3 Minute Gold News
A Quick Read for Busy People
The Fed and ECB
Why is the Dollar Strong and Why Will it Fail?
U.S. Dollar Strength Means Deflation
The Death of Money
The IMF and SDRs
Interview link – http://bloom.bg/14VYZd
November 24, 2014 interview
The problem with currency wars is that they go on for a very long time. The one we’re in now started in 2010.
The world isn’t always in a currency war, but when you’re in one, they can go on for 10, 15 or 20 years.
In the last century, Currency War 1 went from 1921 – 1936, and Currency War 2 went from 1967 – 1987. It isn’t the least bit surprising that we’re still in one now. We’ll be talking about this current currency war in a year from now.
They don’t have a logical ending — they just go back and forth.
THE FED AND THE ECB
The Fed isn’t done with QE, and the ECB (European Central Bank) isn’t stimulating the economy with their current policy of QE.
The Fed has now tapered QE 3. There’s no more QE 3. When they finished QE 1 it was a 100% taper, and when they finished QE 2 that was also a 100% taper. Now they’re done with QE 3, so that’s also tapered.
So what we know is that tapering fails.
Tapering QE 1 failed so there was then QE 2, which also failed. Nothing has fundamentally changed, so QE 3 will also fail, and they will print QE 4.
Give it a year, because they don’t pivot quickly, but it won’t be surprising if in late 2015 or early 2016 they have to come back with QE 4.
The economy is fundamentally weak and the Fed has the wrong models.
QE 2 didn’t make any sense. They should have raised interest rates 25 basis points in 2009, just to signal to the world that they were going to try to normalize interest rates.
We’re in a global depression and have been since 2007. We will be in a global depression indefinitely.
What distinguishes a depression is that it’s not cyclical and isn’t fixable with monetary solutions — printing all the money you want won’t solve it.
They will print QE 4 because they have the wrong models, but Janet Yellen thinks their models work.
The unemployment rate is meaningless for two reasons:
1. The unemployment rate is coming down only because labour force participation is the lowest in almost forty years. They only count people working and that has collapsed.
2. They count all jobs, including part-time $10 per hour jobs.
The data shows we’re creating a whole bunch of part-time $10,000/year jobs and not nearly enough full-time $50,000/year jobs.
The unemployment rate is meaningless and the U.S. economy is fundamentally weak.
We are in a depression but people don’t look behind the numbers.
WHY IS THE DOLLAR STRONG AND WHY WILL IT FALL?
The headline data of the 2nd and 3rd quarter U.S. GDP it’s pretty strong. But the 3rd quarter data of 3.5% growth was pre-election fraud — the commerce department did not make the seasonal adjustment on defense spending.
The U.S. government is on a September 30th fiscal year, and all the defense contracts are heavily bunched into July and August. That’s why they do seasonal adjustments. Except this year they didn’t.
So it was pre-election fraud because the GDP came out three days before the election. It will be revised downward and it will come in around 1.9% real growth.
U.S. DOLLAR STRENGTH MEANS DEFLATION
Currency wars are a tug of war going back and forth. Right now the U.S. dollar is strong.
So what does a strong dollar mean? It means deflation. U.S. imports cost less because each of the dollars buys more foreign goods.
Those prices feed into the supply chain.
It also means the U.S. exports are more expensive for other countries to buy, which slows down exports and slows down GDP .
A strong currency is deflationary. When you’re at a zero balance, one of the ways you can ease is by cheapening your currency.
THE FED WANTS INFLATION
The Fed has said they have a 2% inflation target. In December 2012 they announced they wouldn’t mind 2.5%, and Jim has spoken privately to the Fed Reserve bank presidents who said they wouldn’t mind 3 or 3.5% inflation.
The Fed has a high inflation target and a strong dollar is deflationary.
That’s the opposite of what the Fed wants. So why is the dollar so strong?
The problem is that it’s a global problem.
U.S. has problems but Japan has worse problems. Europe has worse problems. The Fed decided they can carry the adjustment because their trading partners are in worse shape so they’ll throw them a life line.
It will be clear in the months ahead that the U.S. is not as strong as they thought. In six month or a year we will see the U.S. dollar get much weaker as they need the help themselves.
They will do it by not raising interest rates.
The whole world expects a US interest rate increase in 2015 and they expect QE in Europe. If you’re a currency trader you would rather own the U.S. dollar — that’s why it is strong right now.
THE DEATH OF MONEY
The death of money means a loss of confidence in paper money, and a collapse of the international monetary system.
It has collapsed three times in the last one hundred years. It collapsed in 1914, again in 1949, and then again in 1971. So it happens about every thirty years.
Bitcoin is a symptom of a loss of confidence in paper money. It can’t be a reserve currency itself because there are no investable assets.
It can be used for transactions and trading, but a country’s reserves are like their savings account. If they have a surplus they need to invest it somewhere. There are no bitcoin bonds to invest in. It’s good for trade but not investing.
THE IMF AND SDRs
The next time there’s a global financial panic, which happens every six or seven years like clockwork, the IMF will print SDRs.
In 1998, Wall Street bailed out the hedgefund long term capital. In 2008, the central banks bailed out Wall Street.
The next time, you’re going to have to bail out the central banks — it keeps getting bigger.
There’s only one thing bigger than the central banks, and that’s the IMF (International Monetary Fund).
SDRs (Special Drawing Rights) is the IMF’s money and they will probably print 4 or 5 million SDRs. That’s how we will reliquify the system.
The question is whether people will have confidence in this new paper money or will they have confidence in gold.
Another Week on Wall Street
words and music Elaine Diane Taylor
© 2013 Intelligentsia Media Inc. All rights reserved.
from the album Coins and Crowns available on iTunes