Goldman Charts the Currency Wars

[bart]

Re: Goldman Charts the Currency Wars

1968 - some feel preventive measures to this day continue . . .

I don't know if you intended it (I suspect so), but that has been my best laugh of the day. Well played sir! :-)

[Southernguy]

Re: Goldman Charts the Currency Wars

Astonas: trying to answer your question: "How exactly does PCO derail, rather than reinforce, the central banker's plans?"

I think two ways: 1) creates inflation, the cycle described by GRG55 I find enlightening, the only detail is velocity. Whence it shall go faster the thing shall get more evident to the masses. Inflation shall accelerate, that CBīs canīt tolerate. The only possible reaction is cooling the economy 2) At the same time PCO puts a ceiling on economic growth.
The result of both is an old combination called "stagflation".
In the seventies stagflation was a result from high oil prices due to a political process: Middle East OPEP cartelization.
That process was put off by the alliance between USA and Saudi Arabia.
Dollar inflation was killed by Volcker monetary sledge hammer. Today that is hardly possible. The origin of the trouble is a fundamental one based on hard physical reality.

[gwynedd1]

Re: Goldman Charts the Currency Wars

It was called the Trojan war even though from Olympus it was nothing but fate. So be it. Currency manipulation is the organized tariff agreements of the 21st century.

[Polish_Silver]

Re: CB behavior

Of course they wanted it that way. Preventing finance interests from making money is not in the job description. Preventing them from going out of business en masse is.

If that were the case, wouldn't they keep lowering interest rates?

[astonas]

Re: CB behavior

If that were the case, wouldn't they keep lowering interest rates?

They're at zero for the foreseeable future. How much lower can they go?

[c1ue]

Re: CB behavior

If that were the case, wouldn't they keep lowering interest rates?

As has been talked about before in iTulip as well as elsewhere on the internet - there are many ways to push money into TBTF beyond lowering interest rates. We've already seen a few of them: outright bailout, federal loans, paying interest on reserves, buying up crap securities - there are more.

[Polish_Silver]

Re: CB behavior

You would fit more or less into this category:

I do fit. Judging by public statements of Greenspan and Bernanke, I find it the only viable choice.

"You can't tell a bubble until after it's popped" ---Greenspan

"That is safely contained to subprime" ----Bernanke (referring to mortgage defaults)

[Polish_Silver]

Re: CB behavior

They're at zero for the foreseeable future. How much lower can they go?

As C1ue has pointed out, they can raise the price level by purchasing assets. Thereby making the real interest rate more and more negative, even as the nominal interest rate is zero bound. I believe they have actually published papers on this. Arguably, they are already doing it.

[bart]

Re: CB behavior

As C1ue has pointed out, they can raise the price level by purchasing assets. Thereby making the real interest rate more and more negative, even as the nominal interest rate is zero bound. I believe they have actually published papers on this. Arguably, they are already doing it.

Here's one possible vehicle from the Fed's balance sheet

[llanlad2]

Re: Goldman Charts the Currency Wars

Astonas: trying to answer your question: "How exactly does PCO derail, rather than reinforce, the central banker's plans?"

I think two ways: 1) creates inflation, the cycle described by GRG55 I find enlightening, the only detail is velocity. Whence it shall go faster the thing shall get more evident to the masses. Inflation shall accelerate, that CBīs canīt tolerate.
.

I half agree. But it won't be that the CBs that can't tolerate it but the people and the burden of debt they hold along with an unfair tax burden. Eventually the politicians will allow or even cause wage inflation to take place (by policy changes) to wipe out the debt in order to get into in office. At the moment there are still enough middle classes left to blame the poor for everything. It is the educated middle class becoming poor that will force politician's hands. They will become politically active eventually when fake austerity has made them poor enough. It just takes time.
In the UK I still read newspapers. There is a lot more anti-FIRE type rhetoric than ever across all types of newspapers. There has definitely been a change of mood amongst voters. Politicians are sensing this and moving position. Ultimately an anti-FIRE policy politician will be voted in and lay down the law to an unelected CBer. They will also change the tax system (shifting off income). This is why any crisis will happen post-election(or run up to) and not mid-term. And why it will appear sudden.

[GRG55]

Re: Goldman Charts the Currency Wars

There are no currency wars but instead an unspoken policy of cooperative depreciation whereby the right to depreciate rotates from one major power to another as economic need and geopolitical horse trading dictate.

If you look at the number of units of currency in each currency required to purchase an ounce of gold since 2001 you can see the process clearly. In my next article I again debunk the idea of a currency war. We see that Japan was left out of the arrangement for geopolitical reasons and was recently let in as a stop-gap measure. As one country or currency block after another takes its turn, the price of gold in all currencies rises. The policy of cooperative depreciation is one of the reasons we invested in gold.

The money isn't in betting on the final outcome of a "currency war" it's in knowing who's up next. After Japan, Europe or the U.S.?

I have a pretty good idea.

The global economy desperately needs more demand or recovery will halt, and perhaps even reverse. Unless your firm sells superyatchs the oligarchs and plutocrats can't buy enough to keep expanding demand. Europe is a consumer basket case what with Italy under renewed stress. France is now joining the party (and like Wall Street it neither admits nor denies any wrongdoing ). Germany will not willingly give up its surplus. Likewise, China will take years (decades?) to break its mercantilism model. It has to be a current account deficit nation, and by process of elimination there's nobody big enough but the USA. The Fed seems at one of those moments where it may be very difficult to reduce credit costs further by widening negative real interest rates, and politically difficult for it to accelerate the increase in its balance sheet accumulations...hence a stronger US$ (against the Euro, as the yuan peg can be maintained) would seem probable in the near term, and temporarily advantageous all around in terms of purchasing power and aggregate demand. Gold at $1200 anyone?

Of course some exogenous event could derail all this...say some nitwit nuclear armed boy-leader actually launches a missile that hits something...

[Polish_Silver]

tax changes

I half agree. But it won't be that the CBs that can't tolerate it but the people and the burden of debt they hold along with an unfair tax burden. . . .Ultimately an anti-FIRE policy politician will be voted in and lay down the law to an unelected CBer. They will also change the tax system (shifting off income). . . ..

Do you think the shift will be to property taxes or sales tax/VAT ?

You could change quite a lot by taking out the absurd loop holes.

[Polish_Silver]

PCO vs bankers

If PCO is more of a cyclical process of dashed hopes than a sudden event, how exactly does this work to thwart the grand plans of central bankers?

Banks have these related objectives:

1) ever increasing asset values

2) avoid defaults

3) increase leverage in the system (to increase profits/bonuses)


PCO attacks all these objectives:

1) rising oil prices cause bankruptcy of individuals and corporations

2) lower profitability leads to lower stock prices, rents, and property values

3) money paying for energy cannot pay for debt service.


Before your post, I had not thought through the issue. It would be great to get EJ on this.

[Polish_Silver]

Chimerica---going strong?

The global economy desperately needs more demand or recovery will halt, and perhaps even reverse. . . .Likewise, China will take years (decades?) to break its mercantilism model. It has to be a current account deficit nation, and by process of elimination there's nobody big enough but the USA. . . ..

I think that is a vital question about China: do they still need a trade surplus with the USA?

If they do not, they can threaten to sell T-bonds and crash the dollar. That would be some leverage . . .
an American "Suez moment".

EJ has made some argument that China needs it's USA trade surplus less than they used to.

[Bundi]

Re: PCO vs bankers

It will be fun to find out. Or not.


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