24 October 2010
Jim Willie CB,  “the Golden Jackass”

* Organizations & Mediation
* USTreasury Bond Weapon
* Interest Rate Weapons
* Resentment Amidst Revolt
* Yen Carry Trade Devastation



Special Report #1

FULL BLOWN CURRENCY WAR ERUPTS

Global organizations are attempting to mediate the rapidly escalating tensions and friction. The G-20 Meeting has taken on new significance, having displaced the inner circle G-8 Meeting. It has become the forum to vent hostility, both active and passive. The USTreasury Bond inflicts great damage, since it offers no interest yield. As a result, foreign sovereign bonds are pursued by investors for their higher bond yield. Economic damage is wrought in the process. Foreign trade surpluses are induced to invest in the USTBonds, despite their high price and asset bubble nature. The favorite weapon by nations for quick defensive measures is the interst rate cut. It discourages hot money from chasing the native currency, makes cheaper the export products, but at a cost of lifting the imported crude oil. Resentment is growing worldwide against the United States for its outsized deficits, its hidden monetization of USTreasury Bonds, its unilateral decision making, its frightening sanctioned monetary inflation, and if truth be known, its endless wars.

ORGANIZATIONS & MEDIATION

◄$$$ THE G-20 MINISTERS HAVE COME FORTH WITH A VACANT PLEDGE AS A WORKING THEME. REGARD IT AS THE BILLBOARD MESSAGE OF CRISIS. IGNORE THE WORDS, BUT TAKE SERIOUS NOTE OF THE THEME. THE COMPETITIVE CURRENCY DEVALUATIONS WILL BE DEVASTATING, EVEN AS FAST MOVING TRADE DEFICITS WILL BE THE VISIBLE OUTCOME. NATIONAL TRADE GAPS WILL GO OUT OF CONTROL. $$$

The G-20 finance ministers issued an opening preliminary statement, a working theme. They will pledge to refrain from competitive devaluations and endorse market based exchange rates, whatever that means. Of course, the silent vote is  not made by nations that shun attendance. A US proposal is being evaluated to set targets for current account gaps on the pathway to rebalancing global growth and realigning exchange rates. The United States will surely be kept exempt, causing more friction. See the Bloomberg article (CLICK HERE).

My reaction reveals an approach used consistently to digest the Greenspan crisis factor over several years with great effectiveness. It enabled me to expect and monitor the disaster indicators on theme as they changed. LISTEN TO THE TOPIC BUT IGNORE ALL THE WORDS, SINCE THE TOPIC TELLS YOU OF THE CRISIS PRESSURE POINT, AND THE WORDS DECEIVE ON PROGRESS. The G-20 Meeting is telling you of the crippling devastation coming in the Competing Currency War, which will take down the entire monetary system. And furthermore, the evidence will be seen in the trade deficits. For instance, even Turkey is setting record deficits. They will be unavoidable.

◄$$$ TALK OF PLAZA-2 HAS BEGUN. UNFORTUNATELY, ANY ACCORD REQUIRES NATIONS TO TAKE THE LEAD IN SACRIFICING THEIR DOMESTIC ECONOMIES AND BANKING SYSTEMS. SUCH NATIONS WOULD HAVE TO AGREE TO HIGHER CURRENCIES, WHICH HARM THEIR ECONOMIES. NOT GONNA HAPPEN!! INSTEAD, EXPECT DISRUPTION AND CHAOS TO GROW. $$$

A Plaza Accord in September 1985 was an agreement between the governments of France, West Germany, Japan, the United States, and the United Kingdom. Its intention was to depreciate the USDollar in relation to the other major world currencies by direct intervention, but to do so in an orderly way. They wished to avoid a competing currency war, where the central banks would lose control and one or two currencies would appreciate far too much. They wanted to avert a destructive pathway. It was a success, mainly due to maturity, cooperation, and order. The main target was the Japanese Yen. The USDollar exchange rate declined by 51% versus the Yen from 1985 to 1987. See the Wikipedia thumbnail description (CLICK HERE). The present day environment has no maturity, no cooperation, and no order. It is loaded with resentment, animosity, and a desire to topple the horribly corrupt and recognized villains in Wall Street and London, where power is wielded without conscience. In fact, a spirit of retribution and deserved vengeance permeates the FX winds.

