Is the Fed Hurting the Dollar in the Long-Term? | Currency Trading.net sent me an email asking me to link to this article. It was well-written and gave the story line OK but it was too shallow. One element most ‘currency/stock’ analysts leave out is all the business about international trade relations and diplomacy. These things are huge factors in predicting the future. Chart reading, incidentally, as a predictive project, seems to be a fading fad. It works only in the micro-world, when macro-events occur, it is useless. We are in a major macro-event and open government-based market manipulations are increasing in frequency as well as volume. It is becoming a veritable tsunami of interference with the natural collapse of a massive global bubble based on a system whereby the US hands out IOU paper money for trade goods. The floating fiat dollar regime launched by Nixon and Burns is rapidly coming to a close. Proof is in today’s news:
(Bloomberg) — Bank of England Governor Mervyn King said the U.K. is in a “deep recession” that may force policy makers to create money and pump it into the economy after cutting interest rates to a record low.
“Further easing in monetary policy may well be required,” said King at a press conference in London after presenting the central bank’s revised quarterly forecasts today. “That is likely to include actions aimed at increasing the supply of money in order to stimulate nominal spending.”
Bonds jumped after the remarks, which mark a shift in focus to unconventional measures after the deepest rate cuts in the central bank’s history failed to stave off a recession that may be the worst since World War II. The yield on the two-year government bond fell 25 basis points to 1.36 percent.
If England goes to ZIRP, this means three major banking/political powers will be mired in this system, first set into motion by Japan. Gradually, one by one, each major power of the G7 is falling into this same black pit where Japan sat for over a decade. All incoming data now shows that this collapse is bigger than any since WWII.
Understanding how this collapse began, why it is happening and where it will all end is of utmost importance. We still debate this because it is an important debate. It involves history, for we have a long history of these debates during and after global trade/monetary system collapses. And each fix ends up failing. All sorts of reasons for these failures are suggested and thus, cures are created. One of the biggest cures set into motion has been the concept of central banks.
All major nations and most minor ones have this. But they are not all the same, at all. England has the oldest, for example. The US one is much, much newer. And a lot fishier. Let’s visit the history of the Bank of Japan as a fine example as to how these central banks evolved in Asia, for example:
Prior to the Restoration, Japan’s feudal fiefs all issued their own money, hansatsu, in an array of incompatible denominations, but the New Currency Act of Meiji 4 (1871) did away with these and established the yen as the new decimal currency. The former han (fiefs) became prefectures and their mints became private chartered banks which, however, initially retained the right to print money. For a time both the central government and these so-called “national” banks issued money; to end this, the Bank of Japan was founded in Meiji 15 (1882) and given a monopoly on controlling the money supply.
The Bank of Japan issued its first banknotes on Meiji 18 (1885), and despite some small glitches — for example, it turned out that the konnyaku powder mixed in the paper to prevent counterfeiting made the bills a delicacy for rats — the run was largely successful. In 1897 Japan joined the gold standard and in 1899 the former “national” banknotes were formally phased out….
Despite a major 1997 rewrite of the Bank of Japan Act (日本銀行法) intended to give it more independence, the Bank of Japan has been criticized for lack of independence. A certain degree of dependence is enshrined in the Law itself, article 4 of which states:
In recognition of the fact that currency and monetary control is a component of overall economic policy, the Bank of Japan shall always maintain close contact with the government and exchange views sufficiently, so that its currency and monetary control and the basic stance of the government’s economic policy shall be mutually harmonious.
The Federal Reserve is a collection of investment pirates who operate a totally separate banking system from the US Treasury. They do have a small bit of input from Congress and the President via choices for governors of the bank, but this is dealt with by having institutional bribery systems in place that allow these wealthy bankers who actually own the system, to deal with control problems. All the Asian central banks talk about ‘harmony’. No matter what the economic system is, the bank is the servant of the State. Unlike in the US where it is the opposite.
Let’s look at a thumbnail sketch of the history of the Bank of England, from its own website:
- King William & Queen Mary—When William and Mary came to the throne in 1688, public finances were weak. The system of money and credit was in disarray. A national bank was needed to mobilise the nation’s resources.William Paterson proposed a loan of £1,200,000 to the Government. In return the subscribers would be incorporated as the Governor and Company of the Bank of England.
