alyce's article may go a bit too far into the "grab your guns and head for the mountains" kind of talk for my tastes, it does help provide a spectrum with her ideas on one end and George Bush's "go shopping" on the other.

If things start to get really ugly, I'm outta here.  I've been collecting foreign currency in my "mattress account" and I'll be sitting on the beach sipping caipirinhas by sunset of the first day and I'm going to let the gun survivalists shoot each other for as long as they want.

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#3) On March 27, 2009 at 5:34 PM, alstry (36.12) wrote:

Sinchy,

What what you say if Alstrynomics has developed a credible plan to pay off the national debt, restructure entitlements and make the dollar the strongest currency in the world as we reset America on a path to success??????

Stay tuned......I am confident about its prospects.....what I am not sure yet whether Obama and Geithner are heading down the path to prosperity.

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#4) On March 27, 2009 at 5:54 PM, XMFSinchiruna (27.59) wrote:

Alstry, did you see my nod to you in the last sentence?

In every respect, we are witnessing the mother of all currency crises. While these events present an unavoidable sense of uncertainty, there is no need to fear as long as you prepare.

Although I've been recommending that Fools prepare since 2007, that wording belongs to Alstry.

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#5) On March 27, 2009 at 6:01 PM, nuf2bdangrus (< 20) wrote:

LONG:

 

GLD

PTM

SLV

TBT

RYJUX

 

wanting to go long:

UDN

PM

lots of nat gas stocks on a pullback

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#6) On March 27, 2009 at 6:16 PM, XMFSinchiruna (27.59) wrote:

nuf2bdangrus

Beware the ETFs and ETNs

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#7) On March 27, 2009 at 6:18 PM, mingusdew (92.32) wrote:

I've been preparing for this eventual scenario for the past year or so.  I've learned more about economics, politics, survival, and the world in general in that time than I ever could have throughout all 4 years I spent in college.  My prognosis for our future economy, if we're lucky, is a lengthy period of severe stagflation while our standard of living declines drastically.  The dollar will likely remain the currency of choice here in the USA, but its buying power on items of necessity will be reduced drastically.  Small farms will come back to the common landscape, assuming the frauds and traitors in DC don't manage to get Monsanto's HR 875 passed into law in the meantime, effectively legislating the American people into feudal slavery without their even having realized it. 

Other countries won't fare much better in the short term, but they'll recover a whole lot faster and with much stronger economies.  Those factories in China may be shut down, but they're still factories.  They haven't been converted to trendy loft style apartments, or themed casinos - on borrowed money several times over.  They can still be nationalized and used to build real wealth.  Russia's natural gas reserves may have declined in dollar denominated value, but the gas itself hasn't changed.

The socio-economic landscape in our once great USA is no doubt facing an extreme shift.  Whether that shift occurs in a worse direction - will be entirely up to the people facing it.  We can make our country great again, but not if we look to the government and their shiftless, greedy, and selfish "experts" for solutions to problems our grandparents, and their grandparents, faced head-on themselves with a sense of dignity and responsibility.  

This shift we're facing kills freedom, opportunity, growth, and prosperity, or it kills apathy, dependence, waste, and ignorance.  It is entirely up to the American people which direction we move towards.  And once it begins to snowball, there will be no turning back. We collectively reject the fraudulent government we now have (and the puppets on tv who empower them) until it becomes irrelevent, or we continue asking the proverbial demon "which way is heaven?" until we've comdemned ourselves to servitude in a national panopticon of their twisted design.  Worst case, people like many of those here (including myself) who have taken responsibility for their own lives and have begun to see the world and the "news" for what it really is will be reminiscing side-by-side, cold, starving, and cloaked in rags, in the NeoAmerican Gulags.