Clearly, the next chapter in the central bank event schedule involves either orderly devaluation of the USDollar or a destructive disorderly devaluation. Thus the need for a Plaza 2 Accord is acute, but that in no way means it will come to pass. The United States is far gone in its pathogenesis, corruption and financial war having become a way of life and reason for being. The US bank policy has turned desperate and more hostile, inviting global revolt. Good will has vanished. Although a broad massive QE2 program would be the chaotic choice and would lead to a destructive route, it is on course and unstoppable. Witness the Competing Currency Wars, which have moved past first gear, and are well into second gear. USFed Chairman Bernanke has in essence threatened to inflate with QE2 to infinity in order to support a system that cannot any longer be supported, a US$-centric system that permits any and all abuse. The main leadership must come from emerging nations more than non-US or non-UK industrial nations. However, commodity prices are surging, and emerging economics are contending with fast rising price inflation. The USEconomy has 7% to 8% annual price inflation, but emerging nations have it a bit worse. Currency appreciation is a necessary tool to keep prices under control for them. The higher the Brazilian Real or the Indian Rupee, the cheaper their crude oil, grain, or technology imports. The BIG problem here is that they are reluctant to allow significant currency appreciation as long as the Chinese Yuan remains static. The key is China. No nation will agree to a currency rise without China doing so first, and doing so with some magnitude to matter. See the Zero Hedge article (CLICK HERE).

The global revolt is two-fold, the opposite path to any Plaza agreement. First, emerging nations are cutting deals, even with non-Anglo industrial nations, to avoid usage of the USDollar in trade settlement. Second, they are also directly pushing up their own currencies by selling USTreasurys from their own reserve accounts. One of the most important factors in the lack of maturity and heightened air of hostility is the lack of leadership from the United States since year 2001, when a certain event occurred on 9/11. The US went on the warpath against enemies, neutrals, and allies, occupied nations, seized assets, initiated war, abrogated treaties, and permitted a crime syndicate to spread its tentacles throughout the entire USGovt, USBanks, and USMilitary. They disseminated toxic bonds worldwide. Such developments are not conducive to cooperation. The environment has turned hostile and destructive. In fact, the general sentiment globally might be a consensus that the Anglo Era must end, even if with chaos, surely with bankruptcy, and preferably with a lost grip of corrupted controlled markets. The ugliest little truth is that the Anglos illicitly control the prices of commodities whose supply is largely under control by emerging nations. Historians might note that Northern Bankers, control of commodity prices and markets was a major cause of the US Civil War in 1865. Slavery was given as the reason for the Civil War conflict much like terrorism is given as the reason for the current war to control narcotics and crude oil.


◄$$$ THE CURRENCY WAR TAKES A TWIST, AS BRAZIL SNUBS THE G-20 MEETING. CHINA SEEMS TO BE PULLING STRINGS, ANGRY AND FRUSTRATED WITH THE CURRENT POWER STRUCTURE. NATIONS IN A FINANCIAL WAR TEND NOT TO FIND TIME TO MEET OVER COFFEE TO DISCUSS PLATITUDES. $$$

The Competing Currency War just escalated in a new way. Brazil has canceled participation in the upcoming G-20 Meeting in South Korea. They cited as reasons the heated currency issues and the need to conduct local monetary policy meetings. The non-axis player Brazil will snub the gathering in a jolting demonstration of defection. Other nations might follow. In the last year, some concessions on agenda discussions have been made from the Anglo-Western oligarchy in the G-8 to the broader gathering of G-20. However, my belief is that even in a forum with twenty nations, they felt without power to confront the overly dominant US$-centric world, the sophisticated Anglo financial markets, including the FOREX. They sense too much lipservice and too little change toward shared power. The smaller emerging nations feel betrayed by what they see as corrupt hegemony and tainted sovereign debt filling their banking systems. They increasingly see little constructive to come from gatherings, futile discussions and phony respect paid. So they will hunker down in their own nations and deliver powerful body blows to the USDollar and USTreasury on their own, while winning temporary favor on export trade and cheaper imports. The diluted G-20 signals a ratchet up in the currency war, with the USDollar squarely in the crosshairs of attack. The G-20 has become a USDollar bashing party. See the Zero Hedge article (CLICK HERE).

