Falling From Grace by Doug Casey

  For doom and gloom, it is hard to outdo Doug Casey with his well argumented long term vision. His point in a nutshell is that the current decline is systemic and cannot rolled back. I would tend to agree.

  To understand how the dollar hegemony was built over time, you can read the book of Michael Hudson: Super Imperialism. An economic masterpiece on a complex subject. https://www.pdfdrive.com/super-imperialism-the-origin-and-fundamentals-of-us-world-dominance-e175324507.html

Guest Post by Jeff Thomas

Years ago, Doug Casey mentioned in a correspondence to me, “Empires fall from grace with alarming speed.”

Every now and then, you receive a comment that, although it may have been stated casually, has a lasting effect, as it offers uncommon insight. For me, this was one of those and it’s one that I’ve kept handy at my desk since that time, as a reminder.

I’m from a British family, one that left the UK just as the British Empire was about to begin its decline. They expatriated to the “New World” to seek promise for the future.

As I’ve spent most of my life centred in a British colony – the Cayman Islands – I’ve had the opportunity to observe many British contract professionals who left the UK seeking advancement, which they almost invariably find in Cayman. Curiously, though, most returned to the UK after a contract or two, in the belief that the UK would bounce back from its decline, and they wanted to be on board when Britain “came back.”

This, of course, never happened. The US replaced the UK as the world’s foremost empire, and although the UK has had its ups and downs over the ensuing decades, it hasn’t returned to its former glory.

And it never will.

If we observe the empires of the world that have existed over the millennia, we see a consistent history of collapse without renewal. Whether we’re looking at the Roman Empire, the Ottoman Empire, the Spanish Empire, or any other that’s existed at one time, history is remarkably consistent: The decline and fall of any empire never reverses itself; nor does the empire return, once it’s fallen.

But of what importance is this to us today?

Well, today, the US is the world’s undisputed leading empire and most Americans would agree that, whilst it’s going through a bad patch, it will bounce back and might even be better than ever.

Not so, I’m afraid. All empires follow the same cycle. They begin with a population that has a strong work ethic and is self-reliant. Those people organize to form a nation of great strength, based upon high productivity.

This leads to expansion, generally based upon world trade. At some point, this gives rise to leaders who seek, not to work in partnership with other nations, but to dominate them, and of course, this is when a great nation becomes an empire. The US began this stage under the flamboyant and aggressive Teddy Roosevelt.

The twentieth century was the American century and the US went from victory to victory, expanding its power.

But the decline began in the 1960s, when the US started to pursue unwinnable wars, began the destruction of its currency and began to expand its government into an all-powerful body.

Still, this process tends to be protracted and the overall decline often takes decades.

So, how does that square with the quote, “Empires fall from grace with alarming speed”?

Well, the preparation for the fall can often be seen for a generation or more, but the actual fall tends to occur quite rapidly.

What happens is very similar to what happens with a schoolyard bully.

The bully has a slow rise, based upon his strength and aggressive tendency. After a number of successful fights, he becomes first revered, then feared. He then takes on several toadies who lack his abilities but want some of the spoils, so they do his bidding, acting in a threatening manner to other schoolboys.

The bully then becomes hated. No one tells him so, but the other kids secretly dream of his defeat, hopefully in a shameful manner.

Then, at some point, some boy who has a measure of strength and the requisite determination has had enough and takes on the bully.

If he defeats him, a curious thing happens. The toadies suddenly realise that the jig is up and they head for the hills, knowing that their source of power is gone.

Also, once the defeated bully is down, all the anger, fear and hatred that his schoolmates felt for him come out, and they take great pleasure in his defeat.

And this, in a nutshell, is what happens with empires.

A nation that comes to the rescue in times of genuine need (such as the two World Wars) is revered. But once that nation morphs into a bully that uses any excuse to invade countries such as Afghanistan, Libya, Iraq and Syria, its allies may continue to bow to it but secretly fear it and wish that it could be taken down a peg.

When the empire then starts looking around for other nations to bully, such as Iran and Venezuela, its allies again say nothing but react with fear when they see the John Boltons and Mike Pompeos beating the war drums and making reckless comments.

At present, the US is focusing primarily on economic warfare, but if this fails to get the world to bend to its dominance, the US has repeatedly warned, regarding possible military aggression, that “no option is off the table.”