"Be the change you want to see in the world." I personally am tired of watching "political correctness" feed the weeds of ignorance, while the fruit of true progress decays on the vine.  I'm not a conspiracy theorist, I'm a realist. And right now the reality we see in the media is a constant barrage of lies and contradictions, no doubt aimed at protecting something.  All I can say for sure now is that the "something," whatever it may actually be, is not the future I've been raised and "educated" to expect.  Greedy, corrupt, and/or inept leadership may deserve much of the blame - but that doesn't matter.  What matters is that the past is finished, while the future is still open.  A future which they can't be a part of if we value what freedoms we still have left.

Most of the people who give this hateful kleptocracy ground to stand on, don't realize what they're doing.  They don't see what's happening to their freedoms, and the future of their children in the USA.  Change that, and you'll have claimed victory without ever having to fire a single shot, into the body armor of a soldier too brainwashed to see what he himself is doing, standing as a meatshield in front of the ivory towers which house his puppetmasters.

http://www.youtube.com/watch?v=pKFKGrmsBDk&feature=channel_page

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#8) On March 27, 2009 at 6:30 PM, mingusdew (92.32) wrote:

also, dudemonkey:  Don't count on that as a fallback plan.  If anything about you, anything at all, says to the locals that you are/were an American - you will NOT be welcome on their beaches.  Our banking system has weaponized the dollar, robbed the third world of their resources, and left them for broke.  All Americans will be seen as the enemy in the event bad continues to get worse.  As an American, you NEED to take responsibility for the situation OUR country is in.  It isn't directly your fault, but it has become your responsibility.  Whether you like it or not.

And you make a good point with this:

"While Alyce's article may go a bit too far into the "grab your guns and head for the mountains" kind of talk for my tastes, it does help provide a spectrum with her ideas on one end and George Bush's "go shopping" on the other."

I've come to realize, that in this time of "extreme, unwavering bias", the objective truth usually falls somewhere in the middle.  Without listening to both sides, you'll never gain an understanding.

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#9) On March 27, 2009 at 6:57 PM, garyc27 (< 20) wrote:

Not to worry all, the problem is being addressed by that greatest organization, the United Nations.  The U.N. is calling for one world currency, a global currency.  Now we don't have to worry any longer about that U.S. currency stuff, it will shortly become passe'.

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#10) On March 27, 2009 at 8:10 PM, angusthermopylae (39.53) wrote:

One point to temper this view:  If (and that's a big "if") the letdown can be made gradual, we may not have Apocalypse Wow! happening...panic about the USD just might cause everyone to question every currency...and, while the currency trade goes to the pits, they are all "devalued" even enough to make it a slide away from the dollar instead of a full-out-blind-run over the cliff...

..on the other hand, if a clear alternative reserve currency shows up (and everything I'm hearing about the euro is that it's none too stable itself), the could/would be a rush for the door, leaving Uncle Sugar with a puzzled look and a deep sense of shame.

BTW, mingusdew,

I love the name!  I'm adding you as a favorite just for that!  (Well, insightful commentary about currency and RBS might have something to do with it.)  Was sad to see Sealab go...

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#11) On March 28, 2009 at 1:47 AM, XMFSinchiruna (27.59) wrote:

mingusdew

Excellent comment!! :)

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#12) On March 28, 2009 at 2:38 AM, AnomaLee (28.72) wrote:

Chris, remember when I told you that it was important to follow the IMF and the BIS and you said you failed to see how they were relevant. It's only been about three weeks since you said this, "I must be missing something with respect to the IMF and the BIS, because I just don't see where their power over this situation would emerge from."

Well, now you know :)


I've been writing about a new Bretton Woods system since last year through dozens of blogs and comments, and here we are today.

Bretton Woods III: The Force is Growing
October 21, 2008

You and I have had many exchanges over globaly currency issues, commodities, etc.[all of which I've enjoyed]. If you would've saved everytime I gave you my 2 cents you could've been on the Forbes list by now.

I read the article and I wouldn't necessarily say this is the mother of all currency crisis or that the US dollar is necessarily DOOMED[with caps] but there will be structural changes.