One should keep in mind the growing alliance between China and Brazil. It has been featured in past Hat Trick Letter reports. Major trade and cooperative deals have been struck. Behind closed doors, a favor might have been requested and granted. Chinese leaders probably encouraged Brazil finance ministers to kick the United States in the shins. Brazil might be acting on behalf of China. The two nations have announced trade outside the US$-based orbit. They are making progress on their own, even provide a beacon for emerging nations to follow. China and Brazil are the emerging leaders of Asia and Latin America, and do not need a G-20 Meeting. They doubtless do NOT wish to attend any meeting with US or UK attendees, bankrupt but issuing orders. They might wish to de-throne the USDollar and knock the Anglos flat, delivering a black eye in finance diplomacy. They might wish to further the movement toward a gold backed currency reserve system. Witness the exact opposite step to a Plaza Accord forming. Currency war separates nations, turning allies into foes, turning nations on the bridge squarely as enemies. In fact, more perversely, it is every nation for itself to screw their own currencies, as total mayhem advances its stench. Certain bilateral partners do form, much like Nazi Germany and Mussolini Italy some 70 years ago. Some chaos might be acceptable to emerging nations if the Anglos are dusting their hind quarters off after nasty falls from the throne.

The currency war has moved to the finance minister level. Asia regards the USCongress action as an insult, a travesty, and an escalation of the trade war. Witness the repeated failure of trade protection with eyes open and anger brimming, as legislation comes together in formal trade war provisions. The G-20 ministerial meeting on October 21-2 3 in Gyeongju South Korea and the G-20 heads of state summit on November 11-12 in Seoul will provide an arena for preliminary skirmishes in advance of the main events. Nearly every major government is fighting to weaken its currency as much as possible to protect its exporters and source of revenue. The US diatribes over Chinese currency manipulation comes across as utterly ridiculous, deceitful, and hypocritical. The Asian nations all know that the premier currency manipulator is the United States, the purveyor of the world reserve currency. The Chinese Currency Bill is close to passage by the USCongress in late September. It will allow complaints to be processed and tariffs to be imposed. This bill is a Smoot-Hawley II, with awareness of its recklessness but acknowledgement of the growing anger.

The anger is of US policy and planning failure. The Smoot-Hawley tariff of June 1930 triggered a global trade war, thereby lengthening the depression. A fine line separates a currency war from turning into a trade war, easily crossed. It has been crossed already. The world, especially Asia, has grown tired of accepting US debt securities in exchange for real finished products. That debt paper pollutes Asian financial systems. The Asian Meltdown of 1998 brings fresh memories. The next big meltdown will be on US soil.

USTREASURY BOND WEAPON

◄$$$ BRAZIL IS IN FULL SCALE CURRENCY WAR. THEY WISH TO WEAKEN THEIR REAL CURRENCY. THEIR ECONOMY HAS BEEN HARMED. THEIR CENTRAL BANK ATTEMPTS TO HALT THE REAL CURRENCY FALL. THEY SHUNNED THE G-20 MEETING. HIGH INTEREST RATE AND SLOW GROWTH HAVE CONTRIBUTED TO A GROWING TRADE DEFICIT. $$$