The US has reached the classic stage when it has become a reckless bully, and its support structure of allies has begun to de-couple as a result.

At the same time that allies begin to pull back and make other plans for their future, those citizens within the empire who tend to be the creators of prosperity also begin to seek greener pastures.

History has seen this happen countless times. The “brain drain” occurs, in which the best and most productive begin to look elsewhere for their future. Just as the most productive Europeans crossed the Pond to colonise the US when it was a new, promising country, their present-day counterparts have begun moving offshore.

The US is presently in a state of suspended animation. It still appears to be a major force, but its buttresses are quietly disappearing. At some point in the near future, it’s likely that the US government will overplay its hand and aggress against a foe that either is stronger or has alliances that, collectively, make it stronger.

The US will be entering into warfare at a time when it’s broke, and this will become apparent suddenly and dramatically. The final decline will occur with alarming speed.

When this happens, the majority of Americans will hope in vain for a reverse of events. They’ll be inclined to hope that, if they collectively say, “Whoops, we goofed,” the world will be forgiving, returning them to their former glory.

But historically, this never occurs. Empires fall with alarming speed, because the support systems that made them possible have decamped and have become reinvigorated elsewhere.

Rather than mourn the loss of empire that’s on the horizon, we’d be better served if we focus instead on those parts of the world that are likely to benefit from this inevitability.

Editor’s Note: Socialist ideas are becoming increasingly popular in the US. At the same time the US government is printing money hand over fist. All while the US empire continues to overstretch itself across the world.

It’s all shaping up to be a world-class disaster… one unlike anything we’ve seen before. That’s exactly why New York Times bestselling author Doug Casey and his team just released an urgent video showing how it all could go down. Click here to watch it now.

Biden’s Dollar Weaponization – Growing Backlash Could Kill the Economy

  It took over 50 years to build the dollar as the all powerful hegemonic, central (to the world exchange and trading system) money it has become. Can the bidden administration kill it in just 5 years? 

  We are most certainly on this path. I expect a major shock in 2024 and pandemonium in 2025. War is likely but even if we can wait a little longer, a complete financial mess is looming over the horizon. 

  And it's not just the Biden Administration. Trump has said a few days ago, specifically, that he would punish countries who do not trade in dollar! How more hegemonic can you be? 

  Good luck with that! Such statements will not slow down the trickle away from the dollar, it will open a flood!

From Peter Reagan for Birch Gold Group

President Biden’s decision to participate in the Ukraine-Russia conflict back in February 2022 has taken a new and dangerous turn this year.

The U.S. dollar could suffer dramatically as a result.

Before we explore that new development, we’re going to start by quickly summarizing some of the events that led the United States to this point.

Let’s begin…

In the February 28th, 2022 issue of Matt Levine’s Money Stuff column for Bloomberg, Levine wrote about the sanctions placed on Russia:

the U.S., the European Union, the U.K., Switzerland, Singapore and other countries announced harsh sanctions against Russia for its unprovoked invasion of Ukraine. There are a lot of these sanctions – banning Russian flights through European airspace, limiting Russian banks’ access to the SWIFT interbank messaging system, etc. – but the most drastic might be U.S., U.K. and EU bans on any transactions with the Russian central bank. The bulk of Russia’s foreign reserves are held in the form of securities, deposits at other central banks and deposits at foreign commercial banks. A ban on transactions with Russia’s central bank means that it can’t sell those securities or access those deposits. Its foreign currency reserves turned out to be mostly useless.

As is the case with most geopolitical conflicts, there is always a lot more to the story than gets reported in the mainstream media (Russian, U.S., or otherwise). For example, some of the history behind the current conflict actually dates back to 2014.

Nonetheless, the bottom line is that the financial sanctions placed on Russia in 2022 were supposed to have a severe impact on Russia’s economy.

Unfortunately, for President Biden and NATO allies…

Russia shrugs off brutal sanctions

If the sanctions placed on Russia in 2022 had their intended effect, Russia’s economy would’ve been wrecked, set back 30 years or more. It would’ve become a third-world country by now.

But that hasn’t happened. Russia has prospered despite those sanctions.

A revealing NPR interview shed light on some of the economic impacts, as of December 2023:

Russia has been hit with huge economic sanctions since it invaded Ukraine nearly two years ago. But the Russian economy has remained strong, defying many economists’ expectations.

