The Dollar

That Escalated Quickly: The Emerging Market Currency Crisis Of 2018 Threatens To Destabilize The Entire Global Financial System

August 13, 2018August 13, 2018 by Michael

We haven’t seen emerging market currencies crash like this in over a decade, and analysts are warning that if this continues we could witness a devastating global debt crisis. Over the past decade, there has been an insatiable appetite for cheap loans in emerging market economies, and a very substantial percentage of those loans were denominated in U.S. dollars. When emerging market currencies crash relative to the U.S. dollar, lending dries up and servicing the existing loans becomes extremely oppressive, and that is precisely what we are witnessing right now. This week, most of the top headlines in the financial media have been about the crisis in Turkey. The Turkish lira fell another 8 percent against the U.S. dollar on Monday, and it is now down about 35 percent over the past week. Overall, the lira has fallen 82 percent against the U.S. dollar in 2018, and this is putting an enormous amount of stress on the Turkish financial system…

“It is about credit, since Turkey has been a huge borrower in global capital markets over the past number of years when the world’s central banks were encouraging investors to stretch for yield,” David Rosenberg, chief economist and strategist at Gluskin Sheff, said in his daily market note. “Over half of the borrowing is denominated in foreign currencies, so when the lira sinks, debt-servicing costs and default risks rise inexorably.”

Turkey’s economy, just like all of the other major economies around the world, is utterly dependent on the flow of credit, and now lending is becoming greatly restricted.

Meanwhile, any existing loans that were made during the lending spree of the past decade that are denominated in foreign currencies are going to be causing major problems. The following comes from CNBC…

The lending spree has created two potential problems, according to Capital Economics. One is that Turkish banks looked to foreign wholesale markets as a way to fund the credit boom, instead of relying on more steady domestic deposits.

Now, the expense of servicing those loans has jumped with the lira’s decline, and they will be much more difficult for banks to roll over. The second risk is the possible sharp rise in nonperforming loans, including those made in foreign currencies, mostly to businesses.

Many of my American readers may be wondering why they should be concerned about what is going on in Turkey.

Well, the fear is that “what happens in Turkey won’t stay in Turkey”, and it isn’t just Turkey that we are talking about. Similar scenarios are playing out in emerging markets all over the planet, and one of the most dramatic examples is Argentina.

The Argentine peso has lost 8 percent against the U.S. dollar over the last three trading days, and overall it is down about 33 percent over the past four months.

In a desperate attempt to restore confidence in the currency, the central bank raised the core interest rate 5 entire percentage points on Monday to an eye-popping 45 percent…

Argentina took emergency steps to stabilize its currency in the wake of an emerging-market rout caused by Turkey’s crisis, jacking up its already highest-in-the-world interest rate by 5 percentage points and announcing it will sell $500 million to support the peso.

Policy makers set the rate for seven-day notes at a record 45 percent and pledged to keep it at that level at least until October. The central bank also said it plans to phase out 1 trillion pesos ($33.2 billion) of short-term notes by December in an effort to limit the currency volatility that often popped up when the securities were rolled over. And the bank also changed a system for dollar auctions to make them harder for traders to anticipate.

And this wasn’t the first time that the central bank has made such a dramatic move.

In fact, this was the fourth enormous rate hike that we have seen since April 27th.

The IMF has promised to intervene in Argentina with a 50 billion dollar bailout, but that may not be nearly enough.

Meanwhile, let’s not forget the complete and utter disaster that Venezuela has become. According to the IMF, the inflation rate in that country is projected to hit one million percent this year…

A top U.N. official is warning that Venezuela is on the verge of turning into an “absolute disaster of unprecedented proportions.” And now, what was once Latin America’s richest nation is about to ravaged by hyperinflation.

Life for most people in Venezuela is already terrible, so it might be hard to believe that it is about to get even worse, but it is.

One million percent. That’s the inflation rate the International Monetary Fund predicts Venezuela will hit this year.

Yes, it is true that Venezuela has been a basket case for some time, but things are getting a lot worse. People are starving, the entire economy is disintegrating, and chaos reigns in the streets.

And we must remember that Venezuela was once one of the wealthiest nations on the entire globe.

Will similar scenes soon be playing out in other emerging markets as this new debt crisis deepens?

In addition to Turkey and Argentina, currencies are also crashing in South Africa, Colombia, India, Mexico, Brazil, Chile and a very long list of other prominent nations.

If order is not restored to the currency markets, we are going to see an international debt crisis of unprecedented size and scope.

So keep a close eye on the foreign exchange markets over the next few days. If emerging market currencies keep crashing, events are going to begin to escalate very, very rapidly.

Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

Venezuela Has Officially Abandoned The Petrodollar – Does This Make War With Venezuela More Likely?

