With all the happenings currently taking place in the U.S. as it pertains to the latest weather events, along with the devastation and still incalculable aftermath both in humanity, as well as monetary terms. It’s not lost on anyone trying to pay attention that keeping up with all of the other news and events breaking simultaneously, it’s easy to be overwhelmed.
Yet, for those of us lucky enough not to be one of the unfortunate (and our thoughts are with you) having to either hunker down or evacuate from one’s home and life. Paying attention to other developments and trying to construe what they also may portend for the immediate future, is a must. For they too can unleash a fury in-kind much like those of the natural variety, with similar devastating power and destruction.
Here, I’m speaking directly to that of the monetary type.
For if, or when, it hits? Sometimes, much like what is taking place in the gulf regions – there is no true shelter. Only degrees for relative financial safety. But make no mistake, the possibility for complete financial monetary mayhem has now formed on the horizon, can be seen, as well as tracked. And it too has name: The Yuan.
And it has the potential to unleash a destructive power much like these recent weather events. i.e., Of biblical proportions.
I’m not trying to be hyperbolic, or, as they say, “just trying to scare the children.” Because what triggers this possible catastrophe has its root in another of similar magnitude. e.g. N. Korea. A once thought as nothing more than a tiny, annoying little thunder-cloud, popping up every once and awhile threatening to rain on everyone’s parade.
Now, only months later, it appears to not only have the wherewithal, but the necessary means, (e.h., a hydrogen bomb enabled ICBM) to rain mushroom clouds on major U.S. cities, reducing them, and the millions inhabiting them, to ash. Or, sending that cloud into high orbit above the U.S. itself, sending it and all of its inhabitants back to the stone age with an electro-magnetic-pulse.
Again, that’s not hyperbole – that’s now undisputed fact. The issue here to remember is this: It has all transpired in merely a few months. That’s why paying attention to things as-a-whole, and on a-global-scale, with all its intricacies, possibilities, has become nearly impossible. But they are there nonetheless.
The issue now that is different from most other times is this: Resolving one might not resolve the other. And that “other” as I implied earlier – just might have as much devastating potential as the prior. Only in a different form. And this is the key to understand, as well as contemplate, in my opinion. Let me explain using the following…
Even if the nuclear Armageddon crisis is resolved. The North may have just allowed (as in given the reasoning and cover, it either wanted or needed) for China to unleash its own “First Strike” initiative of the monetary kind against, not just on the U.S. per se, but rather, against the $Dollar, and its hegemony status as the world’s reserve currency.
I’ve been warning for such a deliberate act to be forthcoming. And yes, I’m fully aware how it’s been regarded as “crying wolf” by many of the mainstream media, along with its gaggle of business/financial “think tanks”, and other academic outlets. However, that doesn’t mean the circumstances for such have not been lying-in-wait (as I’ve implied) for “just the right opportunity.”
I’m of the opinion that “opportunity” may have arrived.
In May of this year I opined on this topic and argued the following. To wit:
“Add to this the current enactment of steel tariffs placed only weeks ago by the U.S and you know what you also get? Hint: An even more ticked-off Beijing. Again: All this in conjunction as some U.S. steel warships hold fast off the Korean coast threatening to possibly launch a first strike upon its next door neighbor and so-called Sino-influenced “underling.”
If the politburo decides that there is no other way (and easier timing for a scapegoat) than now as to suddenly devalue the currency and put a world of financial hurt squarely on the West (and the U.S. in-particular) while simultaneously using all the turmoil as to hasten the pace (and possibly secure the position for more SDR influence) the table for such a move has probably never been set so neatly, so perfectly, and so probable as it is today.
Waiting to see if the $Dollar reverses and brings the hurt on in ways that are out of the politburo’s control or sphere of influence will not be seen as “prudent” by anyone within the Chinese authority. “Waiting” from their viewpoint might be the last thing they can consider, especially since “warships” and “missiles” are now needed to be factored into the immediacy for monetary decision-making.
They may decide to act, and act sooner, rather than later.”
And here we are, for it’s not that China has announced just another round of crack downs by not allowing money or assets to be off-shored, fleeing for safe havens elsewhere.(i.e., deeming it near illegal for companies or properties to be purchased abroad without prior politburo approval, along with crushing crypto-currencies and more, near daily etc., etc.)
But rather, in an extraordinary move, in conjunction (for this point can’t be made forceful enough) it has given the “green light” as they say, for currency speculators (aka the scourge of currency markets by politicians, central bankers, and governments everywhere) to short the Yuan.
Again, for this point is critical: The Chinese politburo has itself mounted a “bulls-eye” on its currency and all but shouted, “Step right up, and don’t be shy. Have at it, and maybe win a prize!”
Why would any nation do such a thing when the default position (as well as the maniacal screams that emanate via this same cohort of political leaders, or bankers) is to all but make short-selling illegal at near any opportunity?
I believe there’s a distinct reason for this, and it becomes much clearer when parsed through the Machiavelli prism. Let me go back to the afore-mentioned article where I also made the following observation. Again, to wit:
“Aside from the obvious “trigger” events that could arise as I stated in the above. (e.g., N. Korea) There are a few other events which when taken as a collection, rather, than just their stand alone value, portend for far further cracking in the facade that is China.