Alexandra Prokopenko, a fellow at Carnegie Eurasia Center, explained:

Economic growth in Russia in 2023 is likely to exceed 3%. It is – in terms of figures, I mean, it’s great. It’s more than the economy of the United Kingdom or of Germans’ economy. So what’s behind these figures is that over a third of this growth is attributed to the war economy, where defense-related industries are flourishing at double-digit rates.

Now, it makes sense that war would boost military and defense-related industries. But Russia’s economy also doesn’t appear to be suffering much.

In fact, according to Bloomberg, Russia’s economy is actually at risk of overheating.

Even left-leaning think tanks can’t do much more than wag their fingers and exclaim “just you wait”:

Russia’s economy is now stable both in spite of and as a result of Western sanctions…

Russia’s economy could begin to see major challenges in the next year-and-a-half, think tank researchers write.

Just like Bidenomics! “Sure, it’s not working yet, but it will eventually, any day now…”

Nonsense. Russia’s currency, GDP, and banks are thriving:

The ruble is steady at about 92:1 (compare this to Biden’s claims from 2022 that “the ruble will be rubble”). Russia’s debt-to-GDP level is 17.2%, compared with the U.S. level of 131.0%. Russian bank profits for 2024 are projected to exceed the record profits in 2023.

In other words, Russia’s economy is outperforming the U.S. by almost every measure, and is doing so on a more sustainable level from a debt perspective.

So, let’s take stock…

Two years after these shock-and-awe sanctions intended to pressure Russia into ending its invasion of Ukraine:

• Russia’s economy is outperforming not only the U.S. but also NATO allies (including the UK’s, Germany’s etc.)
• The embargo on Russian oil by the West had zero impact on Russian exports
• Russia’s defense and military industries are booming (talk about unintended consequences!)

Don’t misunderstand! I’m no fan of Vladimir Putin.

But I’m also not a fan of the Biden administration’s half-baked plan to teach Russia a lesson. It’s a total failure.

At this point, a rational person would assess the situation, look at the data and make a new plan.

Never one to learn from his mistakes, President Biden has instead opened a new front in his financial war on Russia.

This time, though, I’m seriously concerned he’s gone too far…

“This is outright theft”

Thanks to a recently passed piece of legislation, the Biden administration plans to take control of Russia’s frozen assets.

Rickards provided a nice summary:

The House passed the “REPO Act” this weekend, which authorizes the administration to seize about $20 billion worth of Russian assets sitting in U.S. banks, mostly Treasury securities. It would then transfer that money to Ukraine.

The securities were legally purchased by Russia using dollars earned through the sale of oil prior to the war. They were frozen in early 2022. That means the securities are still legally owned by Russia, but they can’t be sold or pledged, and Russia can’t receive the interest or cash at maturity.

But this legislation goes one step further and authorizes the actual seizure of these assets. This is outright theft and a violation of the Sovereign Immunities Act, but no one seems to care about that.

We’ve discussed dollar weaponization repeatedly over the last couple of years.

This development is next-level.

Freezing assets is bad enough – but seizing those legally-purchased assets? In violation of all international law?

That’s the act of an autocrat. Which is exactly what Biden calls Putin.

Is this a good idea? Probably not. Russia already can’t get its hands on those assets. So how does stealing them make Russia’s situation worse?

It doesn’t!

Instead, what it does accomplish (again, unintended consequences) is send a message to the rest of the world.

It’s not a hopeful message.

Are dollars assets? Or liabilities?

In today’s financialized world, most financial assets are based on debt. They’re promises to pay. As Ray Dalio recently reminded us:

…the dollar, to a lesser extent the euro, to a much lesser extent the yen, and to an even lesser extent the Chinese renminbi… are held in debt assets – i.e., they are debt-backed money—i.e., currency = debt. In other words, when you hold these monies, you are holding debt liabilities, which are promises to deliver you money.

The REPO Act has broken this promise to deliver money.

Which begs the question: What if central banks start to view dollars as a liability rather than an asset?

This Wall Street Journal article shows that economists were already grappling with this question back in 2022:

Recent events highlight the error in this thinking: Barring gold, these assets are someone else’s liability – someone who can just decide they are worth nothing…

What can investors do? For once, the old trope may not be ill advised: buy gold. Many of the world’s central banks will surely be doing it.

Indeed, 2022 was the biggest year for central bank gold-buying in history.