September 14, 2017September 14, 2017 by Michael

Venezuela is the 11th largest oil producing country in the entire world, and it has just announced that it is going to stop using the petrodollar. Most Americans don’t even know what the petrodollar is, but for those of you that do understand what I am talking about, this should send a chill up your spine. The petrodollar is one of the key pillars of the global financial system, and it allows us to live a far higher standard of living than we actually deserve. The dominance of the petrodollar has been very jealously guarded by our government in the past, and that is why many are now concerned that this move by Venezuela could potentially lead us to war.

I don’t know why this isn’t headline news all over the country, but it should be. One of the few major media outlets that is reporting on this is the Wall Street Journal…

The government of this oil-rich but struggling country, looking for ways to circumvent U.S. sanctions, is telling oil traders that it will no longer receive or send payments in dollars, people familiar with the new policy have told The Wall Street Journal.

Before we go any further, we should discuss what we mean by the “petrodollar” for those that are not familiar with the concept. The following comes from an excellent article by Christopher Doran…

In a nutshell, any country that wants to purchase oil from an oil producing country has to do so in U.S. dollars. This is a long standing agreement within all oil exporting nations, aka OPEC, the Organization of Petroleum Exporting Countries. The UK for example, cannot simply buy oil from Saudi Arabia by exchanging British pounds. Instead, the UK must exchange its pounds for U.S. dollars. The major exception at present is, of course, Iran.

This means that every country in the world that imports oil—which is the vast majority of the world’s nations—has to have immense quantities of dollars in reserve.

As will be explained below, the fact that virtually everyone around the world has to use our currency to buy oil is a massive advantage for us. Venezuela knows this, and so in response to new sanctions being imposed upon them, they are hitting us where it hurts…

Oil traders who export Venezuelan crude or import oil products into the country have begun converting their invoices to euros.

The state oil company Petróleos de Venezuela SA, known as PdVSA, has told its private joint venture partners to open accounts in euros and to convert existing cash holdings into Europe’s main currency, said one project partner.

The new payment policy hasn’t been publicly announced, but Vice President Tareck El Aissami, who has been blacklisted by the U.S., said Friday, “To fight against the economic blockade there will be a basket of currencies to liberate us from the dollar.”

If more nations start to follow suit, it would be absolutely disastrous for the United States.

In other articles, I have detailed why the petrodollar is so incredibly important to our economy and our financial system. The following is an extended excerpt from one of those previous articles…

So why is the petrodollar so important?

Well, it creates a tremendous amount of demand for the U.S. dollar all over the globe. Since everyone has needed it to trade with one another, that has created an endless global appetite for the currency. That has kept the value of the dollar artificially high, and it has enabled us to import trillions of dollars of super cheap products from other countries. If other nations stopped using the dollar to trade with one another, the value of the dollar would plummet dramatically and we would have to pay much, much more for the trinkets that we buy at the dollar store and Wal-Mart.

In addition, since the U.S. dollar is essentially the de facto global currency, this has also increased demand for our debt. Major exporting nations such as China and Saudi Arabia end up with giant piles of our dollars. Instead of just letting them sit there and do nothing, those nations often reinvest their dollars into securities that can rapidly be changed back into dollars if needed. One of the most popular ways to do this has been to invest those dollars in U.S. Treasuries. This has driven down interest rates on U.S. debt over the years and has enabled the U.S. government to borrow trillions upon trillions of dollars for next to nothing.

But if the rest of the world starts moving away from the U.S. dollar, all of this could change.

History has shown that when the status of the petrodollar is threatened, the U.S. is swift to take action.

And it is very interesting to note that President Trump will be meeting with Latin American leaders next week, and the main topic for discussion will be “the Venezuela crisis”…

U.S. President Donald Trump has invited three Latin American leaders to dine with him next week in New York as he seeks to address the Venezuela crisis and build bridges with the region after an acrimonious start with neighbor Mexico.

The political and economic turmoil in Venezuela, source of 10 percent of the oil consumed by the United States, will almost certainly top the agenda when he receives the center-right presidents of Peru, Colombia and Brazil at Trump Tower on Monday evening, diplomats said.

Could this latest move by Venezuela be enough to potentially spark a military conflict?

The guys over at Zero Hedge seem to think so…

Having threatened China today with exclusion from SWIFT, we suspect Washington is rapidly running out of any great ally to sustain the petrodollar-driven hegemony (and implicitly its war machine). Cue the calls for a Venezuelan invasion in 3…2..1…!

It would be absolutely no surprise at all if John McCain and Lindsey Graham start appearing on the major news networks calling for war with Venezuela, but hopefully President Trump will not listen to such nonsense.

No matter how important the petrodollar is, there is absolutely no reason to go to war to protect it.