- The Royal Charter—The money was raised in a few weeks and the Royal Charter was sealed on 27th July 1694. The Bank started life as the Government’s banker and debt-manager, with 17 clerks and 2 gatekeepers. In 1734 the Bank moved to Thread-needle Street, gradually acquiring land and premises to create the site seen today. The Bank managed the Government’s accounts and made loans to finance spending at times of peace and war. A commercial bank too, it took deposits and issued notes.
- The 18th Century—During the 18th Century the Government borrowed more and more money. These outstanding loans were called the National Debt. Reliance on the Bank of England was such that when its charter was renewed in 1781 it was described as ‘ the public exchequer’. By now the Bank was acting as the bankers’ bank too. It was liable to fail if all its depositors decided to withdraw their money at the same time. But the Bank made sure it kept enough gold to pay its notes on demand.
- The ‘Restriction Period’—By 1797 war with France had drained the gold reserves. The Government prohibited the Bank from paying its notes in gold. This Restriction Period lasted until 1821.
- The 19th Century—The 1844 Bank Charter Act tied the note issue to the Bank’s gold reserves. The Bank was required to keep the accounts of the note issue separate from those of its banking operations and produce a weekly summary of both accounts. The Bank Return, as it’s called, is still published every week. In the 19th Century the Bank took on the role of lender of last resort, providing stability during several financial crises.
- The First World War: 1914-18—During the First World War the National Debt jumped to £7 billion. The Bank helped manage Government borrowing and resist inflationary pressures.
- Gold—In 1931 the United Kingdom left the gold standard; its gold and foreign exchange reserves were transferred to the Treasury. But their management was still handled by the Bank and this remains the case today. After the Second World War the bank was nationalised. It remained the Treasury’s adviser, agent and debt manager.
- Financial crises—During the 1970s, the Bank played a key role during several banking crises. The Bank was at the fore when monetary policy again became a central part of Government policy in the 1980s. In May 1997 the Government gave the Bank responsibility for setting interest rates to meet the Government’s stated inflation target. The 1998 Bank of England Act made changes to the Bank’s governing body too. The Court of Directors, as it’s known, is now made up of the Bank’s Governor and 2 Deputy Governors, and 16 Non-Executive Directors.
Like the US bank, it started off as a private loan from a consortium of business people who were eager to get in on the right side of the new government. This was after many years of civil disorder and the fall of more than one king due to religious and regional battles and strife between kings and Parliament. My own family was forced to flee England during this cycle.
Mr. Paterson, at the top of the timeline, the true founder of the Bank of England was a Scottish man born in a byrne. He was also the founder of the Bank of Scotland and worked to join Scotland to England, to form the United Kingdom. He became an international adventurer who wanted to conquer parts of the lands surrounding the Gulf of Mexico. He also was one of the people who supported ‘free trade’ due to his international interests. Free trade cannot exist unless there is some way of bankrolling trade. Especially if that trade is one-way. The seeds for tensions were sown at the same time, the same individuals pushed for a nationalist bank, controlled by importers. Note this: IMPORTERS were in control, at first.
In the early 1690s the Scottish projector William Paterson fronted several syndicates interested in establishing a public bank in England, in imitation of similar successful ventures in Italy and the Netherlands. After a few failed attempts, he and his merchant backers eventually proved successful. In early May 1694 parliament passed a statute appointing a new tax on ship tonnage expected to raise £140,000 per year. £100,000 of this was earmarked to pay interest (at 8% per annum) on a new £1.2 million loan to the government. The loan would go to cover about ¼ of that year’s expenditures upon the Nine Years War (1689-97) with France. It was to be raised by subscriptions from private citizens, with a ceiling of £20,000 per contributor. Subscriptions, or what effectively became shares in the new Bank, could be sold or bequeathed (eventually leading to a thriving market in Bank stock). If at least 50% of the loan was raised before 1 August 1694, the subscribers were to be incorporated as “The Governor and Company of the Bank of England”. Incorporation would afford legal protections needed to issue paper currency, a right that would prove very profitable.
The full amount of the loan was subscribed, by over 1200 people in all, a mere eleven days after the books were opened on 21 June. At the first shareholders’ meeting 24 directors were chosen (Paterson among them) from those who had subscribed at least £2,000. Most were wealthy Whig merchants, just as most subscribers were allied with the Whig party. The directors in turn elected Sir John Houblon as the Bank’s first governor. A royal charter of incorporation was sealed on 27 July.
