Monday, February 18, 2013

Eco-Brain-Dead Fiat Currency Battles Begin


1.              Eco-Brain-Dead Fiat Currency Battles Begin

Monday February 18, 2013 10:38
Eco-Brain-Dead: Our latest euphemism for smashed econometric models.
Just like the 1930’s Great Depression episode, fights over currency valuations and international trade threaten to upset the world’s equilibrium.
“My cheaper currency encourages foreign food, energy, and goods buyers.”*
* Common theme expressed by central bankers and politicians to excuse currency devaluation.
“A currency war, also known as competitive devaluation, is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a particular currency falls so too does the real price of exports from the country. Imports become more expensive. So domestic industry, and thus employment, receives a boost in demand from both domestic and foreign markets. However, the price increase for imports can harm citizens’ purchasing power. The policy can also trigger retaliatory action by other countries which in turn can lead to a general decline in international trade, harming all countries.” –Wikipedia
Currency Devaluation is the Road to Perdition and Ruin
Every time a busybody politician makes an economic move, the fallout becomes a disaster. Free enterprise and capitalism has its ups and downs, but left to its own devices without interference, it becomes self-correcting. The USA Depression of 1919-1920 lasted but a few months as Congress kept hands off…unlike FDR’s prolonged horrific mess from 1929-1942.
During and after our forthcoming currency wars, epic trade wars begin on the fallout.
The American President is getting set to make this next big mistake in trade talks with Europe. That final outcome should finish off the USA and Euro-land economically. Both are already eco-brain-dead from dilution and over-printing of cash, bills, bonds and other specious credits. These boys and girls never learn. Read the history playbook from 1926 to 1945. We’ll get the same nasty stuff all over again. When answering the primary question from folks in the street to “Please do something”,politicians naturally comply and make new mistakes copying the old mistakes.
Here’s the skinny on the forthcoming trade wars ala Smoot-Hawley’s 1929 Law:
“In 1922, Congress had passed the Fordney-McCumber tariff act, which had increased tariffs on foreign imports. The League of Nations' World Economic Conference met at Geneva in 1927, concluding in its final report: "the time has come to put an end to tariffs, and to move in the opposite direction." Vast debts and reparations could only be repaid through gold, services or goods; but the only items available on that scale were goods. However, many of the delegates' governments did the opposite, starting in 1928 when France passed a new tariff law and quota system.”
“As the global economy entered the first stages of the Great Depression in late 1929, the USA's main goal emerged to protect American jobs and farmers from foreign competition. Reed Smoot championed another tariff increase within the USA in 1929, which became the Smoot-Hawley Tariff Bill. In his memoirs, Smoot made it abundantly clear: "The world is paying for its ruthless destruction of life and property in the World War and for its failure to adjust purchasing power to productive capacity during the industrial revolution of the decade following the war.”
Yeah, they sure paid alright: “The overall level tariffs under Smoot’s Tariff were the second-highest in U.S. history, exceeded by a small margin only by the Tariff of 1828. The act, and the ensuing retaliatory tariffs by U.S. trading partners, reduced American exports and imports by more than half.” –Wikipedia
Once mistakes are made, disaster bandwagons get rolling and multiply in the dark.
Once greed and overt speculation go haywire, the really nasty stuff arrives through new band aide rules and laws. None of them work and the grand finale is the next big world war.
Here is a summary of some interesting probabilities for 2013-2014:
  1. The debt ceiling fight reminiscent of the children’s game of chicken is over with. We suspect markets get rocked and then right themselves, as another “kick the can” temporary solution is voted upon in the middle of the night soon before or after March 1. Whatever the outcome, it’s the wrong answer and solves nothing. It’s all just politics as usual. Profligate spending, bad decisions and dissipation accelerate.
  2. The markets will recover and have their normal corrections finding a spring peak at the end of April, or slightly thereafter. Mr. Dow could touch 15,500-16,000.
  3. The Sell in May correction should be about minus 10-12%.
  4. June to Mid-August could be choppy markets and trendless action, chewing up accounts.
  5. Sometime in August, preliminary warning signal set ups for higher interest rates and falling stocks might become apparent. Inflation increases steadily this year.
  6. Investors and traders return after Labor Day this fall to what they think is a normal trading market. They will be caught flat-footed by surprise.
  7. From the third week of September through the third week of October markets might have a major sell off anywhere from -38% to -50%.
  8. If politics and war threats go out of control as we think they will, something worse from these selling prices hits the markets.
  9. From the 4th quarter of 2013 into the beginning of the second quarter of 2014, we get a big nasty adventure. Name anything that can go wrong and it probably will.
  10. Gold and silver are smothered for now but they pick up later in the year. Trading trendless markets is very unstable. Buy and hold the best, or buy physical metals and just wait.
  11. We stuck our neck out with some very aggressive forecasts on economics and politics for this fall. We become either a hero or a fool. We shall see, but at least the call has been made and way in advance too. These forecasts are based upon logic and cycles.
  12. The good news is that in about 3-4 years (near roughly 2017) the credit nightmares are over and the world can once again regain its footing and proceed with some kind of normalcy.
Hard Assets Are Best Investment – Not Fiat Paper
It is obvious to us that hard assets are the answer. It all starts with physical gold and silver.
Somebody please tell us when global bond markets crash for good and we’ll tell you when this can all get better and we start over again, maybe with a gold-backed currency. –Trader Rog
By Roger Wiegand
Editor Trader Tracks Newsletter
The Jay & Rog Blog at webeatthestreet.com

Roger Wiegand is the writer of Trader Tracks Newsletter for gold, silver and energy traders. Roger provides recommendations for short and long term traditional stock shares, futures and commodities trading with specifics for individual trades. Stay tuned for more of Trader Rog’s insights and predictions via his interactive daily audio subscription, now available at www.letustrade.net
Roger also is a regular contributor to The Korelin Economics Report (www.kereport.com), the highest rated daily Internet radio program listened to throughout the world, dealing with politics and hard assets. He is also a regular guest on the Weekend Edition of The Korelin Economics Report, which airs on radio stations across the USA on Saturdays and Sundays.

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