2023 was a close second-place, coming in just 4% below the previous year’s record.

The lesson is quite clear. What we think of as assets can become liabilities overnight.

Pep Talk on a Dark Day by Jim Kunstler

  The good thing about Jim Kunstler is that what he writes is well written. The less good thing is that often the prose flies away and breaks free from reality.

  Still the malaise he talks about below is real. As a European, I have often wondered how is it possible to enjoy a wealthy life in the US surrounded by squalor and poverty. Nothing which would offend someone in India but the US was supposed to be different, and for a time it was. A downtown central square was a pleasure to walk around in the 1960s. Maybe not as fun as "Happy Days" but pleasant nonetheless for most people. (An yes, it was a segregated world.) 

 Some places are probably still enjoyable but the vast majority of cities have sunk into depravity and violence to the point that going out has become more difficult. Who is responsible for that? What can be done? Are we really sinking towards a new Middle Age of darkness and superstition?

Guest Post by Jim Kunstler

“We live in an age of full spectrum deception.” — Edward Dowd

You realize, don’t you, that what’s going on in our country is the collapse not just of an empire, or an economy, but a comprehensive paradigm of human progress. The hallmark of post-war life in Western Civ was supposed to be a return to sanity after the mid-twentieth century fugue of mass psychotic violence. The wish for just and rational order was not entirely pretense. But that was then. Now that we are going medieval on ourselves, the not-so-ironic result will be our literally going medieval, sinking back into a pre-modern existence of darkness, superstition, and penury, grubbing for a mere subsistence in the shadow of scuffling hobgoblins, our achievements lost and forgotten.

What’s most appalling is that our governing apparatus is visibly willing that to happen. When Barack Obama warned America to not underestimate Joe Biden’s ability to fuck things up, was that some kind of joke? After all, it was Mr. Obama and his fellow blobsters — the cabal of Intel spooks, covert Marxist bureaucrats, lawfare ninjas, globalist megalomaniacs, post-liberal think tankers, weapons grifters, degenerate billionaires, and assorted mentally-ill camp followers — who inflicted Joe Biden on the body politic. And then ran him on the country like some demon algorithm designed to wreck the USA as fast as possible.

The source of anguish in all that is the struggle to understand why they would want that to happen. What debauched sense of history would drive anyone to such lunatic desperation? It’s a cliché now to say that the Democratic Party has turned its traditional moral scaffold upside down and inside out. It acts against the kitchen table interests of the working and middle classes. It’s against civil liberties. It demands mental obedience to patently insane policy. It’s avid for war, no matter how cruelly pointless. It’s deliberately stirring up racial hatred. It despises personal privacy. It feeds a rogue bureaucracy that has become a veritable Moloch, an all-devouring malevolent deity. And now, rather suddenly, it aligns itself with a faction that seeks to exterminate the Jews.

And how did the opposition to that epic divergence into bad faith turn so flabby? How did the Republican Party roll over and wheeze so feebly while the FBI ran amok swatting grandmothers in dawn raids, and the US attorney general made justice a whore, and a Republican Congress allowed the Frankenstein agency of Homeland Security to flood the country with its enemies and give them gobs of operational cash? If Mr. Trump was unappetizing to them as a leader, why were they unable to produce an alternative figure of standing and stature at least equally resolute? They look like traitors and cowards.

For the moment, the country lies mired, inert, and demoralized in the face of in those terrible mysteries. But events are still tending and the hidden hand of emergence still operates backstage, preparing surprises for us. You are necessarily aware that the center did not hold. It’s even hard to locate where the center used to be with the action so heavy on the far-out margins. You’re watching drag queens importune young children to shove all the Jews into the sea. And the kids are sitting next to their mommies. What happened to the mommies’ brains that permits them to think this spectacle is okay? How will the mommies ever get their minds right?

In some quarters, a great rage is building. Not a few resent the overthrow of common sense, common law, and common decency. You better believe they will be aiming to do something about it. They will stand up for their dignity, their culture, their history. Virtue isn’t dead; it’s just broke down on a lonely highway waiting to hitch a ride back to where the lights are still on. Don’t forget that this really is the land of the free and the home of the brave.

Meanwhile, prepare for action. It’s obvious that the enemies of the people don’t intend to rest. They are going to try to play out this string to the last move because otherwise a lot of them will be going to jail, or might even hang for their wickedness. Once they turned criminal, there was no turning back. They have dishonored themselves and they’re trying to dishonor their country.