And if war talk does begin, the American people need to make their voices heard very, very loudly. We have been in useless wars before, and we certainly do not need another one.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

U.S. Economic Confidence Surges To The Highest Level That Gallup Has Ever Recorded

December 20, 2016December 20, 2016 by Michael

Gallup’s U.S. Economic Confidence Index has never been higher than it is today. The “Trumphoria” that has gripped the nation ever since Donald Trump’s miraculous victory on election night shows no signs of letting up. Tens of millions of Americans that were deeply troubled by Barack Obama’s policies over the last eight years are feeling optimistic about the future for the first time in a very long time. And it is hard to blame them, because what we have already seen happen since November 8th is nothing short of extraordinary. The stock market keeps hitting record high after record high, the U.S. dollar is now the strongest that it has been in 14 years, and CEOs are personally promising Trump that they will bring jobs back to the United States. These are things worth getting excited about, and so it makes perfect sense that Gallup’s U.S. Economic Confidence Index has now risen to the highest level that Gallup has ever seen…

Americans’ confidence in the economy continues to gradually strengthen after last month’s post-election surge. Gallup’s U.S. Economic Confidence Index averaged +10 for the week ending Dec. 18, marking another new high in its nine-year trend.

The latest figure is up slightly from the index’s previous high of +8 recorded in both of the prior two weeks. The first positive double-digit index score since the inception of Gallup Daily tracking in 2008 reflects a stark change in Americans’ confidence in the U.S. economy from the negative views they expressed in most weeks over the past nine years.

And of course this booming level of confidence is not just reflected in Gallup’s numbers. As I discussed in a previous article, the mammoth shift in the results of CNBC’s All-America Economic Survey after the election was nothing short of historic…

The CNBC All-America Economic Survey for the fourth quarter found that the percentage of Americans who believe the economy will get better in the next year jumped an unprecedented 17 points to 42 percent, compared with before the election. It’s the highest level since President Barack Obama was first elected in 2008.

The surge was powered by Republicans and independents reversing their outlooks. Republicans swung from deeply pessimistic, with just 15 percent saying the economy would improve in the next year, to strongly optimistic, with 74 percent believing in an economic upswing. Optimism among independents doubled but it fell by more than half for Democrats. Just 16 percent think the economy will improve.

On Tuesday, the Dow Jones Industrial Average closed at yet another all-time record high.

That was the 17th record close since election day, and overall the Dow is up a whopping 8 percent during that time span.

I don’t think that we have ever seen an extended post-election stock market rally quite like this one, and the U.S. dollar is rallying too. On Tuesday, the U.S. dollar was the strongest that it has been in 14 years…

The dollar hit a fresh 14-year high on Tuesday, boosted by upbeat comments from Federal Reserve Chair Janet Yellen that kept alive market expectations for swifter U.S. interest rate hikes next year than had been expected.

The greenback climbed broadly but its gains were strongest against the yen, which slid as much as 1 percent after the Bank of Japan kept monetary policy unchanged.

But of course not everything is rainbows and unicorns. Signs of trouble continue to erupt all over the U.S. economy, and there are many that believe that Trump will be facing some very serious economic concerns very early in his presidency.

Just look at what is happening in the auto industry. Unsold vehicles are piling up at an alarming pace at dealers all over the nation, and GM just announced that it is going to temporarily close five factories…

GM has been reacting to its fabulously ballooning inventory glut by piling incentives on its vehicles. But that hasn’t worked all that well though it cost a lot of money. Now it’s time to get serious.

It will temporarily close five assembly plants in January and lay off over 10,000 employees, spokeswoman Dayna Hart said today.

And GM is definitely not alone. Back in October, Ford made a similar announcement…

In October, Ford announced that it would temporarily shut down production at one of its F-150 assembly plants (Kansas City), along with production at a plant that assembles the Escape and the Lincoln MKC (Louisville), plus two plants in Mexico. It would also lay off about 13,000 workers, 9,000 in the US and 4,000 in Mexico.

Another signal that the economy is slowing down is the tremendous difficulty that Uber is experiencing right now. If you can believe it, they just announced that they lost a staggering 800 million dollars in the third quarter…

Uber racked up pro-forma losses of more than $800m in the third quarter of this year as a price war with rival ride-hailing service Lyft in the US and heavy spending on new initiatives weighed on its figures, according to a person familiar with its recent financial performance, reports The Financial Times.

The third-quarter figures, first reported by tech news site The Information, show that Uber still faces steep losses even after pulling back from China.

I don’t understand how Uber could possibly lose 800 million dollars in three months. Something is definitely very wrong over there.

Personally, I hope that things go as well as possible during the Trump administration. If we truly are entering a new golden era of peace and prosperity, that would be more than okay with me.

But we should not forget that our economic fundamentals have continued to deteriorate all throughout the Obama years, and our nation has been steadily accumulating the largest mountain of debt the world has ever seen.

Unless there is some sort of unprecedented miracle, there is no way that this giant bubble that we are in at the moment is going to end well. So it is definitely good to be optimistic, but we also need to be realistic about where we are right now and about the great challenges that we will soon be facing.