Brazil has become deadly serious about weakening its Real currency. The prevailing interest rate in Brazil is over 10.5% steadily. Its high level has slowed their economy considerably. They have resorted to taxing capital entering the nation, the contrary to capital controls that the United States imposes. To be more specific, Brazil just raised the tax on foreign investment of fixed income bonds to 6%, and tightened the tax rules on new money into futures market accounts. Also, the differential between their rate and the 0% US rate makes currency intervention costly. From January to August of 2010, their central bank invested over $18 billion in buying US$-based bonds, to stem the Real currency rise, more than double what was spent in the same eight months in 2009. Local analysts estimate intervention to run at $1 billion per day in late September. The likely device used has been the futures currency swaps. The Finance Minister Mantega has authorized the sovereign wealth fund to buy USDollars, but that is a waste. The initiative is motivated by a slow economy and rising deficit, but the actions worsen the deficit, which is approaching record levels. A backfire reaction has also occurred. Concern has grown to a nasty pitch over the equity sale of the Petrobras, their national oil company. It is preparing for a 78 billion Real equity share offering. Given aggressive investment plans, many expect the oil company must tap the bond market too, which is weighing down the Brazil Govt debt and keeping bond yields high. See the Business Insider article (CLICK HERE).

◄$$$ CHINA RAMPS UP THE CURRENCY WAR. CHINA OPENLY DISCUSSES THE VULNERABLE USTREASURYS OF THE USGOVT IN TRANS-PACIFIC SABER RATTLING SURROUNDING THE CURRENCY WAR. A PROMINENT CHINESE ECONOMIST CALLED THE UNITED STATES A TOMB MAKER, IN REFERENCE TO MONETARY POLICY. THE USFED IS OPENLY PRINTING MONEY TO PURCHASE USTREASURY DEBT, THE WORST TYPE OF MONETARY INFLATION. $$$

Selling USTreasury holdings remains China's most effective tool for dealing with the increasingly hostile United States. So claims Zhang Monan, a researcher with the State Information Center, a top economic planning agency. He calls for China to consider using its position as the biggest US creditor, if the Yuan currency is to be steered higher. Cutting its holdings of Treasurys is also in China's long-term interests, Zhang wrote. If the USGovt wants a higher Yuan for competitive purposes, then the US must deal with sales pressure in its debt securities. This is a natural response in a financial war battleground. External pressure can thus be countered effectively. See the Bloomberg article (CLICK HERE). Foreign creditors must watch from afar aghast, as the USDollar is undermined severely by unilateral policy, solely made by the United States, but with great impact on other nations. The antagonism at the same time does not offset the hostility, but rather amplifies it.

Li Xiangyang is the economist head of the Asia department at the Chinese Academy of Social Sciences, a top government think tank. He summarized with cunning the currency war versus the United States. He claimed that continued intervention in currency markets by developed economies would deal a blow to global economic recovery. He went further to call the confrontation between China and the Obama Admin destructive, in fact, the United States is currency war's tomb maker. In a front page commentary in the overseas edition of the People's Daily, Li Xiangyang described the United States as the conflict's "first maker of tomb figures" which means a leader of bad precedent, a Chinese term. He said, "The dollar's depreciation may appear to be market driven. In reality, it is a depreciation colored by very strong, deliberate actions. If the global financial crisis was about nationalizing private debt, then in the post crisis period the urgent need of the United States is to internationalize its national debt." He describes exporting the US debt and then creating a climate to devalue it without any formal agreement. Li charged the United States for firing the first shot in the currency war. He warned the rest of the world to be on guard for its deliberate strategy to devalue the USDollar without multi-lateral approval.

Li referred directly to the next QE2 monetary inflation program for debt monetization, which had been the key factor in the downward revaluation of the USDollar. He pointed to the weaker USDollar being urgently needed to meet Obama's goal to double exports in five years. At the same time, the direct debt purchase will ease the debt burden from the financial crisis the USGovt created. Generating inflation from a depreciated USDollar serves long-term interests by generating inflation, and thus making cheaper any debt repayment. In fact, buyers of USTreasury debt are fast vanishing. That is the primary reason for QE2, to buy what nobody wants. The Chinese Govt has elevated the global financial conflict into the dangerous realm of open sovereign conflict with war of words. They have directed attention to the obvious attempt by the United States to shove its uncontrolled borrowing and spending problems on the lap of the rest of the world. The aggressive and motivated USDollar devaluation is causing increased open trade friction of the worst variety. China has followed the US lead in a movement that increasingly has polarized the global community into the emerging economies which want power and influence versus the Western developed countries which are fast losing it. See the Reuters article (CLICK HERE).