It’s true nonetheless that we’re moving into a new disposition of the human project. It’s going to be smaller and leaner, and not nearly as complex as the tottering Rube Goldberg apparatus we’re currently trapped in. We don’t know yet what the shape and texture of that America is going to be. As the sage Yogi Berra observed, our whole future is ahead of us. If you’re not among the insane, have faith. We’ll get there and everything is going to be all right.

Crush time for the Yen?

  As we have been warning for several years now, what cannot last, won't.

  The canary in the financial coal mine is the Yen. At 160 yen per dollar the money is entering junk level and will start having a negative impact on other markets and currencies. 

  Remember November 2019 when the Repo market started to break apart? A month later we had the Covid crisis. 

  As we have been warning now for the last year or so: Expect something major happening in the coming few months, most likely during the May/June window. 

  A dollar rate above 5% is deadly for real estate, individuals and US banks. Lowering rates while inflation is flaring up is almost impossible less the Fed loses credibility. Japan was counting on lower rates to minimize the interest rate spread and the pressure on their currency. Now that it can't happen, Japan is stuck. Raising interest rates even 0.25% is economic suicide. Not raising rates is Yen suicide. The BoJ has finally painted itself in a corner.

  We are about to enter choppy waters, in the US, in Japan and of course in Europe. Something is about to break badly. Expect someone, somewhere to preempt such an event. 9, 8, 7, 6, ... The countdown is on!

Futures Rise, Yen Downgraded To Banana Republic Currency After Another Rollercoaster Session

 US equity futures swung between gains and losses and traded near session highs as US traders walked to their desks on Monday morning after a rollercoaster day for the Japanese yen, which increasingly looks like some 3rd world banana republic currency instead of belonging to the world's 3rd largest economy, and which first plunged below 160 vs the USD - the lowest level since 1990 amid dismal volumes thanks to the Japanese market holiday on Monday - only to soar more than 500 pips in what is now the first confirmed BOJ intervention since 2022. Futures were buoyed by rising earnings optimism as traders looked ahead to another very busy week for company results, and as of 7:40am, S&P futures gained 0.2% with Nasdaq futures rising 0.3%, boosted by another surge in Tesla shares.  10Y Treasury yields fell four basis points to 4.62% ahead of today's announcement by the Treasury of its funding needs for the coming quarter, while the dollar weakened. Oil retreated, with Brent first trading below $89 a barrel, only to rebound higher amid the endless speculation that a peace deal between Israel and Hamas is coming that would reduce geopolitical tensions in the Middle East (spoiler alert: there will be no deal). Gold rose and bitcoin fell.

After Overnight Collapse To 34-Year-Lows, Yen Surges In Apparent 'Intervention'

The Japanese Yen strengthened sharply overnight after crashing to its lowest level since April 1990, breaking 160/USD.

The FT reports that traders in Hong Kong, Australia and London said it was “highly likely” that the recovery was due to Japan’s finance ministry selling dollar reserves and purchasing the Japanese currency for the first time since late 2022.

While analysts suggested the size and speed of the jump smacked of intervention, some traders questioned that conclusion and said Japanese banks sold dollars for customers as it rallied.

Japan’s top currency official, Masato Kanda, chose to keep investors guessing by declining to comment.

"It is difficult to ignore the bad effects that these violent and abnormal movements [in currencies] will cause for the nation's economy," Kanda told reporters on Monday.

Dow Jones reported authorities stepped in to support the yen, citing people familiar with the matter.

It is unlikely to be the last time Japan intervenes in the currency market this year, given that U.S. interest rates are likely to remain high, said Alvin Tan, head of Asia foreign-exchange strategy at RBC Capital Markets.

"We will have a tug of war going forward between Tokyo and the market," he said.

*  *  *

The yen crashed in early Asia trading, tumbling to match is exact lows from April 1990 in what is being blamed on a 'fat finger' trade or multiple barrier-option trades being triggered, by sources that have literally no idea.

The plunge extended Friday's big drop which followed BoJ Governor Ueda's apparent lack of interest in doing anything about the yen's decline, claiming it had 'no impact' on the currency's inflation picture.

“Currency rates is not a target of monetary policy to directly control,” he said.

“But currency volatility could be an important factor in impacting the economy and prices. If the impact on underlying inflation becomes too big to ignore, it may be a reason to adjust monetary policy.”