The Election Of Donald Trump Is Already Having An Enormous Impact On The Economy

November 14, 2016November 14, 2016 by Michael

The election of Donald Trump has sent shockwaves through the U.S. economy and the U.S. financial system. Since November 8th, the Dow has hit a brand new all-time record high, the U.S. dollar has strengthened greatly, and bank stocks are way up. But not all of the economic news is good news. Unlike stocks, bonds have reacted very negatively to Trump’s election victory. The past week has been an absolute bloodbath for bond traders, and as you will see below this is going to have dramatic implications for all U.S. consumers moving forward.

Over just a two day period, more than a trillion dollars was wiped out as bond yields spiked all over the globe. As CNN has noted, this type of “violent reaction” in the bond market has only happened three other times within the past ten years…

The rate on 10-year Treasury notes has surged to 2.3%, from 1.77% before the election. Last week’s spike in Treasury rates was so big, that it had only happened three times before in the last decade.

BlackRock’s Russ Koesterich called it a “violent reaction.”

The move stands to have broad repercussions for all Americans. Not only will the U.S. government have to pay more to borrow money, but mortgage rates and car loan costs should also rise. That’s because Treasuries are used as the benchmark for many other forms of credit.

As interest rates rise, virtually everyone in our society is going to feel the pain.

Those that need an auto loan in order to purchase a vehicle are going to find that loan payments are significantly higher than they were before.

Credit card rates will also go up, and those just getting out of school will discover that their student loan payments are even more suffocating.

But the biggest impact will be felt in the housing market. The average rate on a 30-year fixed mortgage just hit the psychologically-important 4 percent barrier, and that could mean big trouble for the housing market in 2017…

The average contract rate on the popular 30-year fixed mortgage hit 4 percent, according to Mortgage News Daily, a level most didn’t expect to see until the middle of next year. Rates have now moved nearly a half a percentage point higher since Donald Trump was elected president.

“The situation on the ground is panicked. Damage control,” said Matthew Graham, chief operating officer of Mortgage News Daily. “People were trying to lock loans quickly last week and are now facing a tough choice to lock today or hope for a bounce. Many hoped for a bounce last week heading into the long weekend and we obviously didn’t get it.”

Rising interest rates was one of the key factors that precipitated the financial crisis of 2008, and many fear that it could happen again.

And without a doubt, this rise in rates is going to affect the affordability of homes that are already on the market…

“If you’re going to buy a house and your mortgage payment went up by $200 or $300, you may buy a smaller house. There’s impact on interest rate sensitive sectors, like autos and housing, and also corporate bonds themselves, where financial engineering has helped juice up the equity market,” said George Goncalves, head of rate strategy at Nomura.

In addition, rising rates will make it more difficult for those with adjustable rate mortgages to keep their homes. Foreclosure activity was already up 27 percent during the month of October, and many are projecting that we could see another giant spike in foreclosures during the months ahead that is similar to what we saw during the last financial crisis.

Many Trump supporters don’t really care what the rest of the world thinks of our new president, but this is an area where what the rest of the world thinks really, really matters.

The truth is that the rest of the planet is not all too fond of Trump, and if that makes them a lot less eager to lend us money that is a major problem.

The only way that we can maintain our massively inflated debt-fueled standard of living is to continue to borrow gigantic mountains of money from the rest of the world at ultra-low interest rates.

If the rest of the world starts demanding higher rates of return now that Trump is president, we are going to experience economic pain on a scale that most Americans don’t believe is possible.

One of our big lenders has been China, and right now they are deeply concerned about what a Trump presidency might mean. Trump has talked very tough about trade with China, and the Chinese are gearing up for a major trade war. The following comes from CNBC…

During his election campaign this year, Trump spoke of a 45 percent import tariff on all Chinese goods while failing to outline how it would work. Should any such policy come into effect, China will take a “tit-for-tat approach”, according to an opinion piece in the Global Times, a newspaper backed by the Communist party.

“A batch of Boeing orders will be replaced by Airbus. U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the U.S.,” the Global Times article read.

Most Trump supporters assume that since Trump has been a very successful businessman that he will be able to strengthen the U.S. economy.

But it isn’t that simple.

The only reason we are able to live the way that we live today is because we have been able to borrow trillions upon trillions of dollars at irrationally low interest rates.

The moment the rest of the world decides that they are not going to loan us money at irrationally low interest rates any longer the game is over, and it won’t really matter who is in the White House at that point.

So watch interest rates very carefully. If they keep going up, it is inevitable that a major economic slowdown will follow no matter what economic policies the new Trump administration implements.

Russia Is Going To Pass A Law Formally Dumping The U.S. Dollar

September 2, 2015September 2, 2015 by Michael

Russian President Vladimir Putin has introduced legislation that would deal a tremendous blow to the U.S. dollar. If Putin gets his way, and he almost certainly will, the U.S. dollar will be eliminated from trade between nations that belong to the Commonwealth of Independent States. In addition to Russia, that list of countries includes Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan and Uzbekistan. Obviously this would not mean “the death of the dollar”, but it would be a very significant step toward the end of the era of the absolute dominance of the U.S. dollar. Most people don’t realize this, but more U.S. dollars are actually used outside of the United States than are used inside this country. If the rest of the planet decides to stop accumulating dollars, using them to trade with one another, and loaning them back to us at ultra-low interest rates, we are going to be in for a world of hurt. Unfortunately for us, it is only a matter of time until that happens.

