Showing posts with label Ponzi. Show all posts
Showing posts with label Ponzi. Show all posts

Monday, November 11, 2013

Happening Now; Global Currency/Competitive Devaluation War amid Economic Slowdown

As the world enters what looks like a simultaneous recession, central banking and political authorities are moving to protect their own sovereign economies relative to all the others.

As the 2008 financial crisis led to coordinated moves by central banks, it seems they are now at war with each other to protect the competitiveness of currency; The lower the currency, the more commerce, as exports become more attractive relative to other currencies.

If the US dollar is worth 100 to 100 Euros = Equality of price for exports and imports

If 95 dollars can purchase 100 Euro's worth of goods, the Eurozone should be able to "sell more for less" to US importers, while US businesses trying to sell to Europe should find it is more expensive to sell their goods.
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"The European Central Bank cut its key rate last week in a decision some investors say was intended in part to curb the euro after it soared to the strongest since 2011. The same day, Czech policy makers said they were intervening in the currency market for the first time in 11 years to weaken the koruna. New Zealand said it may delay rate increases to temper its dollar, and Australia warned the Aussie is “uncomfortably high.”

“It’s a very real concern of these countries to keep their currencies weak”...

...ECB President Mario Draghi, “persistently since earlier this year, has been trying to talk down the euro”

With the outlook for the global economy being downgraded by the International Monetary Fund and inflation slowing to levels that may hinder investment, countries and central banks are revisiting policies that tend to boost competitiveness through weaker currencies.

...The euro slumped as much as 1.6 percent against the dollar on the day of the rate cut, the most in almost two years...

...“There are places in the world where economies are generally quite weak, where inflation is already low,”

...The Czech National Bank’s drove its koruna down by 4.4 percent versus the euro on Nov. 7, the most since the single currency’s creation in 1999, when it intervened to spur inflation. Governor Miroslav Singer pledged to keep selling koruna “for as long as needed” to boost growth.

Peru’s central bank on Nov. 4 unexpectedly reduced borrowing costs for the first time in four years as slower export growth imperils the commodity-dependent economy.

The IMF last month cut its forecast for global economic growth to 2.9 percent in 2013 and 3.6 percent in 2014, from July’s projected rates of 3.1 percent and 3.8 percent...

Growth in global trade may slow to 2.5 percent in 2013, ...down from the organization’s previous estimate in April of 3.3 percent.

...At the same time the ECB is easing, the U.S. Federal Reserve said it will keep printing enough dollars to buy $85 billion of bonds each month because the economy is still too weak to stand on its own. The Bank of Japan is also employing a policy of quantitative easing.

...The Reserve Bank of Australia lowered its growth estimate for next year to 2 percent to 3 percent, compared with 2.5 percent to 3.5 percent three months ago. South Korea’s finance ministry said last month it may act to counter “herd behavior” in the currency, as the Bank of Korea lowered its outlook for the economy.

http://www.bloomberg.com/news/2013-11-11/race-to-bottom-resumes-as-central-bankers-ease-anew-currencies.html
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The rest of the world is trying to keep up with the Federal Reserve's money printing;


The more we print to "recover" from the last economic bubble mostly created by the Federal Reserve, the more other central banks have to print to keep their economies competitive.

For instance, Venezuela's official exchange rate, which doesn't match its black market rate, which is much higher;


What cost $2 US dollars in 2010, now costs more than $6.

Previously;

What Hyperinflation reads like; "Venezuelan shoppers amass outside seized stores" "Venezuela Stock Market Up 454% for the Year"
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By forcing the rest of the world to buy American made stuff for less, the rest of the world that chose not to keep pace with our money printing now has to print even more to catch up, which should be financial market inflationary until something goes wrong.
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Can stability destabilize?

Governments cannot create but merely redirect.

When the government spends, the money has to come from somewhere.

If the government doesn't have a surplus, then it must come from taxes.

If taxes don't go up, then it must come from increased borrowing.

If lenders won't lend, then it must come from the printing press...

each additional dollar printed
diminishes the value of those already in circulation.

Something cannot be effortlessly created from nothing.

Peter Schiff

If a nation prints more money,
like cutting a large pizza into 16 slices instead of 8,
is each slice worth less?

What if the pizza shrinks while the number of slices rise?

Where under the [Roman] Principate
the strategy had been to tax the future to pay for the present,
the Dominate paid for the present by undermining the future’s ability to pay taxes.

The Empire emerged from the third century crisis,
but at a cost that weakened its ability to meet future crises.

Joseph Tainter
The Collapse of Complex Societies

So what happens if the whole world does something at the same time, which has almost always had the same historical outcome?