You now see the requests for the IMF to increase its leadership as a  headline around the world. People can debate whether this will happen or not until throughout the G20 summit. I'm sure any developments will become major headline. The irony is that it was less than two years ago when many were debating whether the IMF would even exist by 2010.

It's already been my intent to write more on this in my next blog[hopefully to be posted Monday or Sunday evening]. I can explain why I stated the BIS is important since you've already mentioned SDRs. The vast majority of OTC derivatives are interest rate swaps. With that in mind you should consider really consider why China would be in favor of this expansion of control or why Russia[typically anti- IMF] would open a forum on this topic when it's suddenly favorable.

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#13) On March 28, 2009 at 2:45 AM, kaskoosek (85.41) wrote:

nuf2bdangrus

 

long rji also

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#14) On March 28, 2009 at 10:01 AM, XMFSinchiruna (27.59) wrote:

AnomaLee

I absolutely do remember, and I can't believe how completely wrong I was on that one!  :) 

I hadn't done my homework with respect to the SDRs, and never considered that they would fit the bill for a viable reserve currency. For the record, though, I still don't believe that they offer a viable way forward, as I hope I made clear in the article. Because their issuance requires OTC derivatives, thereby inflating the very $1+ quadrillion market for "financial weapons of mass destruction" that we need to erase and move on from.

 

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#15) On March 28, 2009 at 3:27 PM, XMFSinchiruna (27.59) wrote:

Did he say gold??  :)

 

Russia wants rouble, yuan, gold in SDR basket
Sat Mar 28, 2009 8:27am EDT

MOSCOW, March 28 (Reuters) - Russia supports expanding the IMF's Special Drawing Rights (SDR) to include the rouble, the yuan and gold, but sees no chance of the G20 Summit accepting a new reserve currency, a Kremlin aide said on Saturday, agencies reported.

"It would be logical for the set of currencies (that make up the SDR) to be expanded, and it could include other currencies, including the rouble, the yuan and perhaps others," state RIA news agency reported the Kremlin's senior economic aide Arkady Dvorkovich as saying.

China this week caused a stir ahead of the April 2 Group of 20 meeting of rich and emerging economies when it suggested the world move towards greater use of the International Monetary Fund's Special Drawing Rights, created by the IMF in 1969 as an international reserve asset.

G20 leaders have made clear that for now the dollar's status as the dominant reserve unit remains, but the idea of creating a new reserve currency system based on SDRs has not entirely been knocked down.
Dvorkovich said he sees no chance of the G20 accepting a new reserve currency next month, but his comments suggest the issue will be in the spotlight at the meeting, where world leaders will discuss ways to combat the global economic crisis.

"We could also think about more effective use of gold and gold and forex reserves in this system," Dvorkovich said, RIA reported. For its part, he added, Russia would support the broad use of the rouble and the yuan as reserve currencies, Itar-Tass reported. (Reporting by Simon Shuster; editing by Sue Thomas)

http://www.reuters.com/article/marke...37648120090328

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#16) On March 29, 2009 at 12:58 AM, XMFSinchiruna (27.59) wrote:

 China Chastises West in Leadership Bid Before G-20

March 27 (Bloomberg) -- China is scolding the world before the Group of 20 meeting next week, telling the largest countries to spend more on stimulus and fix their financial supervision.

Central bank Governor Zhou Xiaochuan yesterday lambasted governments that failed to emulate China’s “decisive” action to spur economic growth. Earlier this week he suggested creating a new international reserve currency to rival the dollar.

Evidence that China’s 4 trillion yuan ($585 billion) stimulus package is taking effect is emboldening the nation’s leaders to dictate their vision for a new world economic and financial order. Premier Wen Jiabao said this month he was worried about the value of China’s $740 billion in U.S. Treasury holdings and asked for a guarantee of their safety.

“China can stand up and say, ‘Our policies have worked, we have stabilized our economy first,’” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “China is positioning itself to have a much more significant role and influence at this G-20 meeting than it has at any other international forum in the past.”

