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Currency Wars: The Making of the Next Global Crisis

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Currency Wars: The Making of the Next Global Crisis

Postby SilverEnergy » Sun Nov 24, 2013 12:56 am

Book: http://www.amazon.com/Currency-Wars-Making-Global-Crisis-ebook/dp/B005GSYZRA/ref=pd_sim_kstore_6

In 1971, President Nixon imposed national price controls and took the United States off the gold standard, an extreme measure intended to end an ongoing currency war that had destroyed faith in the U.S. dollar. Today we are engaged in a new currency war, and this time the consequences will be far worse than those that confronted Nixon.

Currency wars are one of the most destructive and feared outcomes in international economics. At best, they offer the sorry spectacle of countries' stealing growth from their trading partners. At worst, they degenerate into sequential bouts of inflation, recession, retaliation, and sometimes actual violence. Left unchecked, the next currency war could lead to a crisis worse than the panic of 2008.

Currency wars have happened before-twice in the last century alone-and they always end badly. Time and again, paper currencies have collapsed, assets have been frozen, gold has been confiscated, and capital controls have been imposed. And the next crash is overdue. Recent headlines about the debasement of the dollar, bailouts in Greece and Ireland, and Chinese currency manipulation are all indicators of the growing conflict.

As James Rickards argues in Currency Wars, this is more than just a concern for economists and investors. The United States is facing serious threats to its national security, from clandestine gold purchases by China to the hidden agendas of sovereign wealth funds. Greater than any single threat is the very real danger of the collapse of the dollar itself.

Baffling to many observers is the rank failure of economists to foresee or prevent the economic catastrophes of recent years. Not only have their theories failed to prevent calamity, they are making the currency wars worse. The U. S. Federal Reserve has engaged in the greatest gamble in the history of finance, a sustained effort to stimulate the economy by printing money on a trillion-dollar scale. Its solutions present hidden new dangers while resolving none of the current dilemmas.

While the outcome of the new currency war is not yet certain, some version of the worst-case scenario is almost inevitable if U.S. and world economic leaders fail to learn from the mistakes of their predecessors. Rickards untangles the web of failed paradigms, wishful thinking, and arrogance driving current public policy and points the way toward a more informed and effective course of action.

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Postby The_Adventurer » Fri Nov 29, 2013 5:53 pm

I never understood all this talk of gold, gold, gold. If things get really bad, you only own what you can carry and protect with your shotgun.
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Postby HouseMD » Fri Nov 29, 2013 6:33 pm

Why anyone would have their investments tied up principally in the united states baffles me. It doesn't matter who wins a currency war if you've got bets placed on both sides. Book might be worth a read, as this is a very real issue. He who controls the reserve currency controls the world.
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Postby fschmidt » Fri Nov 29, 2013 7:38 pm

HouseMD wrote:Why anyone would have their investments tied up principally in the united states baffles me. It doesn't matter who wins a currency war if you've got bets placed on both sides. Book might be worth a read, as this is a very real issue. He who controls the reserve currency controls the world.

I read the book and it is worth reading. No one wins a currency war, everyone loses. A currency war is more like nuclear war than like conventional war. And since everyone loses, there is no point trying to protect yourself by investing abroad.
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Postby HouseMD » Fri Nov 29, 2013 7:44 pm

fschmidt wrote:
HouseMD wrote:Why anyone would have their investments tied up principally in the united states baffles me. It doesn't matter who wins a currency war if you've got bets placed on both sides. Book might be worth a read, as this is a very real issue. He who controls the reserve currency controls the world.

I read the book and it is worth reading. No one wins a currency war, everyone loses. A currency war is more like nuclear war than like conventional war. And since everyone loses, there is no point trying to protect yourself by investing abroad.

It's unlikely that all currencies will suffer equally though. By having a mix of BRIC, Euro, Canadian, and American assets, you'll probably at least retain some of your assets. In a worst case scenario, the game isn't about staying ahead, its about coming away with anything at all. Diverse investments maximize your survivability when this goal is your primary one.
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Postby fschmidt » Fri Nov 29, 2013 7:51 pm

HouseMD wrote:It's unlikely that all currencies will suffer equally though. By having a mix of BRIC, Euro, Canadian, and American assets, you'll probably at least retain some of your assets. In a worst case scenario, the game isn't about staying ahead, its about coming away with anything at all. Diverse investments maximize your survivability when this goal is your primary one.