◄$$$ THE USTREASURY BOND HAS BECOME ANOTHER WRECKED MARKET, WHICH FOREIGN CREDITORS HAVE NOTICED WITH CONTEMPT. THE USFED HAS BECOME THE BOND BUYER OF LAST RESORT. BUT IN THE PROCESS, FOREIGN CREDITORS HAVE BECOME BAG HOLDERS OF HIGH ORDER. THE UNILATERAL DECISIONS ARE EXTREMELY DESTRUCTIVE AND FOMENT THE WAR. $$$

During an October 14th USTreasury auction, the primary dealers were the main buyers of the long-bond auction. Wall Street grabbed a staggering 59% of the entire auction. Witness direct monetization of the USTreasury auction, the ugly so-called Quantitative Easing. Indirectly through the banks, the USFed has recorded an asset against the issuance of currency. Bear in mind, that most of the other impaired assets on the USFed balance are damaged goods. Their toxic mortgage bonds and leveraged mortgage derivatives should be assumed to have worth 10 cents on the dollar at best, according to Truth in Gold. Conservatively, figure they have no more than half their book value. Bernanke has telegraphed clearly the intention to monetize the mortgage crisis with Fannie Mae bonds next.

Prepare for the USFed, the buyer of last resort, to collect the toxic rot and fetid paper from Bank of America, Citigroup, JPMorgan, Wells Fargo, and other big banks. The US taxpayer will not take on the bill repayment, since the USTreasury default approaches. This is precisely what foreign creditors object to. The burden falls on foreign creditors, the great bag holders. No agreements have been struck or made with creditors. The US is engaging in unilateral debt writedowns to creditors, by force, by fiat, with contempt, not good will and cooperative words. See the Truth In Gold article (CLICK HERE). If Dave in Denver, editor of Truth In Gold, former Wall Street analyst and trader, is correct, and the USFed mortgage debt assets are worth 10 cents per dollar, then the USFed has over $1.2 trillion in mortgage losses if bought at par value. He expects the US to collapse before this all unfolds. My view focuses on how the huge USFed losses will push them into resignation, thus the USTreasury default.

INTEREST RATE WEAPONS

◄$$$ CHINA RAISED ITS INTEREST RATE BY 25 BASIS POINTS, IN A WINDOW DRESSING MANEUVER. IT CAN CLAIM TO BE AVERTING A CURRENCY WAR VIA BLAND HOLLOW TACTICS TO LIFT THEIR YUAN EXCHANGE RATE. BUT IT IS NOT A CONVERTIBLE CURRENCY, NOT TRADED ON FOREX. THE EVENT SPARKED A SHORT COVER RALLY FOR THE USDOLLAR LAST WEEK. $$$

The Peoples Bank of China raised its benchmark interest rate by 25 basis points. Clearly, the relatively unimportant gesture is intended to deflect pressures from being labeled a currency manipulator. Funny how the nation with a 0% rate (the United States) is not called loudly a currency manipulator. China is not attempting to halt price inflation or to slow its economy. The move is largely symbolic. Usually a higher rate aids the upward movement in a currency. But that is true mainly for convertible currencies subject to the heavy speculative investor money flow. In China's case, it is widely interpreted as evidence of a nation that plans a slower economy, a nation that is expected to rival the United States for dominance. So the deterrent to the Chinese financial markets and banks is a positive for the USDollar. The USGovt pressure for the Chinese Yuan to rise will achieve the exact opposite, because reckless captains are running the US finance ministry. They deflect attention away from Quantitative Easing, which is monstrously manipulative of the USDollar currency. Their obtuse actions will earn an even more stubborn Chinese Govt in keeping the Yuan under control, a necessary feature to sustain the bilateral trade deficit. See the Zero Hedge (CLICK HERE).

