Currency Manipulators

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Meet The People Bringing You Currency Manipulation On A Daily Basis

http://www.zerohedge.com/news/meet-people-bringing-you-currency-manipulation-daily-basis

Will China Label USA A Currency Manipulator?

Despite cage-rattling rhetoric from US politicians accusing the Chinese of currency manipulation, I've always posited it is the US government that is the world biggest currency manipulator, with the Fed and US Treasury acting as complicit agents.  The Chinese merely peg the yuan to the dollar, which is being mercilessly debased by the US.

http://www.zerohedge.com/news/will-china-label-usa-currency-manipulator

China Goes To TradeCon 2, Warns Currency Bill Will "Inevitably Lead To Serious Damage In China-US Trade Relations"

In the "no $hit" category, China retaliates against the US currency manipulation bill. 

http://www.zerohedge.com/news/china-goes-tradecon-2-warns-currency-bill-will-inevitably-lead-serious-damage-china-us-trade-re

China Fires Back At US Senate Which May Have Just Started The Sino-US Currency Wars

It didn't take long for China to respond to the US Senate passing an anti-currency manipulation bill.

http://www.zerohedge.com/news/china-fires-back-us-senate-which-may-have-just-started-sino-us-currency-wars

Chinese bailing out Greece

http://www.reuters.com/article/idUSATH00570720101002

On the surface, this article seems benign enough: China, flush with cash reserves, wants to bail out Greece--and by extension, the Euro zone, in order to maintain Europe's consumption of Chinese exports. They intend to do this with the purchase of soon-to-be-worthless Greek bonds, an IOU issued by a bankrupt government (sound familiar?). Fine.

But let's think a couple moves ahead, as the Chinese rarely make a move without surveying the landscape several years down the road. Like their developing world peers, the Chinese are getting increasingly nervous with their overweighted holdings in US Treasury bonds, as the Fed continues to feverishly devalue the USDollar. Selling US Treasuries with abandon would only undermine the value of Chinese holdings, increasing selling pressure and plummeting the value of said US bonds.

The solutions? Buy tangible assets supportive of their growing industrial base, including securing natural resources and resource companies in the energy and metals complex. Another solution? Buy the Euro. How? Through the Greek back door (no pun intended).

Of course, the Chinese will put on a varnished exterior, bailing out a valued customer, and buying assets from a trading partner--and all of that will be true, as they aim to increase market penetration in the Euro zone. But the ulterior motive is to find another resting place for their bulging reserves, as they slowly divest their US Treasury holdings.

Meanwhile, Congress and US Treasury Secretary Geithner cry "Wolf" and whine about Chinese currency manipulation. If the US really wanted the Chinese to stop devaluing the yuan, the Fed should stop devaluing the USDollar. But of course, that won't happen because the Fed needs to feed the Congressional beast.

And as the Chinese and other sovereign funds further divest of US Treasuries, interest rates will inevitably rise, as bond buyers demand higher yields to compensate for rising default risk. This will undermine any interest rate-suppression effects of further quantitative easing. Which means QE will fail--again.

And around and around we go, circling down the drain.

Germany calls out Geithner's hypocrisy

The finance ministers of Brazil and now Germany are declaring what I've been ranting on for years: the Fed is the biggest manipulator of currencies in the world, despite accusing others of currency intervention.

http://www.zerohedge.com/article/germany-calls-out-geithners-hypocrisy-says-money-printing-fx-intervention

At the G-20 meeting, per Bloomberg, German Economic Minister Rainer Bruederle said that the Fed's "push toward easier monetary policy is the “wrong way” to stimulate growth and may amount to a manipulation of the dollar. Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate." The fact that China was smart enough to peg its currency to the most rapidly devaluing currency in the world is a different story altogether, and merely confirms that they are leap and bounds more sophisticated in their monetary policy than anyone gives them credit for. If Geithner wants to prevent a relative depreciation of the Yuan versus all other currencies in the world (especially the EUR, against which it continues to be in freefall), the answer is simple: stop bloody printing!

Nobel Laureate says we need $10 trillion of QE

http://www.cnbc.com/id/15840232?play=1&video=1614756246

The Prince of Princeton is officially an idiot shill for Keynesian economics.