You can test your thesis by imagining investing in early 1929 which was just before the last major currency war. If you had invested in stock markets throughout the world at that time, you would have done very badly.

The best investments for such times are hard assets or something close. A strong company with little debt that sells for close to book value is close to a hard asset. Speculative investments and the broad market are not good investments for such times.
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Postby HouseMD » Fri Nov 29, 2013 8:11 pm

fschmidt wrote:
HouseMD wrote:It's unlikely that all currencies will suffer equally though. By having a mix of BRIC, Euro, Canadian, and American assets, you'll probably at least retain some of your assets. In a worst case scenario, the game isn't about staying ahead, its about coming away with anything at all. Diverse investments maximize your survivability when this goal is your primary one.

You can test your thesis by imagining investing in early 1929 which was just before the last major currency war. If you had invested in stock markets throughout the world at that time, you would have done very badly.

The best investments for such times are hard assets or something close. A strong company with little debt that sells for close to book value is close to a hard asset. Speculative investments and the broad market are not good investments for such times.

Actually you would not have done very badly at all. Annualized, you would average 8.8% total returns if you had invested in 1928 and left your money in the markets till today. Even if you invested in 1928 and pulled out after Black Monday's devastating effects at year end 1987, you would have averaged an annual total return of 8.1%. These do not take into account global markets, but only US ones as investment grade global markets weren't much of a thing in 1928. Now lets look at a more reasonable approach- investments within a person's lifetime. If you invested in 1928 and lived for 40 years, you would have had an annualized return of 7.8%, while if you lived 50 years into the late 70s financial slump, you would net 6.8%. All of this fails to account for continued consistent investment, which has been shown to improve returns overall due to picking up a disproportionately large number of shares during down markets as compared to bull markets. Link goes to a calculator that shows how much an investment would earn you if you put the money in at any two points in the history of the DJIA.

http://observationsandnotes.blogspot.co ... lator.html
Last edited by HouseMD on Fri Nov 29, 2013 8:49 pm, edited 1 time in total.
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Postby fschmidt » Fri Nov 29, 2013 8:41 pm

HouseMD wrote:Actually you would not have done very badly at all. Annualized, you would average 8.8% total returns if you had invested in 1928 and left your money in the markets till today. Even if you invested in 1928 and pulled out after Black Monday's devastating effects at year end 1987, you would have averaged an annual total return of 8.1%. These do not take into account global markets, but only US ones as investment grade global markets weren't much of a thing in 1928. Now lets look at a more reasonable approach- investments within a person's lifetime. If you invested in 1928 and lived for 40 years, you would have had an annualized return of 7.8%, while if you lived 50 years into the late 70s financial slump, you would net 6.8%. All of this fails to account for continued consistent investment, which has been shown to improve returns overall due to picking up a disproportionately large number of shares during down markets as compared to bull markets. Link goes to a calculator that shows how much an investment would earn you if you put the money in at any two points in the history of the DJIA.

http://observationsandnotes.blogspot.co ... n.html?m=1

I don't see the calculator in the link.

Of course America was a very successful economy from the end of the depression through the end of the century. This is why holding stocks would have made up for the depression. I don't think America will ever repeat that performance. There are plenty of other countries where investing just before a crisis would have caused unrecoverable losses.

Most people on this forum expect some kind of financial crisis in the next few years and want to invest accordingly. I don't expect total collapse like some do, but I expect a bigger crash than in 2008, probably caused by the collapse of Japan.