When I first read the following excerpt from a recent RT article, I was absolutely stunned…

Russian President Vladimir Putin has drafted a bill that aims to eliminate the US dollar and the euro from trade between CIS countries.

This means the creation of a single financial market between Russia, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan and other countries of the former Soviet Union.

“This would help expand the use of national currencies in foreign trade payments and financial services and thus create preconditions for greater liquidity of domestic currency markets”, said a statement from Kremlin.

For a long time, tensions have been building between the United States and Russia over Syria, Ukraine, the price of oil and a whole host of other issues. But I didn’t anticipate that things would get to this level quite yet. It is expected that Putin’s new bill will become law, and this is only one element of a much larger trend that is now developing.

You see, the truth is that Russia and China have both been dumping dollar-denominated assets for months. The following comes from a recent piece by Mac Slavo…

Last year Russia began unloading massive amounts of their US dollar reserves. In the month of December 2014 alone Putin sold some 20% of the country’s U.S. Treasurys, a move that further increased tensions surrounding what can only be described as economic warfare between East and West.

Then, as if part of a coordinated effort, this summer it was revealed that China had implemented a similar strategy, dumping half a trillion in dollar denominated assets.

But that’s just the beginning of the end for the US dollar. Amid a major meltdown in Chinese stock markets the People’s Republic sold off billions in dollar assets last week in what was reported to be an effort to stabilize their collapsing financial markets.

And now, as Russia’s economy collapses under the weight of American and European sanctions, including what many believe to be widespread downward manipulation of oil prices, Vladimir Putin is sending a clear signal to the central bank of the world’s reserve currency.

China has the second largest economy on the entire planet, and Russia has the tenth largest. In recent years, these two superpowers have become much tighter. For example, just consider this headline from Sputnik News that I came across just today: “Crippling US Foreign Policy Draws Russia, China Closer Together“.

And I don’t know if you have noticed, but U.S. relations with China have turned rather sour lately. Lots of accusations about spying and trade violations have been flying around, and just this week five Chinese warships were spotted off the coast of Alaska. In the months ahead, expect our relationship with China to continue to unravel.

If China and Russia were to both fundamentally reject the U.S. dollar at some point, much of the rest of the world may choose to follow suit.

So why is that important?

The fact that most of the nations of the world use our dollars to trade with one another creates a tremendous amount of artificial demand for our currency. In other words, the U.S. dollar is valued much higher than it otherwise would be just because it is the de facto reserve currency of the planet.

As a result, we can import massive amounts of products at super cheap prices. When we go to Wal-Mart or the dollar store, we can fill up our carts with lots and lots of ridiculously inexpensive stuff. Our standard of living is way higher than it actually should be.

And because the U.S. dollar is used so widely in global trade, major exporting nations end up with giant piles of our currency which they have been willing to lend back to us at ultra-low interest rates. This has made it possible to fund our massively bloated federal government and to go 18 trillion dollars in debt.

If the rest of the world stops using our dollars and stops playing our game, we will be in a tremendous amount of trouble. The cost of imported products would absolutely skyrocket and our standard of living would go way down.

In addition, the federal government (along with state and local governments) would have to pay much more to borrow money which would rapidly create a gigantic debt crisis.

So Russia knows where they could really hurt us. Most of the “power” that America currently projects around the world is based on having the de facto reserve currency of the planet. If you take our financial power away, we would be far, far less imposing on the global stage. Sadly, the truth is that the U.S. military is rapidly shrinking and has largely been defanged by the Obama administration.

A lot of people that will read this article will not understand this, but it is very, very important to keep an eye on this emerging Russian/Chinese alliance. I believe that it is going to play a critical role in world events during the years ahead.

So do you agree with me or do you disagree? Please feel free to join the discussion by posting a comment below…

China Has Announced Plans For A ‘World Currency’

March 4, 2015March 4, 2015 by Michael

The Chinese do not plan to live in a world dominated by the U.S. dollar for much longer. Chinese leaders have been calling for the U.S. dollar to be replaced as the primary global reserve currency for a long time, but up until now they have never been very specific about what they would put in place of it. Many have assumed that the Chinese simply wanted some new international currency to be created. But what if that is not what the Chinese had in mind? What if they have always wanted their own currency to become the single most dominant currency on the entire planet? What you are about to see is rather startling, but it shouldn’t be a surprise. When it comes to economics and finance, the Chinese have always been playing chess while the western world has been playing checkers. Sadly, we have gotten to the point where checkmate is on the horizon.

On Wednesday, I came across an excellent article by Simon Black. What he had to say in that article just about floored me…

When I arrived to Bangkok the other day, coming down the motorway from the airport I saw a huge billboard—and it floored me.