The £1.2 million loan was paid into the Exchequer in instalments between August and December. Part of it came from calls upon the shareholders, who by November had supplied 60% of the amounts for which they had subscribed. But a good part was paid with so-called “sealed bills”: £1000 paper notes stamped with the Bank’s corporate seal. The government used these bills in turn to pay its suppliers. Since they bore interest at about 3% per annum, many were held as investments; those few that were returned to the Bank for cash were reissued and employed in further loans to the Crown. The Bank’s charter thus immediately proved profitable. Shareholders received interest of 8% on the full amount of the loan, but had only had to contribute £720,000 in actual cash. And much of this cash was used not for the war loan but to circulate additional sealed bills issued out to private borrowers, raising returns even further.
The authorizing statute had imposed two important limitations: the Bank could lend no more than £1.2 million to the government without parliamentary dispensation and could issue no more than £1.2 million in sealed bills. The first limitation actually proved an asset,
So, the very first and eldest of the central banks was launched by subscription rather than taxes. Then, this money was lent [with the 10% or so actual gold at hand] to the government for war purposes. Rather than tax directly for a war, the new royal family could wage war with impunity based on future revenues from taxes. The expectation was, the wars would be short [ah! The 100 Years and the recently-finished 30 Years Wars both spring to mind!] and the payback would be over an extended period of peace.
Of course, all this did was give the Crown money for imperial expansions on the behalf of guess who? The people like Paterson who wanted to import goods from distant lands! And make a big profit, doing this! As we see over and over in history after the founding of this bank, the founders and the government both realized, this opens a door to endless and eternal and infinite debt! To counter-act the temptation to go to infinity, Parliament put in restrictions. We must remember: the only thing standing between infinite debt growth are artificial barriers put up by mere humans. Humans are always tempted to make something out of nothing and to do this with impunity.
Some people like to think that the Jewish family, the Rothschilds, were the founders of the Bank of England. They were not. It was also a Scotsman, John Law, who went to France during this time frame. He made the exact same sort of deal for the Regent of France who also needed money since he was fighting the British [HAHAHA] and this other Scotsman also explained how present spending could be funded by a fractional bank.
The difference was, the Bank of France dropped all barriers because the royals discovered, they could run up infinite debts this way. They did exactly that. And bankrupted the nation leading to the beheading of the King and Queen and the French Revolution. But for a short while, they had a wonderful fling with the new banking system. The Rothschilds didn’t enter the picture until the Napoleonic Wars when both Britain and France were locked in a life and death struggle for power on the Continent.
Today, the Bank of Japan, the Bank of England and the Royal Bank of Scotland are all in the news which is why I decided it was time to show how they evolved. For the past is the future.
(Bloomberg) — Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester dismisses concerns that Prime Minister Gordon Brown wields too much power on behalf of the bank’s new controlling shareholder, the British taxpayer.
“I am not feeling pressure from the shareholder to act irrationally,” Hester told analysts on a conference call last month. “If I stood up and said, ‘You know what, our strategy is to close the U.K. and move to Bermuda and become a hedge fund,’ we might have a debate.”
That same day, even as Brown was railing against the dangers of financial protectionism, Hester pledged RBS would increase British lending by 6 billion pounds ($8.8 billion) and scale back business outside the U.K., which accounts for 41 percent of the bank’s lending. RBS has pulled out of loans to an Italian investment company and a German shipping line since December.
The Royal Bank of Scotland must be ‘protectionist’. Any central bank that refuses to do this will be party to the death of their own country. When a country dies, lots of humans literally die. These lead to massive, even world wars. It is not the responsibility of the Royal Bank of Scotland to float the entire planet’s need for trade-enabling loans! I like the dry wit of Mr. Hester, joking about offshoring the bank to one of Queen Elizabeth’s many pirate coves!
We should have a raging debate about hedge funds going ‘offshore’ where they can operate like pirates, not as important protectors of a State. Ireland and Iceland attempted to operate as quasi-offshore entities and got burned badly by this. Scotland has a long tradition of being innovators but also, lovers of Scotland. So they will merrily go over to Paris and launch out of control banks. But not at home, at least, not until recently.