The book Currency Wars does a good job explaining how a crisis could play out. It is intelligently written and is worth reading.
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Postby HouseMD » Fri Nov 29, 2013 9:00 pm

fschmidt wrote:
HouseMD wrote:Actually you would not have done very badly at all. Annualized, you would average 8.8% total returns if you had invested in 1928 and left your money in the markets till today. Even if you invested in 1928 and pulled out after Black Monday's devastating effects at year end 1987, you would have averaged an annual total return of 8.1%. These do not take into account global markets, but only US ones as investment grade global markets weren't much of a thing in 1928. Now lets look at a more reasonable approach- investments within a person's lifetime. If you invested in 1928 and lived for 40 years, you would have had an annualized return of 7.8%, while if you lived 50 years into the late 70s financial slump, you would net 6.8%. All of this fails to account for continued consistent investment, which has been shown to improve returns overall due to picking up a disproportionately large number of shares during down markets as compared to bull markets. Link goes to a calculator that shows how much an investment would earn you if you put the money in at any two points in the history of the DJIA.

http://observationsandnotes.blogspot.co ... n.html?m=1

I don't see the calculator in the link.

Of course America was a very successful economy from the end of the depression through the end of the century. This is why holding stocks would have made up for the depression. I don't think America will ever repeat that performance. There are plenty of other countries where investing just before a crisis would have caused unrecoverable losses.

Most people on this forum expect some kind of financial crisis in the next few years and want to invest accordingly. I don't expect total collapse like some do, but I expect a bigger crash than in 2008, probably caused by the collapse of Japan.

The book Currency Wars does a good job explaining how a crisis could play out. It is intelligently written and is worth reading.

Posted the wrong link from their blog, try the new one if you want to run the numbers. My prediction is that we will experience massive boom-bust cycles perpetually every 8 to 10 years that will ravage those that either have no investments, do not diversify, or do not invest consistently, but will largely be a boon for those with excess capital and discipline. These cycles will gradually extract cash from middle class investors that scare easily and pull money out at the bottom of cycles, rather than leaving it in play. Wealthy investors will gobble up bargain priced assets from the skittish investors. As markets improve, the middle class will jump back on them, driving them up for the wealthy investors that purchased stocks at bargain basement prices. Then the markets crash again and the cycle repeats.

Investments are a way for the wise and disciplined to make money at the expense of the foolish and impatient. There is virtually no scenario in which all global markets will underpace inflation over a long period in a capitalist system. Individual markets, yes. But global markets will not decline so long as global demands for goods and services increase.
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Postby fschmidt » Fri Nov 29, 2013 9:18 pm

HouseMD wrote:Posted the wrong link from their blog, try the new one if you want to run the numbers. My prediction is that we will experience massive boom-bust cycles perpetually every 8 to 10 years that will ravage those that either have no investments, do not diversify, or do not invest consistently, but will largely be a boon for those with excess capital and discipline. These cycles will gradually extract cash from middle class investors that scare easily and pull money out at the bottom of cycles, rather than leaving it in play. Wealthy investors will gobble up bargain priced assets from the skittish investors. As markets improve, the middle class will jump back on them, driving them up for the wealthy investors that purchased stocks at bargain basement prices. Then the markets crash again and the cycle repeats.

Investments are a way for the wise and disciplined to make money at the expense of the foolish and impatient. There is virtually no scenario in which all global markets will underpace inflation over a long period in a capitalist system. Individual markets, yes. But global markets will not decline so long as global demands for goods and services increase.

I think we mostly agree. I agree about the cycles. But regarding the stock market in the long run, in the long run the market just reflects the real economy. If the economy grows, so will the market. And if the economy shrinks, so will the market. For America, I expect anemic growth over the long run. This means that buying at the top of a cycle will basically never be made up for in growth.

The way to make money in such conditions is just as you say, buy low and sell high based on the cycles. Prices should be judged on fundamentals. I just finished buying silver based on this concept. The suckers bought silver on the way up and sold on the way down. Now silver is fundamentally undervalued, so I bought.