The billboard was from the Bank of China. It said: “RMB: New Choice; The World Currency”

Given that the Bank of China is more than 70% owned by the government of the People’s Republic of China, I find this very significant.

It means that China is literally advertising its currency overseas, and it’s making sure that everyone landing at one of the world’s busiest airports sees it. They know that the future belongs to them and they’re flaunting it.

This is the photograph of that billboard that he posted with his article…

Everyone knows that China is rising.

And most everyone has assumed that Chinese currency would soon play a larger role in international trade.

But things have moved so rapidly in recent years that now a very large chunk of the financial world actually expects the renminbi to replace the dollar as the primary reserve currency of the planet someday. The following comes from CNBC…

The tightly controlled Chinese yuan will eventually supersede the dollar as the top international reserve currency, according to a new poll of institutional investors.

The survey of 200 institutional investors – 100 headquartered in mainland China and 100 outside of it – published by State Street and the Economist Intelligence Unit on Thursday found 53 percent of investors think the renminbi will surpass the U.S. dollar as the world’s major reserve currency.

Optimism was higher within China, where 62 percent said they saw a redback world on the horizon, compared with 43 percent outside China.

And without a doubt we are starting to see the beginnings of a significant shift.

Just consider this excerpt from a recent Reuters report…

China’s yuan broke into the top five as a world payment currency in November, overtaking the Canadian dollar and the Australian dollar, global transaction services organization SWIFT said on Wednesday.

The U.S. dollar won’t be replaced overnight, but things are changing.

Of course the truth is that the Chinese have been preparing for this for a very long time. The Chinese refuse to tell the rest of the world exactly how much gold they have, but everyone knows that they have been accumulating enormous amounts of it. And even if they don’t explicitly back the renminbi with gold, the massive gold reserves that China is accumulating will still give the rest of the planet a great deal of confidence in Chinese currency.

But don’t just take my word for it. Consider what Alan Greenspan has had to say on the matter…

Alan Greenspan, who served at the helm of the Federal Reserve for nearly two decades, recently penned an op-ed for the Council on Foreign Relations discussing gold and its possible role in China, the world’s second-largest economy. He notes that if China converted only a “relatively modest part of its $4 trillion foreign exchange reserves into gold, the country’s currency could take on unexpected strength in today’s international financial system.”

Meanwhile, the Chinese have also been accumulating a tremendous amount of U.S. debt. At this point, the Chinese own approximately 1.3 trillion dollars worth of our debt, and that gives them a lot of power over our currency and over our financial system.

Someday if the Chinese wanted to undermine confidence in the U.S. dollar and in the U.S. financial system, they have a lot of ammunition at their disposal.

And it isn’t just all of that debt that gives China leverage. In recent years, the Chinese have been buying up real estate, businesses and energy assets all over the United States at a staggering pace. For a small taste of what has been taking place, check out the YouTube video posted below…

For much, much more on this trend, please see the following articles…

-“The Chinese Are Acquiring Large Chunks Of Land In Communities All Over America”

-“Meet Your New Boss: Buying Large Employers Will Enable China To Dominate 1000s Of U.S. Communities”

-“Not Just The Largest Economy – Here Are 26 Other Ways China Has Surpassed America”

-“The Chinese Want To Spend Billions Constructing A 600 Acre ‘China City’ In New York State”

-“45 Signs That China Is Colonizing America”

-“Will Detroit Be The First Major Chinese City In The United States?”

On a purchasing power basis, the size of the Chinese economy has already surpassed the size of the U.S. economy.

And there are lots of signs of trouble ahead for the U.S. economy at this point. I like how Brandon Smith put it in one recent article…

We are only two months into 2015, and it has already proven to be the most volatile year for the economic environment since 2008-2009. We have seen oil markets collapsing by about 50 percent in the span of a few months (just as the Federal Reserve announced the end of QE3, indicating fiat money was used to hide falling demand), the Baltic Dry Index losing 30 percent since the beginning of the year, the Swiss currency surprise, the Greeks threatening EU exit (and now Greek citizens threatening violent protests with the new four-month can-kicking deal), and the effects of the nine-month-long West Coast port strike not yet quantified. This is not just a fleeting expression of a negative first quarter; it is a sign of things to come.

In addition, things continue to look quite bleak for Europe. Once upon a time, many expected the euro to overtake the U.S. dollar as the primary global reserve currency, but that didn’t happen. And in recent months the euro has been absolutely crashing. On Wednesday, it hit the lowest point that we have seen against the dollar in more than a decade…

The euro last stood at $1.1072, off 0.90 percent for the day and below a key support level, Sutton said. It fell to as little as $1.1066, which was the lowest level for the euro against the dollar since September 2003, according to Thomson Reuters data.

The euro also declined to one-month lows against the Japanese yen, which was flat against the dollar at 119.72 yen to the dollar.

As the U.S. and Europe continue to struggle, China is going to want a significantly larger role on the global stage.

And as the billboard in Thailand suggests, they are more than willing to step up to the plate.