◄$$$ CANADA DOES NOT RAISE THEIR INTEREST RATE. THE CANADIAN DOLLAR DROPPED 2% IMMEDIATELY. PROTECTION OF EXPORT TRADE HAS TURNED INTO A HIGH PRIORITY, A PRIME THEME IN COMPETING CURRENCY WAR. THE EVENT ADDED TO A SHORT COVER RALLY FOR THE USDOLLAR LAST WEEK. $$$

After three consecutive rate hikes this year, in an attempt to normalize interest rates in a true exit strategy, the Bank of Canada kept the key interest rate at 1%. In the Great White North, they are concerned about slow global growth. Governor Mark Carney kept fixed the target rate and cut the forecast for growth to 2.3% from 2.9% next year. The statement read, "At this time of transition in the global recovery, with a weaker US outlook, constraints beginning to moderate growth in emerging market economies, and domestic considerations that are expected to slow consumption and housing activity in Canada, any further reduction in monetary policy stimulus would need to be carefully considered. Heightened tensions in currency markets and related risks associated with global imbalances could result in a more protracted and difficult global recovery." Canada joined central banks in Brazil, Australia, and Malaysia in keeping rates down in respect to lack of global recovery, citing excess supply (implicitly labor and industry). The prevailing goal is to avoid a divergence with the USFed and the European Central Bank, where near 0% rates are stuck in cement blocks. They do not wish to render harm to their export businesses. Even China is protective of its export trade, and does not wish to instigate a currency rise.

The combination of the Chinese small rate hike and the Canadian absent rate hike prompted a FOREX currency market reaction. Despite being a minor currency, the Canadian Dollar is fully convertible on the FOREX. So its reaction to spark a USDollar short cover rally was much more significant than many analysts believe. They attribute the US$ reaction to the Chinese rate hike decision, a symbolic gesture without market connection. After several weeks of battering the USDollar and bidding up the gold & silver price, the oversold US$ saw a short cover rally triggered. It could continue for a brief while. The Canadian Dollar rose up to 2% on Tuesday October 19th, but settled. The BOC might not raise rates again for six months, according to the index swap trade. The USFed has effectively halted any return to normalcy for foreign central banks. Their hands are tied. They are coerced to maintain extreme near free money, in order not to suffer a sharp rise in their currency, and thus damage exports. Canada is stuck too, as it relies upon the neighboring US for 63% of its trade. Forest product maker Canfor and US Steel Corp are shutting plants in Canada because of reduced US demand for homes and cars. See the Bloomberg article (CLICK HERE).


RESENTMENT AMIDST REVOLT

◄$$$ RESENTMENT RISES IN EUROPE OVER THE USDOLLAR DEVALUATION ORDERED THROUGH MONETARY INFLATION BY THE USGOVT AND USFED. THEY ACCUSE THE UNITED STATES OF CAUSING GROSS INSTABILITY. MORE CURRENCY WAR BACKLASH, WITH GREAT VOLUMES TO FOLLOW. THE GREATEST CURRENCY MANIPULATOR IS THE UNITED STATES, WITH NO CLOSE SECOND AMONG NATIONS. $$$

The reckless US monetary and fiscal policies have caused a severe backlash in Europe. The USDollar decline has sparked stability warnings. A sequence of retaliatory devaluations to support their export trade could result in greater instability. Recent low exchange rates with respect to the Chinese Yuan, Swiss Franc, and Australian Dollar have caused alarm. The US$ DX index, which tracks a basket of currencies, reached its lowest level this year. European banks and European exporters serve as the center of risk. An anonymous senior European policy maker claimed that further aggressive monetary easing, known euphemistically as Quantitative Easing, by the USFed would be grossly irresponsible, since the cheaper US exports would be made more competitive at the expense of its rivals. This is the essence of the Competing Currency War. The US monetary policy is inflicting wounds on other big economic blocs of China, Japan, and Europe.