Saturday, November 9, 2013

What Hyperinflation reads like; "Venezuelan shoppers amass outside seized stores" "Venezuela Stock Market Up 454% for the Year"

"As soon as Dorisbell Pena received a text message informing her that President Nicolas Maduro seized control of a nationwide chain of appliance stores Friday, she rushed to the nearest outlet in the hopes of finding what's become one of the scarcest items of all these days in Venezuela: a bargain.

A 34-year-old teacher, Pena has watched as the price of a new stove she needs has doubled in recent weeks to 40,000 bolivars even as her 2,500 bolivar-a-month salary stays the same.

"I've got to take advantage of this opportunity today because tomorrow the prices keep going up," Pena said while huddled among friends on the concrete sidewalk outside the Tiendas Daka store in the eastern Caracas neighborhood of Bello Monte.

She's not alone. At 1:30 a.m., shoppers were still arriving to join the hundreds who began amassing in the afternoon after price inspectors said they found evidence of "usury" and Maduro ordered the chain's "occupation." In a televised address Friday night, the president vowed to reopen the stores Saturday and unload their stock of plasma televisions, washing machines and other seized merchandise at "fair prices."

..."I heard the owners of this store don't even live in Venezuela, they're in Miami," said Solano, a 49-year-old salesman of engine varnish...

"Leave nothing on the shelves, leave nothing in the warehouses," he said. ...he also ordered the military to shut down businesses found hoarding products or speculating on prices.

The Friday night frenzy, described by one bargain hunter as an "organized looting," cut across Venezuela's normally insurmountable political divide — a reflection of how near-record 54 percent inflation and shortages of basic goods such as milk and toilet paper are affecting all families in South America's biggest oil producer.

Come nightfall, National Guardsmen, some brandishing assault rifles, helped maintain order..."

http://news.yahoo.com/venezuelan-shoppers-amass-outside-seized-stores-134255341.html

"Venezuela Stock Market Up 24% For Week -- Up 454% for the Year

Athenian money…defined a pattern
which was to repeat in other empires which were to follow
dominance of trade
influx of gold to balance exports
public wealth
liberty
overconfidence
the discovery of loosely managed money
as a stimulating solution to stagnation in an economy near its zenith…
before finally the emptiness of the monetary promise was exposed
leading to rapid national collapse
 
Paul Tustain

The Venezuela Stock Market is now up 454% for the year to date in bolivar terms, though only 278% in official rate dollar terms because of a February devaluation, but still making it the best performing stock market in the world."

http://www.laht.com/article.asp?ArticleId=1145054&CategoryId=10717
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What does Quantitative Easing mean?

When national debts have once been accumulated to a certain degree
[there has never been] a single instance
of their having been fairly and completely paid

The liberation of the public revenue...
has always been brought about by bankruptcy
though frequently by a pretended payment [through inflation]

Adam Smith
Moral philosopher and Father of Modern Economics

If Germany’s central bank suspended the right
to redeem gold backed Reichsmarks during World War I
and 170 Reichsmarks bought an ounce of gold in January 1919,
why did an ounce of gold cost 87,000,000,000,000 Reichsmarks
in November 1923?

Ponzi finance units must increase its outstanding debt
in order to meet its financial obligations

A transition occurs over the course of an expansion
as increasingly risky positions are validated by the booming economy
that renders the built in margins of error superfluous
encouraging adoption of riskier positions

Eventually, either financing costs rise
or income comes in below expectations
leading to defaults on payment commitments
"frequently by a pretended payment [through inflation]"

Hyman Minsky
 
The United States is doing the same thing, except we have the world's reserve currency at the moment.  When Venezuela's currency becomes worthless, the population will most likely adopt the US Dollar as a means of commerce, much like the black market does currently.
 
Next up may be Argentina, Vietnam or some other more centrally run nation who are functionally bankrupt as we are, but without the military firepower and financial infrastructure.  Having oil and other commodities priced in US dollars is key to maintaining a better position than Europe, Russia and China.

Wednesday, November 6, 2013

A Money Riddle; Vault Cash and Savings Deposits

http://research.stlouisfed.org/fred2/series/TLVAULT

If there’s about $62.325 Billion in Vault Cash, and 100 million savings account holders wanted $1,000 each at the same time from more than $7 trillion in savings deposits, where would the $100 billion come from?
 

http://research.stlouisfed.org/fred2/series/WSAVNS

If there's really not more than $7 trillion "saved" in our nation's banking system, where's the money?

If there was about $50 billion in Vault Cash in 2010 along with about $4.5 trillion in savings, and Vault Cash only went up about $13 billion since while savings rose about $2.5 trillion...?