And here is China's response to allegations of currency manipulation

http://www.reuters.com/article/idUSLDE68S24D20100929

China said the United States should take action to stabilise the dollar, criticising Washington's expansionary monetary policy for weakening the currency despite its key role in the global financial system.

The comments by a Chinese official at a meeting of the World Trade Organization came as the U.S. House of Representatives was set to pass a bill putting pressure on China to let the yuan rise faster.

China may retaliate for currency measure

MAY retaliate? How about WILL retaliate? Another dumb move by Congress and the Obama administration will sink US exports. Smooth-Hawley II will doom the American economy.

http://www.bloomberg.com/news/2010-09-27/yuan-legislation-in-u-s-congress-may-prompt-retaliation-businesses-say.html

Trade war with China is on with proposed tariffs

Apparently, our government leaders didn't study Smoot-Hawley, and its role in extending the Great Depression.

http://www.telegraph.co.uk/finance/economics/8024180/Risk-of-trade-war-rises-as-key-US-committee-backs-tariffs-on-China.html

Currency wrapped in a riddle--and the collapse of the dollar

Yen intervention

http://www.ft.com/cms/s/0/43627416-c074-11df-8a81-00144feab49a.html

Now that the Bank of Japan has manipulated the yen down, will they draw criticism from the US for "currency manipulation", as they have from Europe? The US has already pointed fingers at China for currency manipulation. Could it be that all sovereign governments are manipulating their native currencies down in an attempt to stimulate their exports? Guess which store of value wins when paper currencies race each other to the bottom? I'll give you two guesses. And they're not colored pieces of paper.

China hints it could dump U.S. bonds

http://www.moneynews.com/Headline/China-Fires-Shot-Over/2010/09/14/id/370164

The Chinese dumping US bonds will cause yields and interest rates to soar, which will unravel any hopes of a US economic recovery. Is Congress really thinking this through in accusing the Chinese of currency manipulation and threatening to impose import tariffs? My short answer is no.

Chinese Renminbi: the new USDollar?

http://www.gata.org/node/8961/print

In the be-careful-what-you-wish-for category, Congress, US Treasury Secretary Geithner, Fed Chairman Bernanke, the Obama Administration, along with the blessing of the G-20 countries, have accused the Chinese of manipulating their currency down in order to maintain unfair export competitiveness. The international banking community doesn't realize it's the Fed that is manipulating the USDollar, in a similar desperate attempt to devalue the greenback, and that the Chinese are merely pegging the Yuan to the USDollar. Hence, if the Fed stopped debasing the USDollar, the Yuan would also stop its devaluation trajectory.

But the unintended consequence of appreciating the Yuan would include the Chinese dumping US Treasury bonds from their reserves (i.e. Chinese sales of US Treasuries would devalue the USDollar and appreciate their native currency, the Yuan). This dumping would cause US Treasury bond prices to crash and cause yields (and interest rates) to soar. This would completely eliminate any chance the US has of a recovery from an already fragile economy.

Again, US government economists and policymakers are chasing their tails, and don't realize their latest "solution" will only create much bigger problems down the road.

China favors Euro over USDollar

Be careful who you accuse of currency manipulation. They may stop buying your bonds.

http://www.emirates247.com/markets/gold/tons-of-gold-imports-turn-to-dust-on-arrival-2010-08-15-1.279082

China, whose $2.45 trillion in foreign-exchange reserves are the world’s largest, is turning bullish on Europe and Japan at the expense of the U.S.

Congress, Geithner, Bernanke and Obama have been incessantly accusing the Chinese of manipulating their own currency lower in order to maintain a competitive advantage in exports. What our government officials don't understand is that the Chinese are merely pegging the yuan to the dollar, so any manipulation the Chinese is doing is a direct result of the US Treasury and Fed manipulating the dollar.

Also, our leaders should be mindful that you shouldn't rattle the cage of your biggest creditor. As threatened, the Chinese are net sellers of US Treasury bonds, as they seek diversification away from the USDollar and dollar-denominated assets. They are buying gold and other foreign currencies to reduce their exposure to a debased reserve currency, the USDollar.

Threats of retaliation by raising tariffs in a trade war is exactly the wrong recipe for stimulating the economy. Perhaps our government economists should study the Great Depression to see how well nationalistic trade wars worked out.