As a sop to London, the Scots will lend to the City. But it isn’t enough. The black hole at the feet of the Bank of England yawns like the jaws of hell. Going to 0% is a red flag, England will be mired in a depression a long time, like Japan. Except not like Japan!
(Bloomberg) — The U.S. trade deficit narrowed in December to the smallest in almost six years, with both exports and imports declining for the fifth straight month as consumers worldwide pulled back their spending.
The gap between imports and exports shrank 4 percent to $39.9 billion, from a revised $41.6 billion deficit in November that was wider than previously estimated, the Commerce Department said today in Washington.
“Trade is collapsing globally; whether it’s imports or exports, there’s a net benefit from trade that lifts all economies, and we’re losing that now,” said Christopher Low, chief economist at FTN Financial in New York. “We’ll see a rise in protectionist sentiments.”
Collapsing demand from overseas may reinforce calls from some U.S. firms for a “Buy American” provision in President Barack Obama’s stimulus plan, while nations including France and Russia take steps to protect local jobs and production. Trade flows are likely to keep contracting as the bite from job losses and the credit crunch tightens worldwide.
For years, I have remarked that the only way we can close our trade deficits is to throw the entire planet into deep recessions or a depression. It works like a charm. Of course, this brings no benefits to us since this means we do less domestic business, too! And each rebound after each recession sees the trade deficit get worse than before! This is partially because the government is very anxious to get rid of all the excess-recession money making that floods the markets so they do this by lowering consumer prices via allowing cheap-labor goods to flood into the US via the free trade system. Whew! Let’s go to the Ur-trader, Japan:
Carmakers Face Uphill Battle As Credit Woes Start To Take Toll
TOKYO (Nikkei)–New fundraising troubles are complicating Japanese automakers’ efforts to steer out of a deepening sales rut, prompting some firms to seek government aid abroad.
Lending By BOJ Exceeds Y3tln As Corporate Funding Needs Grow
TOKYO (Nikkei)–The Bank of Japan’s special lending program aimed at supporting corporate funding activities is drawing robust demand, with loans provided through three rounds of market operations already topping 3 trillion yen.
The Bank of Japan is an arm not of the government but of the industrial export powers. It operates only on their behalf. This is why Japan’s exporters have seen massive growth in the wealth and extension of influence across the entire planet. Note that the Bank of Japan is lending to the industrialists. Directly. Unlike the US. Where the Federal Reserve is trying to prop up bankrupt bankers so THEY can lend to industrialists. Toyota doesn’t have to bother going to the Parliament to get money. They go directly to the central bank! Which has immense funds behind it. One trillion dollars. But there is more news about this money and international banking swaps between the US, UK and Japan.
TOKYO (Nikkei)–Japanese companies are grappling with a punishing mix of three serious problems — growing inventories, dysfunctional debt markets and a stronger yen.
Inventories of thin steel sheet for automobiles and consumer electronics — the mainstay product for steelmakers — jumped to more than 4.5 million tons at the end of November, exceeding that threshold for the first time in three years.
Major blast furnace steelmakers are producing crude steel at only 70% of capacity in the January-March quarter. If reduced production at current levels continues, one-third of the industry’s blast furnace capacity will become redundant….
As manufacturers have tapped the brakes on production to whittle away at the piles of unsold products,the capacity-utilization ratio in the sector has dropped by 9.4%, the steepest decline in four decades….
Late last year, Sony Corp. (6758) tried to raise 50 billion yen by issuing straight bonds, but investors bought only 37.5 billion yen worth, underscoring the tough environment for corporate financing.
It is even more difficult for Japanese companies to secure dollars and euros necessary for their overseas operations because of the financial crisis in the West.
Like in the US and other G7 nations, the trade/industrial production numbers are now worse than any time since WWII. Sony, of course, could go straight to the Bank of Japan. So they don’t have to go into bankruptcy, for example. The Bank of Japan keeps these guys afloat, not matter what. Japan will not allow any major industry to go under. Unlike the US.
I am filled with wonder about the last paragraph in the Nikkei news story above. It is difficult for the Japanese to get euros and dollars? Several things: this clearly shows that the US dollar is no longer the main currency for international finance, the euro is a strong contender in Japanese trading. Of course, the really astonishing thing here is, the Bank of Japan is sitting, like a huge hen on an immense egg, on one of the biggest FOREX holdings of euros and dollars! And the Japanese businesses can’t get enough? HAHAHA. Oh my, I see a huge, bizarre thing here!