So will the road to the future be paved with Chinese currency? Please feel free to share what you think by posting a comment below…

Guess What Happened The Last Time The U.S. Dollar Skyrocketed In Value Like This?…

February 10, 2015February 10, 2015 by Michael

Over the past decade, there has been only one other time when the value of the U.S. dollar has increased by so much in such a short period of time. That was in mid-2008 – just before the greatest financial crash since the Great Depression. A surging U.S. dollar also greatly contributed to the Latin American debt crisis of the early 1980s and the Asian financial crisis of 1997. Today, the globe is more interconnected than ever. Most global trade is conducted in U.S. dollars, and much of the borrowing done by emerging markets all over the planet is denominated in U.S. dollars. When the U.S. dollar goes up dramatically, this can put a tremendous amount of financial stress on economies all around the world. It also has the potential to greatly threaten the stability of the 65 trillion dollars in derivatives that are directly tied to the value of the U.S. dollar. The global financial system is more vulnerable to currency movements than ever before, and history tells us that when the U.S. dollar soars the global economy tends to experience a contraction. So the fact that the U.S. dollar has been skyrocketing lately is a very, very bad sign.

Most of the people that write about the coming economic collapse love to talk about the coming collapse of the U.S. dollar as well.

But in the initial deflationary stage of the coming financial crisis, we are likely to see the U.S. dollar actually strengthen considerably.

As I have discussed so many times before, we are going to experience deflation first, and after that deflationary phase the desperate responses by the Federal Reserve and the U.S. government to that deflation will cause the inflationary panic that so many have written about.

Yes, someday the U.S. dollar will essentially be toilet paper. But that is not in our immediate future. What is in our immediate future is a “flight to safety” that will push the surging U.S. dollar even higher.

This is what we witnessed in 2008, and this is happening once again right now.

Just look at the chart that I have posted below. You can see the the U.S. dollar moved upward dramatically relative to other currencies starting in mid-2008. And toward the end of the chart you can see that the U.S. dollar is now experiencing a similar spike…

At the moment, almost every major currency in the world is falling relative to the U.S. dollar.

For example, this next chart shows what the euro is doing relative to the dollar. As you can see, the euro is in the midst of a stunning decline…

Instead of focusing on the U.S. dollar, those that are looking for a harbinger of the coming financial crisis should be watching the euro. As I discussed yesterday, analysts are telling us that if Greece leaves the eurozone the EUR/USD could fall all the way down to 0.90. If that happens, the chart above will soon resemble a waterfall.

And of course it isn’t just the euro that is plummeting. The yen has been crashing as well. The following chart was recently posted on the Crux…

Unfortunately, most Americans have absolutely no idea how important all of this is. In recent years, growing economies all over the world have borrowed gigantic piles of very cheap U.S. dollars. But now they are faced with the prospect of repaying those debts and making interest payments using much more expensive U.S. dollars.

Investors are starting to get nervous. At one time, investors couldn’t wait to pour money into emerging markets, but now this process is beginning to reverse. If this turns into a panic, we are going to have one giant financial mess on our hands.

The truth is that the value of the U.S. dollar is of great importance to every nation on the face of the Earth. The following comes from U.S. News & World Report…

In the early ’80s, a bullish U.S. dollar contributed to the Latin American debt crisis, and also impacted the Asian Tiger crisis in the late ’90s. Emerging markets typically have higher growth, but carry much higher risk to investors. When the economies are doing well, foreign investors will lend money to emerging market countries by purchasing their bonds.

They also deposit money in foreign banks, which facilitates higher lending. The reason for this is simple: Bond payments and interest rates in emerging markets are much higher than in the U.S. Why deposit cash in the U.S. and earn 0.25 percent, when you could earn 6 percent in Indonesia? With the dollar strengthening, the interest payments on any bond denominated in U.S. dollars becomes more expensive.

Additionally, the deposit in the Indonesian bank may still be earning 6 percent, but that is on Indonesian rupiahs. After converting the rupiahs to U.S. dollars, the extra interest doesn’t offset the loss from the exchange. As investors get nervous, the higher interest on emerging market debt and deposits becomes less alluring, and they flee to safety. It may start slowly, but history tells us it can quickly spiral out of control.

Over the past few months, I have been repeatedly stressing that so many of the signs that we witnessed just prior to previous financial crashes are happening again.

Now you can add the skyrocketing U.S. dollar to that list.

If you have not seen my previous articles where I have discussed these things, here are some places to get started…

“Guess What Happened The Last Time The Price Of Oil Crashed Like This?…”

“Not Just Oil: Guess What Happened The Last Time Commodity Prices Crashed Like This?…”

“10 Key Events That Preceded The Last Financial Crisis That Are Happening Again RIGHT NOW”

The warnings signs are really starting to pile up.

When we look back at past financial crashes, there are recognizable patterns that can be identified.

Anyone with half a brain should be able to see that a large number of those patterns are unfolding once again right before our eyes.