China turns table on developed nations

The Chinese government has acquiesced to demands of revaluating their yuan. Now the onus is on debtor nations to clean up their fiscal house.

http://www.bloomberg.com/news/2010-06-20/china-turns-tables-on-aaa-debt-time-bomb-nations-william-pesek.html

Reading between the lines (as any astute investor should do), the not-so-subtle unintended consequence is the days of cheap Chinese imports will come to an end somewhere down the road. Inflation will be compounded by stagnant growth, lowered income and a reduced standard of living for US citizens. As Congressman scapegoat the Chinese for currency "manipulation", it'll be a case of "be careful what you wish for." A rising yuan means higher wages and a rising standard of living for Chinese citizens, but lower wages and a reduced standard of living for US citizens, relatively and in real terms.

Apparently, US lawmakers skipped the lectures on increased competitiveness and productivity.

Naked shorting of precious metals

This is my take on how bullion banks naked short sell gold and silver bullion. First one has to understand the difference between a short sale and a naked short sale.

A short sale is perfectly legal and desirable, as every transaction has two counterparties: a buyer and a seller. Hence, short selling provides liquidity to markets. The mechanism involves a short seller borrowing the assets (e.g. shares of a company, gold bullion, bonds, etc.), selling that asset at a determined price, and hoping the value of the asset declines, so the seller can buy it back at a lower price, profiting from the difference between the higher sales price and the lower purchasing price. It's identical to a buyer who goes "long" an asset: the buyer buys an asset, hopefully at a lower price, watches the asset value increase, and sells it at a higher price, profiting from the higher sales price. A short seller executes the same buy/sell transactions--only in different time sequence. A short seller sells the borrowed asset before buying it back (covering). Another difference is that the short seller has to pay interest for the borrowed asset, until the buyer covers his short position with the purchase.

Of course, not all long and short positions are profitable. If a long buys a stock at $10/share, and ends up selling at $8, the long position has a net loss of $2/share. Likewise, if a seller shorts a stock at $10, and the price rises to $12, the loss is again $2, plus the cost of interest for the borrowed shares. A long or short position is a directional bet: a long expects the asset value to rise in price, and a short expects the value to decline in price.

Naked short selling is contentious, and illegal in most markets, on par with fraud. A naked seller never borrowed the asset, never took possession, and hence, doesn't pay interest. It's particularly onerous because the asset doesn't exist, and therefore an infinite amount can be created out of thin air. For instance, phantom shares of a company can be created--and thus shorted, driving the shares of a company down, sometimes to zero. This is exactly what happens in a bear raid when there's a concerted effort from multiple parties betting against shares of a company, debt of a sovereign country (e.g. Greece), or precious metals.

With gold and silver, a few bullion banks borrow gold from a central bank (e.g. the Federal Reserve Bank) at the gold lease rate, sells the gold for cash, and lends out the cash at a higher rate, say the LIBOR. The bullion bank pockets the difference between the higher LIBOR rate and the gold lease rate, the so-called Gold Forward Offered Rate (GOFO). And since they are short gold, they also profit when the price of gold declines. Hence, the bullion banks have another motivation to see falling prices for precious metals, as they have huge short positions in gold and silver. Also, the concentration of a few bullion banks who have large net short positions allows them to manipulate prices lower, especially when they work in concert. This is what gold bugs have been complaining to the CFTC for years, and why the Department of Justice is finally investigating these anti-competitive practices.

What this investigation should expose is that these gold leases and sales are not backed by physical inventory, and hence are "naked." This price suppression scheme is fraudulent, and it's allegedly being carried out by the Fed, US Treasury, other foreign central banks, and a group of bullion banks, most notably JPMorgan Chase. A few years ago, Morgan Stanley was ordered to pay a fine when they fraudulently charged customers custodial fees for storing gold that never existed in their vaults. Many are questioning not only the existence of gold in the vaults of bullion banks, but also the ETF's, the futures exchanges (e.g. COMEX), and central banks themselves. It could be another reason why the Fed has resisted audits, which Ron Paul has pushed for with legislation. Ft. Knox has not had an independent audit of its vaults since 1953! Who knows how much gold there is in vaults worldwide, because the authorities certainly won't allow verification.