The most recent bite in the war was from the Monetary Authority of Singapore. They widened the trading band for its currency, the Singapore Dollar, thus permitting it to appreciate. The Russian finance minister Alexei Kudrin, during a meeting with European Union officials, blamed the United States and others for global currency instability. He said, "[The currency turmoil] is the stimulating monetary policy of some developed countries, above all the United States, who is  trying to solve their structural problems in this way." By other countries he meant politely the Europeans, host to the conference. The cost of commodities, often traded in US$ terms, has risen due to the US currency slide. Conversely, easy money typically lifts the stock markets, to offer illusory gains since money is debased, worth less. See the Financial Times article (CLICK HERE) and the LCM Groupe article (CLICK HERE).

YEN CARRY TRADE DEVASTATION

◄$$$ THE BANK OF JAPAN INJECTION OF $20 BILLION WAS A TRIFLE AND ACCOMPLISHED VERY LITTLE. THE EFFECT WORE OFF IN 20 DAYS. THEY ARE COMMITTED TO FUTILE INTERVENTION. IN FRUSTRATION, THE BANK OF JAPAN CUT THE OFFICIAL INTEREST RATE TO ZERO EFFECTIVELY. THEY ANNOUNCED A SMALL INITIAL INSTALLMENT OF DEBT MONETIZATION. CALL IT THEIR OWN QE126, IN AN ENDLESS STRING OF MONETARY INFLATION ABUSES. A JUMP IN THE GOLD PRICE WAS IMMEDIATE. THE CURRENCY WAR RATCHED UP A BIG NOTCH. $$$

Think pea shooter against a moving car. The injection of a trifling $20 billion by the BOJ in late September accomplished nothing. The effect wores off in a mere 20 days, to highlight the stupidity and waste of the maneuver. Their bad judgment has caused more political discord in Tokyo. That money could have fed a lot of poor people or sent many kids to college. The Yen rose quickly to where it was, proving such decisions are futile. See the Zero Hedge article (CLICK HERE). Since it did not work, expect them to do it again. Is this their 126th Quantitative Easing program, or their 118th? One loses track. In early October, Japan indicated that it would continue to intervene in FOREX markets when deemed necessary, a stamp of ineptitude on the record. They wish to guide the Yen currency to an acceptably low level and thus support the nation's massive export trade. Japan has earned a ruined currency from bloated government debt, a permanently stuck 0% rate, and a mountain of suspect USTBonds.

A shock wave hit the USDollar when the Bank of Japan announced an interest rate cut from nearly 0% to exactly 0%. The insanity of wrecked monetary policy is starkly evident in Japan, where 20 years of 0% have been frimly in place. The effect on the US was implicitly that the same will be the stuck situtation. The bank also said it would purchase 5 trillion Yen (=US$60 billion) of government bonds, to generate inflation and keep yields ultra low. Damage to the Yen currency is the billboard of failed policy for two decades. The Bank of Japan cited concerns about its trade partners and the appreciation of its Yen currency, whose strength has hurt exports recently. They struggle to fight deflation, as their nation stands as the best example of proof that no exiting door exists from the 0% caged corner. Japan has a big industrial base, a brisk export industry, and a faulty financial foundation, with a giant USTBond cancer bubble attached. See the CNN Money article (CLICK HERE).


Ben Davies of Hinde Capital believes Japan must embark on a significant gold purchase program in offset to its next QE initiative. If Japan expects to succeed with its direct attempt to devalue the Yen currency, they must offer some support ballast to their financial system. However, they have never adopted gold as a mainstay ballast, probably due to their lackey role for the USGovt. Their Quantitative Easing initiative is the next of many in an endless series. In short, Japan needs gold to hedge against an effective devaluation. See the King World News interview (CLICK HERE).