As you know, I have a very low opinion of the modern American middle class, so I will be quite happy to see wealthy investors wipe them out.
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Postby HouseMD » Fri Nov 29, 2013 9:34 pm

fschmidt wrote:
HouseMD wrote:Posted the wrong link from their blog, try the new one if you want to run the numbers. My prediction is that we will experience massive boom-bust cycles perpetually every 8 to 10 years that will ravage those that either have no investments, do not diversify, or do not invest consistently, but will largely be a boon for those with excess capital and discipline. These cycles will gradually extract cash from middle class investors that scare easily and pull money out at the bottom of cycles, rather than leaving it in play. Wealthy investors will gobble up bargain priced assets from the skittish investors. As markets improve, the middle class will jump back on them, driving them up for the wealthy investors that purchased stocks at bargain basement prices. Then the markets crash again and the cycle repeats.

Investments are a way for the wise and disciplined to make money at the expense of the foolish and impatient. There is virtually no scenario in which all global markets will underpace inflation over a long period in a capitalist system. Individual markets, yes. But global markets will not decline so long as global demands for goods and services increase.

I think we mostly agree. I agree about the cycles. But regarding the stock market in the long run, in the long run the market just reflects the real economy. If the economy grows, so will the market. And if the economy shrinks, so will the market. For America, I expect anemic growth over the long run. This means that buying at the top of a cycle will basically never be made up for in growth.

The way to make money in such conditions is just as you say, buy low and sell high based on the cycles. Prices should be judged on fundamentals. I just finished buying silver based on this concept. The suckers bought silver on the way up and sold on the way down. Now silver is fundamentally undervalued, so I bought.

As you know, I have a very low opinion of the modern American middle class, so I will be quite happy to see wealthy investors wipe them out.

I largely agree with you. I feel the American middle class is getting their dues for rampant materialism, overborrowing, and an endless quest for instant gratification. The character flaws present in the American people as a whole are manifesting themselves in our economic system.

I don't time the market, per se. In general, when everyone is screaming run away, I not only stay but double down, but when everyone is piling on more money and saying times are good, I invest at a normal rate because I know a bear market is percolating. There is a good chance silver is at the bottom of a cycle, but I just really am not fond of betting on commodity cycles, it's not my game. A while back I considered investing a few thousand dollars in yellow cake uranium, which was at an all-time low, then Fukishima happened and we found a new low for the market. I'd have lost a good deal of value in the short term, and felt obligated to hang on to the investment, locking up capital I could better spend elsewhere. It's just too difficult to know what is going to happen and when in a commodity market, because commodities don't work for shareholders, they simply exist. There is no force pushing them to create value for shareholders, because if silver has a bad year, it has no one to answer to. You can't fire a CEO or lay off some workers to boost your profits next year, you just have to wait. By investing in market funds, at least I know that the companies are obligated to increase profit for me as a shareholder, and thus there is a constant push for positive value.

Right now, bonds are probably going to go bust, but I am keeping my stake in them till then. Once that market blows apart, I'm going to attack it like a vulture, with a particular eye on moderate yield, investment grade corporate bonds.
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Postby SilverEnergy » Sat Nov 30, 2013 6:12 pm

The_Adventurer wrote:I never understood all this talk of gold, gold, gold. If things get really bad, you only own what you can carry and protect with your shotgun.


http://www.happierabroad.com/forum/view ... hp?t=17855

There is more talk of silver, silver, silver.

It would be wise to open your mind so you can understand.

How many videos and books need to be posted for you to understand and accept what's going on???
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Postby HouseMD » Sat Nov 30, 2013 7:10 pm

SilverEnergy wrote:
The_Adventurer wrote:I never understood all this talk of gold, gold, gold. If things get really bad, you only own what you can carry and protect with your shotgun.


http://www.happierabroad.com/forum/view ... hp?t=17855

There is more talk of silver, silver, silver.

It would be wise to open your mind so you can understand.

How many videos and books need to be posted for you to understand and accept what's going on???

Just let us ride or way into supposed oblivion and say you told us so when it's over. I practice evidence based economics, and the evidence has never shown a full blown global financial collapse. When that happens, I will do things differently. In medicine, if you've got 600 million infections that have been prevented by vaccinations and two diseases nearly wiped from the face of the earth on the one hand, and a few books and bloggers and quacks claiming they cause substantial disease and disability, you go with the millions of lives saved, not the loud but unproven alarmists.
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Postby SilverEnergy » Sat Nov 30, 2013 7:45 pm

HouseMD wrote:
SilverEnergy wrote:
The_Adventurer wrote:I never understood all this talk of gold, gold, gold. If things get really bad, you only own what you can carry and protect with your shotgun.


http://www.happierabroad.com/forum/view ... hp?t=17855

There is more talk of silver, silver, silver.