Why is this important to anybody--other than a few gold and silver bugs? Firstly, central banks artificially suppress precious metals prices to hide their reckless printing of paper currencies. After all, politicians have to fund entitlement programs--even if a country is bankrupt. A rising gold price exposes monetary inflation, simultaneously signaling currency debasement. Monetary inflation is a hidden tax on the citizens; a slow, grinding decline in a nation's standard of living. Until it reaches hyperinflation, when a sudden currency crisis becomes obvious to all. Gold is a fear indicator, and an inverse proxy for confidence in a government's finances--and currency.

In a fiat, fractional reserve currency financial system, banks and central banks have a vested interest in maintaining confidence in the status quo. If confidence is lost in our banking system, there would be a run on every bank, as all depositors would demand their deposits immediately. Well-capitalized banks take $1 of deposit, and lend that same dollar out to 10 other borrowers. Under-capitalized banks (highly leveraged banks) may loan that same dollar out to 40 or more other borrowers. Clearly, if every depositor wanted their money bank, every bank would be declared insolvent, unable to honor the 90+% of other depositors.

With the explosion of precious metals ETF's (which trade like a stock) allegedly backed by gold or silver, paper trading in the precious metals futures exchanges, and gold swaps and leases, it is speculated that the ratio of gold paper claims vs. physical gold above ground is 100:1. In other words, 99 out of 100 parties who believe they have claim to gold bullion do not own it at all. And if there's a run on physical gold, many "owners" of gold assets will be disappointed, much like many depositors would be disappointed (or angry) if there was a run on banks.

Another reason for concern is since the prices of precious metals have been suppressed for years, mining for them has been uneconomic. Many mines have been closed as a result in order to stem losses, further compounding the physical shortage. And since silver is also an industrial metal, in addition to being an investment and used for jewelry, when the shortage occurs, the severe crunch will cause prices to soar, while shutting down manufacturing lines. This has severe economic and national security implications, since silver is used in many high-tech, biotech, cleantech, and military applications.

The short-term profits of a few banks and their central banking cohorts will ultimately doom the long-term prospects of a global economy. This is why many mainstream financial pundits are starting to sound the alarm bell on what could be the biggest financial fraud in the history or mankind: the big NAKED short of gold and silver.

See disclaimer in side bar.

Disclosure: long physical gold and silver, long precious metals mining shares.

CFTC issues warning on trading limits

I wonder if the CFTC is finally getting off their hands since the Department of Justice is investigating criminal price manipulation of the precious metals at the COMEX (see previous blog on DOJ Anti-Trust investigation).

http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201005071229dowjonesdjonline000574&title=cftc-issues-advisory-on-compliance-with-speculative-limits

Look at the two charts in the following link to see if there there's any smoke. The announcement of the warning came at precisely 11:15 am Central Time. The spike in gold and silver prices coincided with the announcement. Coincidence?

http://market-ticker.org/archives/2286-CFTC-Warns,-GOLDSILVER-Spikes.html

The crimes in progress in our financial institutions aren't even debatable anymore--it's apparent to all except the blind. It's not just Goldman Sachs--it's the entire banking cartel. The bullion banks have been naked shorting gold and silver (selling precious metals they don't own) under the directive of the Fed for years with impunity. They know if prices of precious metals rise, it's an indicator of fear and loss of confidence in the currency Ponzi scheme. That's why government officials demonize gold; they know rising gold prices undermine their money printing presses. We've gone from million dollar deficits, to billion dollars, and now arrived at trillions in debts. Include derivatives, and the notional value of all worldwide derivatives tops $1 quadrillion. Folks, that is a lot of zeros behind the 1, considering worldwide GDP is only $60 trillion.

Hence, the central banks' and bullion banks' motivation to short sell gold and silver--even if it means naked shorting the futures markets and the ETF's. And hence, the motivation of the Fed to resist independent auditing of their transactions. They've gotten away with it since at least 1995. The concerted price manipulation forces speculative longs to liquidate their positions, enabling the suppression of precious metals pricing.

