Intervention, Manipulation, And Currency Wars

As Warren Buffett recently said, the world economy is being administered medicine by the cupful, not the spoonful; so there may be side effects, but no one's worried about them at the moment.

The Swiss National Bank intervened in the currency markets Thursday, in order to weaken the strengthening Swiss Franc that was hurting exports to Europe, (the Swiss Franc has been strengthening vs the Euro.)

The Europeans feel that the weak GBP is subsidizing and supporting the weak UK economy. The Bank of England is manipulating (sorry, make that intervening in) the UK bond market to keep Gilt yields down, as the financial centre in London has been hard hit by the financial tsunami.

Currencies in Eastern Europe that are stuck with ‘Swiss Franc’ loans and rapidly slowing economies are looking for an EU/ECB led bailout!

Central Banks in Asia are quite content to see their local currencies weaken vs. the USD, as exports to the ‘West’ are collapsing. Asian Multinational companies with USD denominated debt are going to be next in line for a handout or ‘temporary suspension’ of mark to market rules as Forex Loss adjustments threaten to destroy any profitability that’s left.

The Chinese continue to voice concerns about USD T Bonds, even as they continue their shopping spree in the industrial Commodities market. Are the Australians going to be cool with the Chinese holding controlling stakes in their mining companies!

In the US, the big banks are claiming to be profitable for 2009, but given what they did in 2007 and 2008, I’m not taking their word for it! Bernanke is still unwilling to release the names of ‘Leper Banks’, so I guess we have a few more surprises in store.

Some are intervening, some are manipulating, but most have no clue what they are doing.

One thing’s for sure, they are damaging whatever credibility they have left and more and more people are starting to realise that the clowns in the hot seat are perpetually behind the curve and that they have also been consistently wrong.

The average Joe may not understand the complexities of the derivative webs on Wall Street, but he has heard the story of ‘ the boy who cried wolf’ and thus can no longer believe the empty promises. He has been lied to over and over again and can no longer believe that ‘it's going to be all right.’

Gold tested levels under $900 this week and has recovered somewhat over the last couple of days. Thursday was especially curious as Gold, Crude Oil and the Stock Markets all rallied together. In these choppy markets, day traders are as confused as long-only investors.

The Equity markets rallied from extremely oversold levels, and short covering probably also contributed to part of the rally. We have not had a decent dead cat bounce thus far, as any attempted bear market rallies have been repeatedly stamped out by the unending flow of bad news.

Clearly there’s more manipulating and intervening left to be done!!

Comments

[Mad Hedge F...:]

Certainly a new system is needed. Noted international monetary economist Judy Shelton believes the US should return to at least a partial gold standard to help damp volatility in the $4.4 trillion a day foreign exchange market to hasten an economic recovery. The current “dirty float” system, where a free market is subject to occasional coordinated central bank intervention that emerged after the collapse of the original Bretton Woods agreement in 1973, is not working. The US currently holds 260 million ounces of the yellow metal, which for some arcane government accounting reason is still carried on its books at the old fixed rate of $42 an ounce. At today’s prices the holdings are worth no less than $231 billion. Such a system would make it easier for governments to manage interest rates and control inflation. The highlight of the evening came when she passed around a ten ounce gold bar worth $9,000 and a one billion deutschmark Weimar Republic bank note, both of which were miraculously returned to her. In the meantime, the recent bounce in global stock markets raise the risk that we have put in a medium term double top in the chart for the barbaric relic.

Mar 15 08:38 PM

[Dave Wrixon:]

The only rational reason for returning to the Gold Standard would be if the normal backing of a FIAT currency which is he Tax Base of Government has completely broken down.

Are we at that point? Well, in the case the of US of A, I would say we are. In other words, at the moment and it is current valuation there is absolutely nothing backing the US dollar apart from Bullshit.

In such a case, would backing it by Gold make sense?

Well, it just might. If confidence in the dollar evaporates, what else is there?

Will this turn the US economy around?

Absolutely, not. Backing the currency by Gold will condemn at least one generation if not two to grinding poverty.

Mar 16 02:03 AM