UST Keeps Germany On Currency Manipulation Watch List

In its infinite wisdom, the US Treasury will keep Germany on its list of countries warranting "extra scrutiny" for potential currency manipulation.

smh

— Martin Baccardax (@mdbaccardax) October 18, 2018

Italy Rocks The Euro Boat

ITALY WOULD SOLVE MOST OF ITS PROBLEMS IF IT HAD ITS OWN CURRENCY - RULING PARTY LEAGUE ECONOMIC HEAD - RTRS

— Martin Baccardax (@mdbaccardax) October 2, 2018

US Currency Monitoring

BREAKING: US has put China, Japan, South Korea, Taiwan, Germany and Switzerland on currency 'monitoring list'

— The Spectator Index (@spectatorindex) April 14, 2017

US Charges Three UK Traders

Reuters reports that t he U.S. Justice Department has brought charges against three former traders (based in the UK) at JPMorgan Chase & Co, Citigroup Inc and Barclays Plc arising from a global probe into the manipulation of foreign exchange rates at major banks.

Richard Usher, formerly of JPMorgan, Rohan Ramchandani, formerly of Citigroup, and Christopher Ashton, formerly of Barclays, were charged with conspiring to restrain trade in an indictment filed at a federal court in Manhattan.

The Risks of Bitcoin

Bitcoin, the virtual currency used by traders, speculators and those wishing to duck under the watchful gaze of the police and financial authorities, has suffered a few setbacks recently.

Aside from Bitcoins falling in value, not great news for those who speculated that it was an easy way to make money, a major Bitcoin exchange platform (Mtgox.com) has gone offline this morning.

Seemingly the exchange has been hit by technical issues, and recently (7 February) halted all customer withdrawals of the digital currency after it spotted what it called "unusual activity". MtGox said that it had found a loophole that thieves could use to fool the transaction process into sending double the correct number of Bitcoins.

To add to MtGox's woes, six other major Bitcoin exchanges (including Coinbase and BTC China) issued a joint statement distancing themselves from MtGox. Quoted by the BBC:

"This tragic violation of the trust of users of MtGox was the result of one company's actions and does not reflect the resilience or value of Bitcoin and the digital currency industry.

As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today."

The suspension of the site has exacerbated the decline in value of Bitcoin, as a currency (virtual or tangible) is of no use to man nor beast if it cannot be exchanged for goods, services or other currencies.

MtGox claims that it will resume activities soon. However, wired.com claims that MtGox is "insolvent" and has lost 744,408 Bitcoins (worth about $350M).

As with all tangible currencies, if people lose faith in the currency or the institutions that manage/control the currency then that currency will lose value and people will not wish to hold it or use it.

Bitcoin is unregulated and uncontrolled, ie it is like the Wild West, that is part of its appeal. However, that lack of control and regulation is also its Achille's heel. Those who hold or use Bitcoins do so at their own peril, no central bank will ride to the rescue if people's Bitcoin savings are wiped out.

The Dead Parrot

German politicians are now daring to say in public what everyone has known for sometime, namely that Greece is heading for bankruptcy and that it will leave the Eurozone.

Philip Rösler, German Economy Minister, wrote in Die Welt:

"In order to stabilise the euro, we must not take anything off the table in the short run.

That includes as a worst-case scenario an orderly default for Greece, if the necessary instruments for it are available."

Rösler has recognised that Greece's problems cannot be solved by the Eurozone (ie Germany, the largest provider of funds for Greece's bailouts).


What are the "necessary instruments" to which Rösler refers?

Horst Seehofer, state premier of Bavaria, has helpfully provided the answer. He told ZDF that Greece must leave the Eurozone.
 
"If, despite all their efforts, the Greeks do not manage, then you can't rule out this possibility."

In fact the executive committee of the CSU, the sister party to Chancellor Angela Merkel's Christian Democratic Union (CDU), will today approve a motion that calls for highly-indebted states to leave the eurozone.


The wheels for removing Greece from the Euro are now in motion, the only question is will the expulsion of Greece be enough to stop the rot?

The answer to that is "no".

The Euro, as an experiment in its current form, is finished. Sadly, for the people who live in the Eurozone, the "political elite" of Europe refuse to see that reality and will continue to wreak economic havoc in Europe and beyond, by continuing to prop up the "dead parrot" of a currency until the very end.

Inflation Near To 2% In Two years

The Bank of England has stated that, in its view, inflation will be near to the 2% mark within the next two years.