Between the Fed, US Treasury, other sovereign central banks, bullion banks, and sovereign governments, there is heft behind the price suppression schemes. They could create derivatives to infinity. Anybody on the long side of that trade using leverage has lost big. But the decade-long bull market in precious metals is starting to threaten the bullion banks' stranglehold on the paper trading market (again, via derivatives), because demand in the physical market is exploding, with intense buying pressure in Asia, the Middle East, Latin America, and now Europe with their debt crisis. Even hedge funds have loaded up on gold. Astute longs are refusing cash settlement--they are demanding physical deliveries.

But while creation of paper currencies may seem unlimited, the unwinding of toxic derivatives is coming home to roost. Even derivatives have limits--especially when payment is demanded in the form of physical bullion, rather than cash settlement. Why? Because the shorts are naked--they don't have possession of the gold and silver they have sold in forward contracts, so they will fail to deliver. And while it may take a microsecond to literally create trillions of fiat currency out of thin air, it takes 15 years to find and mine precious metals. They are valuable for a reason--they are scarce.

Therefore, longs will eventually trample the crooked shorts, although without a fight. While the long trade has been and will eventually be profitable long-term, soaring precious metals prices and physical shortages will threaten national security. Silver, used for jewelry and investment, is also an industrial metal, used in numerous applications, including electronics, solar panels, disinfectants, biotechnology, antibiotics, materials, construction, etc. Artificial price suppression of silver has discouraged miners from exploration, as it became an uneconomic business. This will create severe shortages in the future, undermining our already anemic industrial base.

This shortage will create disruptions in our defense, space exploration, high-tech, energy, greentech, and biotech industries. While the banks have profited from the precious metals suppression schemes short-term, they are setting us up for a huge economic collapse long-term. It's one thing to miss deliveries on an IPad, it is an entirely different circumstance to not deliver a stealth fighter, missile, or satellite to the Department of Defense. Precious metals traders in London and New York may joke about making easy money while screwing longs, but their crimes are treasonous. And the Fed is complicit.

Pension fund reforms looming

http://abcnews.go.com/Business/Retirement/public-pension-reform-states-cut-benefits-massive-funding/story?id=10448854

One of the reasons I started this blog is because I was getting tired of being bashed by my own friends and family for being the messenger of bad news, and to be honest--I got tired of my own redundancy. The news coming out of the mainstream press today includes material I was harping about months and years ago. Mutual funds, pension funds, and even money market funds are at risk (see this blog on money market redemptions). Many blogs included actionable items, from a personal finance standpoint.

In regards to our public finances, we are teetering past the point of no return, with debt levels unsustainably high, and the threat of our financial systems collapsing at its highest point since the Great Depression. Pending financial reforms do not remove this systemic risk--they are backward-looking band-aids which do little to eliminate the toxicity of a $1 quadrillion derivatives market, in light of the fact that worldwide GDP is less than $60 trillion.

Our government and Wall Street haven't removed the iceberg(s); they're merely draining the Titanic one bucketful of water at a time--with high seas on the horizon. And the financial press is re-arranging the deck chairs in order to numb the masses into believing all is well, through manipulation of data and outright lies about unemployment and inflation numbers.

Excessive leverage from places as disparate as Iceland to Palm Springs created credit bubbles and the subsequent bursting. In many regions of the developed world, the process of de-levering is still in place, aided by zero-interest rate policies, quantitative easing, and fraudulent accounting endorsed by government authorities. The Fed's easy-money lending to banks is meant to recapitalize their broken balance sheets, but Main Street is still credit-starved--banks aren't lending. In the process, the Fed's balance sheet has ballooned, including the gigantic inventory of toxic mortgage-backed securities, with a market value of pennies on the dollar. The massive debt monetization incurred by the bailouts will dampen any semblance of a sustainable recovery.

But the USDollar carry trade marches on, where arbitrageurs (including hedge funds and banks) borrow dollars at 0% and speculate elsewhere with the unintended consequences of creating additional asset bubbles. Meanwhile, accusations of the Chinese manipulating the yuan artificially low are ridiculous, considering the Chinese central bank merely pegs the yuan to the USDollar. If we are to believe the US stance on a "strong USDollar policy", then logic would dictate the yuan would also be a "strong" currency. The yuan is sinking because the USDollar is sinking, and while we're at it, so is the Euro. It's a race to the bottom in an attempt to stimulate exports.

In the paper chase to zero, I am holding on to something tangible.