Leaders of the 20 largest industrial and developing nations meet in London on April 2 to look for ways to alleviate the global financial crisis and strengthen international regulation. The World Bank this month said the global economy will probably shrink for the first time since World War II.

China Recovery?

China’s leaders, including Zhou and President Hu Jintao, will be able to justify their policy prescriptions by pointing to signs of recovery in their economy, which last year surpassed Germany’s to become the world’s third-largest by output.

Urban fixed-asset investment jumped 26.5 percent in the first two months from a year earlier, new bank lending quadrupled in February and vehicle sales rose 25 percent the same month. The 30 percent gain in the Shanghai Composite Index this year makes it the best-performing among 89 benchmark measures tracked worldwide by Bloomberg.

The government “has taken prompt, decisive and effective policy measures, demonstrating its superior system advantage when it comes to making vital policy decisions,” Zhou wrote in an article published on the central bank’s Web site yesterday.

“China’s taking the offensive,” said Jun Ma, chief China economist at Deutsche Bank AG in Hong Kong. “China needs to play a much more prominent role in the run-up to the G-20 because it is a critical moment to participate in the new design and architecture of the global financial system.”

20 Million Jobless

China’s 6.8 percent expansion in the fourth quarter from the same period a year earlier lagged behind its 9 percent growth for all of 2008 and 13 percent for 2007. Exports have dropped at a record pace, forcing thousands of factories to close and leaving about 20 million migrant workers jobless.

That hasn’t stopped a steady stream of instructions to the rest of the world in recent days. Governments need to step up economic stimulus to restore market confidence and fend off trade protectionism, Finance Minister Xie Xuren said in a statement yesterday.

Wang Qishan, China’s vice premier, called on the G-20 to set a timetable to modify voting at institutions like the International Monetary Fund to give developing countries more say in global financial affairs, in an article published in the Times today in London.

The U.S. is injecting $787 billion into its economy while European stimulus totals 400 billion euros ($542 billion), almost all from individual nations rather than the European Union.

U.S. Complacency

China’s central bank yesterday blamed the financial crisis on “complacency” and a conviction in the U.S. and developed economies that markets always correct themselves.

“Market forces, if unchecked, will lead to asset bubbles and ultimately a disastrous market clearing in the form of a financial crisis like the current one,” the research arm of the People’s Bank of China said in a separate article published on its Web site yesterday.

A “lack of coordination among regulatory agencies and communications between regulators and central bankers and finance ministers in some advanced countries” hampered efforts for a financial rescue, the research arm said.

China’s lecturing comes after decades when leaders focused on their own economy and let the U.S. and its allies set the international norms on financial regulation, said Charles Freeman, a former top trade negotiator who covered China at the U.S. Trade Representative’s office in Washington.

Navel-Gaze

“They’ve jockeyed for position, they’ve thought a lot about these things and they are making themselves be heard while the Europeans and the Japanese kind of navel-gaze and sideline themselves,” he said.

Some of Zhou’s recommendations jibe with those of U.S. Treasury Secretary Timothy Geithner, who called for a so-called systemic risk regulator to oversee big financial institutions and federal authority to seize them if they run into trouble.

Zhou said yesterday that governments should consider giving mandates to finance ministries and central banks to use extraordinary means “in order to allow them to act boldly and expeditiously without having to go through a lengthy or even painful approval process.”

In another article this week, also published on the central bank’s Web site, Zhou urged the International Monetary Fund to expand the use of so-called Special Drawing Rights and move toward a “super-sovereign reserve currency.”

“Zhou is clearly trying to establish himself and China as taking a lead position in shaping the global response to the crisis,” said Mark Williams, a London-based economist at Capital Economics Ltd. “A more engaged China is something the world should welcome.”

http://www.bloomberg.com/apps/news?pid=20601087&sid=a1UC7pF1qNbw&refer=home

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#17) On March 29, 2009 at 1:05 AM, XMFSinchiruna (27.59) wrote:

 

Tens of thousands of people have marched through London demanding action on poverty, climate change and jobs, ahead of next week's G20 summit.