◄$$$ JAPAN REVEALS A HIDDEN PRESSURE POINT. IT IS THE UNWIND OF THE GREAT YEN CARRY TRADE. IT WAS THE GREATEST FINANCIAL ENGINEERING PROJECT IN MODERN HISTORY. ITS UNWIND IS COMING TO AN END FINALLY WITH A CLIMAX UPWARD THRUST IN THE YEN, AMIDST CLOUDING FACTORS LIKE THE RISE OF CHINA. THE CLIMAX END OF THE USTREASURY BOND BUBBLE, WITH ITS BENCHMARK 0% LABEL, REMOVES THE YEN CARRY TRADE SINCE BOTH SOVEREIGN BONDS OFFER NEAR 0% YIELD. THE END OF THE GREAT CARRY TRADE SIGNALS A MONETARY SYSTEM BREAKDOWN AND FINALLY A USGOVT DEBT DEFAULT. THE YEN IS THE QUIET LITMUS INDEX OF THE COMPETING CURRENCY WAR, ITS TURBO-CHARGE. $$$

Most analysts were aware of the Yen Carry Trade unwind in 2008 and 2009, but they seem to forget it nowadays. It is coming to a climax, hidden from view since the effect has taken so long to unwind. Analysts grew tired of the story. This carry trade was identified by shorting the Japanese Yen, using near 0% money to invest in long-term USTreasury Bonds. It kept the Yen currency low (aid export trade) and the USDollar high (aid Wall Street sales). The carry trade went ON from the early 1990 decade into the 2000 decade. It was responsible for generating several hundred $billions for the Bank of Japan and the large Tokyo commercial banks. The Yen Carry Trade was the greatest financial engineering apparatus to generate work-free profits in modern history. The Wall Street maestros noticed and built their own devices, like shorting freely leased US gold and buying the same long-term USTreasurys, called the Gold Carry Trade. That project drained all USTBond collateral and USDollar backing, effectively bankrupting the United States. The point is that the carry trade has been unwinding for three years, the first couple noticed, the last not noticed. The USTreasury Bond complex has converged upon the 0% Japanese Govt Bond almost in perfect style. With the near 0% rates on short-term yields, and very low long-term yields under 3%, the game is over. The great Yen Carry Trade is almost finished unwinding, its bond yield differential vanished. It is in its final phase, still not complete since staggering huge. It will take a few more months to unwind and be complete. The destruction will be devastating to both the Japanese Economy and the USEconomy, justice served for tampering with the financial markets. What speculators swindle, Mother Nature taketh back.

The breakout in the Yen exchange rate is highly unwanted. A rising Yen creates a significant headwind to obstruct the Japanese export industry. Think Sony, Toyota, Nikon, Komatsu. Just as the the Yen Carry Trade was a tremendous benefit to enable industrial expansion and development of their export trade, it is the opposite today. The arrival of China adds to the motive to unwind, since they have corralled the export surpluses. But clearly, the most important impetus to close out the many outsized accounts that exploited the bond yield differential is the new approved sanctioned deadly USTreasury Bond bubble. There is no difference between the US and Japanese Govt debt security yield anymore, thus no incentive to sustain the carry trade. The US is Japan but with a burgeoning trade deficit and almost no industrial base. The slow motion dismantlement and removal of the Yen Carry Trade signals the end of the monetary system. The attention paid to China is a distraction from the bigger problem in the rising Yen currency and the implosion of the US financial structure.

The USGovt cannot complain to Tokyo on political grounds, since the USDept Treasury was a principal actor in promoting the Yen Carry Trade. It gave gigantic support to the USTreasury rally. That rally lasted from early in the Clinton-Rubin years, like 1994, and has not ended yet here 16 years later. The climax of the USTreasurys means a death march to 0%, draining funds from financial markets, feeding the American Black Hole, and painting the billboard signs on the path to the inevitable USTreasury default. The Yen currency is therefore a quiet hidden secretive litmus test paper strip that indicates the severity and intensity of the Competing Currency War. The unwind of the Yen Carry Trade is a turbo-charge to the destructive force of the Competing Currency War, but one not discussed, since it has US fingerprints on it.