Since we’re in the middle of a possible armed standoff the analogy of “Did China dodge a bullet?” seems fitting when juxtaposed to the recent tightening into weakness launched in earnest via the Federal Reserve.
As strange as anything resembling “normal” monetary effects have been, e.g., Central banks buying equities. One of the latest has a few scratching their heads, and it’s this: As the Fed. hiked not just once, but twice in 90 days, and, is signaling even more along with a reduction of its balance sheet – the $Dollar has weakened.”
It’s that last point than needs to be understood. e.g., the $Dollar weakened. For it has been this one current monetary outlier in regards to the consensus of monetary theory as to the effects of Fed. tightening (dear academia, that’s why it’s called “theory” to begin with) that has allowed a momentary respite for China in regards to possibly losing control of their currency far sooner, causing outflows in ways even they may have not been able to control at that time.
But now, control they seem (or at least believe) to have. Yet, more importantly, is this: They now appear ready to de-value themselves. Or, at the least, allow for it to happen with their blessings. All while having the political argument against the slings-and-arrows of “currency manipulation” thwarted. Why?
Because politically – that argument is now moot. And it’s been the U.S. $Dollar itself that allowed for it.
Regardless of what one thinks or believes. When it comes to anything of the political. Facts don’t matter. It’s all about how the story can be spun as to give cover for one politician, nation, or even governing body to justify their rationale for how they voted.
In other words: If you’ve done everything correctly, but the “court of public opinion” wants you found guilty? All they need is a specious argument that sounds more tangible than not to give cover for their decision. Period. Regardless if it’s at the local level, national, world body, or kitchen table.
And currently China has the argument (whether true or not) to make the case for allowing the Yuan to devalue in ways most have no understanding for its destructive, let alone, deflationary effects. Especially the politicians.
If the globe (or even our President) wants to jump up and down, screaming “currency manipulator!” China can just sit back and imply, “When? Now? It has been your currency that has been tanking. All the while we’ve been doing everything a government should be doing with a currency that is considered to be stable currency for global trade and markets. We could have easy let our currency fall in unison with yours, but we have not. And you continue to scream? We only ask that others to look at today’s proof of any such charge and come to their own conclusions.”
See what I mean?
But make no mistake, China I believe is using this opportunity because it needs to make the play for it now, for it can no longer wait itself. Which is also why this all becomes quite un-nerving when put into proper context.
Forget about the current standoff with N. Korea as hard as that is for the moment.
China is also facing down another “standoff” where it too must decide which is the lesser of two evils. And those “evils” come directly via the Federal Reserve, and what they’ll do, or not do, at the next FOMC meeting the 19-20th of this month. Less than two weeks away.
What happens after the FOMC as it pertains to China is, as I said, the lesser of two evils.
First: If the Fed. raises and the $Dollar continues to slide? For China that’s not really a good outcome because it’ll be the final signal for markets everywhere that recession was upon us. And China would immediately need to deal with the adjunct trade adjustments and investment movements that would result.
On the flip side: if the Fed. raises or not, yet, the $Dollar reverses course and starts moving higher once again? China is right back as it was earlier in the year to throwing everything, including the kitchen sink, at trying to stave off capital flight out of the Yuan and not getting anything for it, other than more headaches within its own economy.
So with that in mind, if you were the Chinese politburo, and the answer that quells a lot of the above is a rapid and forceful devaluation of your currency making nearly the entire globe uncompetitive to your pricing power. Why would you wait to respond when it would appear, by all measures, you have the means, as well as “righteous argument” for defense to strike first?
Again, if the inevitable is just that “inevitable.” Why wait?
I believe they just answered that question.
Remember, the issue here is they seem to have the wink-and-nod in the form of the “righteous argument” to be used on the global stage against any, and all, calls of manipulation, especially from the U.S. After all – they’re not doing anything more-or-less than what any other globally traded currency does on the open market. And yes, now, they’ll even let “the shorts” short it.
See how the arguments can be formed?
What is also of significant importance to the politburo is not just what it all pertains to its economy in general terms. But rather, the ancillary reasons it will need to quell any inner uprising, or revolt (something China is keen to hammer down) should it find itself suddenly thrown into its own deep recession.
Again, China is not just going to sit idly by and let outside forces dictate what it will need, or do, as to deal with its citizenry. Communist regimes don’t work that way – regardless what’s taught in Ivory Towered academia.
For if the U.S. is indeed on the cusp of a recession (and many indicators show we already are) than the impending infectious results for China, and the emerging markets at large, are multiples of that.
And now, the only saving grace, along with face (which is sometimes even more important for China) which it has at its disposal would be: a massive devaluing of the Yuan. Making everything coming out of China so cheap – it would all but crush any and all other exporters in one single swoop.
Think about that very carefully, for the ramifications for doing, or not doing, are absolutely significant for China, if it truly believes – it’s worth the short-term price as to winning the long-game for economic dominance.
There also should be no irony lost that the date China has set for that “first strike” to be launched with regards to allowing short sellers to take aim is: September 11th.
© 2017 Mark St.Cyr