The Put People First alliance of 150 charities and unions walked from Embankment to Hyde Park for a rally.

Speakers called on G20 leaders to pursue a new kind of global justice.

Police estimate 35,000 marchers took part in the event. Its organisers say people wanted the chance to air their views peacefully.

Protesters described a "carnival-like atmosphere" with brass bands, piercing whistles and stereos blasting music as the slow-paced procession weaved through the streets.

Police said one man was arrested during the march for being drunk and disorderly.

Unite union, general secretary Derek Simpson said: "I think it's an important message but whether it will get through to the people meeting in London I don't know. Anyone who sees the numbers on this march should realise how important it is."

Families with children in pushchairs were among those marching along the 4.2-mile route under banners with slogans including 'capitalists - you are the crisis' and 'justice for the world's poor'.

As protesters passed the heavily-policed gates of Downing Street, there were chants and jeers with one person shouting "enjoy the overtime".

BBC News reporter Mario Cacciottolo said people were clearly angry, but the atmosphere was not tense.

Milton McKenzie, 73, from Essex, told him: "How the hell can we have a situation here in Britain where we have people out of work and the bankers just cream it off and are helped by the government."

Italian trade unionist Nicoli Nicolosi, who had travelled from Rome, said: "We are here to try and make a better world and protest against the G20."

Glen Tarman, chairman of the Put People First co-ordination team, said: "An exciting alliance has been born today. We will keep up the pressure on world leaders and the UK government to address our demands and put people first."

TUC general secretary Brendan Barber said he wanted to see G20 leaders agree a plan of action to deal with the financial downturn.

"Where I hope we will see a consensus emerge is in the recognition that unless they act together, then the problems are only going to get worse.

"This, unlike any other recession, is a recession right across the world."

The Energy and Climate Change Secretary Ed Miliband said it was important for the G20 to make commitments on helping the environment as well as the economy.

"There are some people who will say you can either tackle the economic crisis or the climate crisis.

"But the truth is that both come together with this idea of a Green New Deal, of investing in the jobs of the future, which are going to be in the green industries of the future."

The director of the the Adam Smith Institute, Dr Eamonn Butler, said governments have caused the economic crisis.

"The world market economy is actually a very moral system that raised a billion people out of poverty in the last 10 years," he said.

A huge security operation is under way in the run-up to the G20 summit, at which world leaders will discuss the global financial crisis and other issues.

There have been fears that banks and other financial institutions could be the focus for violent protests.

Commander Simon O'Brien, one of the senior command team in charge of policing security, said: "It's fair to say that this [the march] is one of the largest, one of the most challenging and one of the most complicated operations we have delivered.

"G20 is attracting a significant amount of interest from protest groups. There is an almost unprecedented level of activity going on."

Saturday's march will be followed by a series of protests on Wednesday and Thursday by a variety of coalitions and groups campaigning on a range of subjects, from poverty, inequality and jobs to war, climate change and capitalism.

Berlin march

Ahead of the summit, Prime Minister Gordon Brown has been visiting a number of countries seeking support.

On Friday, during a visit to Chile, he said people should not be "cynical" about what could be achieved at next week's summit, saying he was optimistic about the likely outcome.

However, in an interview with Saturday's Financial Times, German Chancellor Angela Merkel dampened expectations of a significant breakthrough.

She said one meeting would not be enough to solve the economic crisis and finish building a new structure for global markets.

In Berlin, thousands of protesters have also taken to the streets with a message to the G20 leaders: "We won't pay for your crisis".

Another march took place in the city of Frankfurt. The demonstrations attracted as many as 20,000 people.

Banners accused the Germany government of being too willing to spend billions bailing out financial institutions and too slow to protect ordinary workers, the BBC's Steve Rosenberg said from Berlin.

http://news.bbc.co.uk/2/hi/uk_news/7968721.stm

 

 

 

 

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