If the Bank of Japan shares these many euros and dollars with their own businesses, the yen will get stronger! So, instead, the Japanese government demands Europe and the US feed them MORE dollars and euros! But not to the central bank, to keep their business pirates operating their schemes to take over everyone’s industrial systems! Isn’t this the definition of insanity? We should say, ‘No, we are too busy trying to weaken the dollar and balancing our trade with you, why not let some of those dollars out of the FOREX prison you keep them in to artificially weaken the yen?’
Of course, I don’t run our banking or trade authorities so I can’t say this and make it stick. On the other hand, I hope someone says this! About time.
Japan Inc. is also taking a big hit from the yen’s sharp climb against other major currencies. Every 10% rise in the yen’s value against the dollar is a massive drain on the overseas profits made by Japanese companies and depresses their combined pretax profits by 6%, according to an estimate by the Japan Center for Economic Research.
Major brokerages have predicted that Japanese corporate profits in the year through March 2010 will decline by 10-20% from the previous year, and the firms continue ratcheting down their forecasts.
A 20% fall in corporate pretax profits in fiscal 2009 would lower Japan’s real economic growth by 2.5 percentage points, according to an estimated by Dai-Ichi Life Research Institute Inc. Odds are growing that for the first time in the postwar period, the economy will shrink by 2% for two years in a row.
In trying to revive the faltering economy, the government and the Bank of Japan should prioritize tackling the credit crunch.
The BOJ has announced a plan to buy up to 3 trillion yen in commercial paper issued by companies. But the central bank should also pay attention to the difficulty companies are facing in the area of financing in foreign currencies.
The article ends with the Bank of Japan paying attention to the foreign currency problem. But both the bankers and the industrialists are in agony over this. Anything they do to release their captive funds means the yen gets stronger. Look at the data above that I highlighted! As the yen rises, their profits fall! This is a trap they can’t escape. They built it this way and exploited free trade to set up a totally warped system they can’t change easily. They MUST export to the US and Europe and MUST do this with a weak yen since the yen is not a global currency, as far as the Japanese can make it. They do NOT want us holding yen! The yen is now still 90 to the dollar. It is not weakening nearly as fast as Japan can wreck it.
Incidentally, gold has climbed by over $32 dollars today! I suggest, Japanese savers are buying gold like crazy now that the yen it strong! I will suggest that, so long as Japan has the ZIRP system and the yen is strong, gold will be strong, too. I can’t prove this but believe future data will confirm, this is the dynamic at work right now, this winter.
(Bloomberg) — Barneys New York’s owner, Dubai’s Istithmar World PJSC, may sell the luxury retailer for less than half what it paid two years ago as the state-owned fund seeks to raise cash to meet debt payments.
Barneys, which Istithmar bought for $942.3 million in 2007, may fetch $350 million to $600 million, according to four people familiar with potential bids. Even in that price range, a surge in retail bankruptcies, falling luxury sales and frozen credit markets are muting interest, the people said, declining to be identified because the talks are private.
“It’s a buyers’ market,” said John Guy, a fashion and luxury analyst with MF Global Securities in London. “The fact that luxury-goods stocks have fallen more than 30 percent in the past year is also going to weigh on expectations.”
The OPEC Princes are going bankrupt. They always do this. They still haven’t figured out how to deal with self-limitations and planning for tomorrow. The Asians tend to be better at this, even so, they too, struggle with the power of infinity. She is a very dire goddess! She knows no limits, wants on rules and despises even the Law of Gravity. She always destroys any system She dominates. Will we ever learn?
The OPEC Princes are, like many of the ‘rich’, deep in debt. They need to sell assets at fire prices to raise money to give it back to the bankers. I did a short study the other day about the Rothschild clan: they are not bankers anymore, they are very, very heavy into bankruptcy laws and running bankruptcy businesses across the entire planet. They plan to mop up this mess. And make a profit, not too much, just enough to keep on going. And living decently enough. And to keep power in their hands.
This is what Asia wants and tries to gain. But it is a difficult business, like going through minefields in the dark, in the rain. Move too fast, you blow up.
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