It would be wise to open your mind so you can understand.

How many videos and books need to be posted for you to understand and accept what's going on???

Just let us ride or way into supposed oblivion and say you told us so when it's over. I practice evidence based economics, and the evidence has never shown a full blown global financial collapse. When that happens, I will do things differently. In medicine, if you've got 600 million infections that have been prevented by vaccinations and two diseases nearly wiped from the face of the earth on the one hand, and a few books and bloggers and quacks claiming they cause substantial disease and disability, you go with the millions of lives saved, not the loud but unproven alarmists.


This is the first time in history that currencies around the world have been taken off the gold standard.

In the past, only individual societies experienced market crashes, it will be world wide this time because the whole world is printing worthless paper.

If only about 5 countries used fiat currency and the rest of the world was still on the gold standard, then there wouldn't be no reason to suspect a world wide collapse.

But in 1971, when Nixon took us off the gold standard, he did something that has NEVER been done in the history of the world: Nixon convinced the ENTIRE world to remove their currencies from the gold standard.

No currency in the world is backed by anything.............absolutely nothing.

If all the currency in the world was backed by gold, then way it was before 1971, then we would be doing great.

Inflation has gotten worse, that much you can't deny and there is no reason to think it won't get worse.

But since the U.S. dollar is the resolve currency of the world, then the whole world will collapse once America collapses.

The problem with waiting to prepare is that once you finally start to wake up and prepare......it might be too late to do anything as billions around the world will find out.
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Postby HouseMD » Sat Nov 30, 2013 7:52 pm

SilverEnergy wrote:
HouseMD wrote:
SilverEnergy wrote:
The_Adventurer wrote:I never understood all this talk of gold, gold, gold. If things get really bad, you only own what you can carry and protect with your shotgun.


http://www.happierabroad.com/forum/view ... hp?t=17855

There is more talk of silver, silver, silver.

It would be wise to open your mind so you can understand.

How many videos and books need to be posted for you to understand and accept what's going on???

Just let us ride or way into supposed oblivion and say you told us so when it's over. I practice evidence based economics, and the evidence has never shown a full blown global financial collapse. When that happens, I will do things differently. In medicine, if you've got 600 million infections that have been prevented by vaccinations and two diseases nearly wiped from the face of the earth on the one hand, and a few books and bloggers and quacks claiming they cause substantial disease and disability, you go with the millions of lives saved, not the loud but unproven alarmists.


This is the first time in history that currencies around the world have been taken off the gold standard.

In the past, only individual societies experienced market crashes, it will be world wide this time because the whole world is printing worthless paper.

If only about 5 countries used fiat currency and the rest of the world was still on the gold standard, then there wouldn't be no reason to suspect a world wide collapse.

But in 1971, when Nixon took us off the gold standard, he did something that has NEVER been done in the history of the world: Nixon convinced the ENTIRE world to remove their currencies from the gold standard.

No currency in the world is backed by anything.............absolutely nothing.

If all the currency in the world was backed by gold, then way it was before 1971, then we would be doing great.

Inflation has gotten worse, that much you can't deny and there is no reason to think it won't get worse.

But since the U.S. dollar is the resolve currency of the world, then the whole world will collapse once America collapses.

The problem with waiting to prepare is that once you finally start to wake up and prepare......it might be too late to do anything as billions around the world will find out.

A global crash will not happen. A global depression, perhaps. But a total global implosion, no, not in our lifetimes. And inflation is a good thing if you know how to manage your borrowing and investments, and have a salary that keeps pace with inflation.

Quite frankly I don't believe any amount of preparation will save anyone from a nightmare scenario, the whole thing will come down to luck.

Also silver's price floor is $5/oz, historically. It is possible for it to go lower, though I don't believe it will in the near future.
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