Unfortunately, most people in this world end up believing exactly what they want to believe.

No matter how much evidence you show them, they will not accept the truth until it is too late.

What In The World Just Happened In Switzerland?

January 15, 2015January 15, 2015 by Michael

Central banks lie. That is what they do. Not too long ago, the Swiss National Bank promised that it would defend the euro/Swiss franc currency peg with the “utmost determination”. But on Thursday, the central bank shocked the financial world by abruptly abandoning it. More than three years ago, the Swiss National Bank announced that it would not allow the Swiss franc to fall below 1.20 to the euro, and it has spent a mountain of money defending that peg. But now that it looks like the EU is going to launch a very robust quantitative easing program, the Swiss National Bank has thrown in the towel. It was simply going to cost way too much to continue to defend the currency floor. So now there is panic all over Europe. On Thursday, the Swiss franc rose a staggering 30 percent against the euro, and the Swiss stock market plunged by 10 percent. And all over the world, investors, hedge funds and central banks either lost or made gigantic piles of money as currency rates shifted at an unprecedented rate. It is going to take months to really measure the damage that has been done. Meanwhile, the euro is in greater danger than ever. The euro has been declining for months, and now the number one buyer of euros (the Swiss National Bank) has been removed from the equation. As things in Europe continue to get even worse, expect the euro to go to all-time record lows. In addition, it is important to remember that the Asian financial crisis of the late 1990s began when Thailand abandoned its currency peg. With this move by Switzerland set off a European financial crisis?

Of course this is hardly the first time that we have seen central banks lie. In the United States, the Federal Reserve does it all the time. The funny thing is that most people still seem to trust what central banks have to say. But at some point they are going to start to lose all credibility.

Financial markets like predictability. And gigantic amounts of money had been invested based on the repeated promises of the Swiss National Bank to use “unlimited amounts” of money to defend the currency floor. Needless to say, there are a lot of people in the financial world that feel totally betrayed by the Swiss National Bank today. The following comes from an analysis of the situation by Bruce Krasting…

Thomas Jordan, the head of the SNB has repeated said that the Franc peg would last forever, and that he would be willing to intervene in “Unlimited Amounts” in support of the peg. Jordan has folded on his promise like a cheap suit in the rain. When push came to shove, Jordan failed to deliver.

The Swiss economy will rapidly fall into recession as a result of the SNB move. The Swiss stock market has been blasted, the currency is now nearly 20% higher than it was a day before. Someone will have to fall on the sword, the arrows are pointing at Jordan.

The dust has not settled on this development as of this morning. I will stick my neck out and say that the failure to hold the minimum rate will result in a one time loss for the SNB of close to $100B. That’s a huge amount of money. It comes to 20% of the Swiss GDP!

Most experts are calling this an extremely bad move by the Swiss National Bank.

But in the end, they may have had little choice.

The euro is falling apart, and the Swiss did not want to be married to it any longer. Unfortunately, when any marriage ends the pain can be enormous. The following comes from CNBC…

How do you know you’re looking at a bad marriage?

Well if one or both of the spouses can’t wait to get out as soon as the smallest crack in the door opens, you have a pretty good clue.

Something like that just happened in Europe as we learned the real reason why so many traders were still invested in the euro: They had nowhere else to go.

As the Swiss National Bank unlocked the doors on its cap on trading euros for Swiss francs, the rush to exit the euro was faster than one of those French bullet trains.

But this move has not been bad for everyone. In fact, for many of those that live in Switzerland but work in neighboring countries what happened on Thursday was very fortuitous…

“I heard the news this morning. I’m so happy!” Vanessa, who refused to give her last name, told AFP outside of one of many mobbed exchange offices in Geneva.

She has reason to be extatic: she is one of some 280,000 people working in Switzerland but living and paying bills in eurozone countries France, Germany or Italy.

These so-called “frontaliers”, or border-crossers, are the biggest winners in Thursday’s Swiss franc surge, seeing their incomes jump 30 percent in the blink of an eye.

In normal times, things like this very rarely happen.

But in times of crisis, things can change very rapidly. We are moving into a time of great volatility in global financial markets, and great volatility is often a sign that a great crash is coming.

This move by the Swiss National Bank is just the beginning. Expect more desperate moves on the global economic chessboard in the days ahead. But in the end, none of those moves is going to prevent what is coming.

And one of these days, another extremely important currency peg is going to end. Right now, the Chinese have tied their currency very tightly to the U.S. dollar. This has helped to artificially inflate the value of the dollar. Unfortunately, as Robert Wenzel has noted, someday the Chinese could suddenly pull the rug out from under our currency, and that would be really bad news for us…

In other words, the SNB is no People’s Bank of China type patsy, where the PBOC has taken on massive amounts of dollar reserves to prop up the dollar.

Will the PBOC learn anything from SNB? If so, this will not be good for the US dollar.

So keep a close eye on what happens in Europe next.

It is going to be a preview of what is eventually coming to America.

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