This view is contrary to some of the prophets of doom who have recently been predicting (for media sound bite purposes) that interest rates will have to be raised significantly (8%), in order to counteract an inflationary disaster.

Additionally, given the better than expected growth figures for the UK economy, the Bank has held back from another round of quantitative easing (unlike the Federal Reserve).

This, in terms or international politics, is probably no bad thing. The US QE2 package of $600BN has provoked a barrage of criticism from both Europe and Asia Pacific, and brought the world one step closer towards "currency wars" (capital restrictions, protectionism etc).

Currency Wars

Dominique Strauss-Kahn, the head of the IMF, has warned that cuts in interest rates and quantitative easing (as recently announced by the central bank of Japan) could upset the global economy recovery and trigger "currency wars".

The Japanese central bank is reverting to a "zero interest rate" policy (which it abandoned in 2006).

Given that both the US and UK have cut rates and instituted quantitative easing, Mr Strauss-Kahn's comments seem a little "behind the curve".

The End of Sterling?

Jim Rogers, who co-founded the Quantum fund with George Soros, has told Bloomberg:

"I would urge you to sell any sterling you might have. It's finished. I hate to say it, but I would not put any money in the UK".

In the short term Sterling will undoubtedly fall further (and many people who short it will make fortunes out of its demise). Indeed Sterling today fell below $1.40 to its lowest point in over seven years, because of concerns about the banking crisis and debt levels.

However, currencies strengths are relative. No other developed country will escape the recession. The Euro will, in the not too distant future collapse as the folly of the "inflexible" high interest rate policy of the ECB is laid bare. The Dollar will also fall as America's economy worsens.

Sterling will rise again.

Careless Talk Costs Cents

Alistair Darling is learning the lessons that previous Labour Chancellors have learned, namely that careless talk costs the pound dear.

Sterling continued on its downward path today, falling to a 12 year low (88.2) against the Bank of England trade weighted index of currencies and to its lowest against the dollar ($1.7669) since April 2006.

The fall has been attributed, not unsurprisingly, to Darling's outburst over the weekend over the state of the economy.

The fact that he is now barely on speaking terms with his old "friend" Gordon Brown have given the markets little comfort, as divisions over policy and presentation between number 10 and number 11 mean that the economy will suffer.

Until Brown and Darling decide what the real story is, and what to do about it, the economy will continue to decline.

The Credit Crunch

The ongoing, so called, "credit crunch" may well have repercussions in areas not immediately apparent.

Much of the borrowing used by people/companies for their investments in the bundled debt products that have been over valued, has been financed using cheap borrowed Yen.

This is known as the Yen Carry Trade. Now that the debts are unravelling, so too is the Yen Carry Trade; this has consequences for the Yen itself, as companies liquidate their positions and pay back their Yen borrowings.

The cost of borrowing Yen is rising, as such those trades and investments that were once financially viable are no longer viable.

One area where there has been heavy use of Yen borrowings, both by companies and Japanese housewives, is that of currency speculation in the Turkish Lira. It is very likely that, if the crunch continues, the Turkish Lira will collapse as speculators pull out.

This in turn will severely damage the profits of the Japanese housewives, thus negatively impacting the Japanese economy.

The lesson here is, don't invest what you can't afford to lose.

The End of Free Banking

Those of you who already feel that UK banks are making more than enough money, may be a tad "annoyed" to learn that there are plans to make even more money; by charging customers for the privilege of placing their money in a bank account.

The rot has started with First Direct, part of HSBC, which plans to charge £10 per month to customers who run current accounts. Only those who deposit £1,500 a month or who maintain an average balance of £1,500 will escape the fee.

In other words, a large number of their customers will have to pay £120 per year for the "privilege" of holding a First Direct account.

Needless to say, where one bank goes, others will follow.

Alan Duncan, Shadow Trade and Industry Secretary, said:

"This is an irrational basis for charging. This is simply a tax on the lower-paid which will prevent access to bank accounts. I cannot see any way in which this is fair or justified."

The Office of Fair Trading (OFT) recently said that it would investigate current account charges, prompting some to predict an end to free banking as a "tit for tat" move by the banks.

Banks already do rather well for themselves via charging for unauthorised overdrafts and other transactions, such as foreign currency transmission. Indeed they make around £5BN a year from unauthorised overdraft charges. The OFT investigation on capping these fees is clearly the trigger for banks to look for other ways of charging their customers.

Meanwhile, the long suffering customer gets screwed by the banks whatever happens.

Pathetic isn't it?