In fact, policymakers have repeatedly warned that depreciation won’t be tolerated if it goes too far too fast.

Finance Minister Shunichi Suzuki reiterated after the BoJ meeting that the government will respond appropriately to foreign exchange moves.

Potential triggers for interventions are public holidays in Japan on Monday and Friday next week, which bring the risk of volatility amid thin trading.

“Should the yen fall further from here, like after the BOJ decision in September 2022, the possibility of intervention will increase,” said Hirofumi Suzuki, chief currency strategist at Sumitomo Mitsui Banking Corp.

“It is not the level but it’s the speed that will trigger the action.”

Well currency volatility is what he has now...

Source: Bloomberg

The sudden drop pushed USDJPY perfectly to its April 1990 highs to the tick...

Source: Bloomberg

The currency pain was all focused in the Japanese market as EUR and GBP strengthened against the USD...

Source: Bloomberg

Perhaps even more notably, the yen puked relative to the Chinese yuan, hitting 22 for the first time since 1992 and putting further pressure on Beijing to potentially do something...

Source: Bloomberg

The question is, of course, what will Japan's MoF/BoJ do now - if anything as their recent excuses about 'velocity' or some such spin are now out of the window after a 6-handle standalone surge in their currency in a few short days (when the rest of the world's currencies are not).

“Authorities may say they don’t target levels per se, but they do pay close attention to the trend and the rate of change and current levels suggest they have to act soon or risk facing a credibility crisis,” said Chris Weston, head of research at Pepperstone Group Ltd.

“The FX market is almost taking them on like the bond vigilantes of old.”

Specifically as SocGen's FX strategist Kit Juckes noted on Friday, the yen's decline is becoming disorderly, which points to a final, potentially sharp, decline before it finds a floor.

However, as we detailed last week, the problem with intervention is that once the genie is out of the bottle… it’s hard to put it back in.

In other words, the onus should be on the BOJ to step in with a much more hawkish move than the market expects.

As Viraj Patel from Vanda Research goes on to note that "we’re at a stage where MoF/BoJ have no choice but to intervene. The best way would be for BoJ to hike 25bps this week. It’s not about the macro anymore (BoJ should’ve normalized policy faster last year)."

Instead, what is going on is that Japan's disastrous handling of its currency has evolved into a game between speculators and officials: Specs are short yen for good fundamental reasons (carry). At this stage, a “surprise” hike to send a signal to markets that they are concerned about ongoing FX weakness (and don’t test us) would be less costly to the economy vs. a further devaluation in the yen. It also adds an additional level of uncertainty to the BoJ/MoF reaction function - which speculators (long carry trades) don’t like.

Meanwhile, FX intervention - which unfortunately looks to be the MoF/BoJ’s preferred route based on recent history - is not even a short-term fix anymore. USD/JPY dips would be quickly bought into based on recent market chatter. A hike goes a bit further towards solving the root cause of yen weakness - even it’s only a marginally better option.

However, not everyone is convinced intervention is imminent.

In a note late last week, Deutsche Bank says the currency's decline is warranted and finally marks the day where the market realizes that Japan is following a policy of benign neglect for the yen.

We have long argued that FX intervention is not credible and the toning down of verbal jawboning from the finance minister overnight is on balance a positive from a credibility perspective. The possibility of intervention can't be ruled out if the market turns disorderly, but it is also notable that Governor Ueda played down the importance of the yen in his press conference today as well as signalling no urgency to hike rates. We would frame the ongoing yen collapse around the following points.

1. Yen weakness is simply not that bad for Japan. The tourism sector is booming, profit margins on the Nikkei are soaring and exporter competitiveness is increasing. True, the cost of imported items is going up. But growth is fine, the government is helping offset some of the cost via subsidies and core inflation is not accelerating. Most importantly, the Japanese are huge foreign asset owners via Japan’s positive net international investment position. Yen weakness therefore leads to huge capital gains on foreign bonds and equities, most easily summarized in the observation that the government pension fund (GPIF) has roughly made more profits over the last two years than the last twenty years combined.

2. There simply isn't an inflation problem. Japan's core CPI is around 2% and has been decelerating in recent months. The Tokyo CPI overnight was 1.7% excluding one-off effects. To be sure, inflation may well accelerate again helped by FX weakness and high wage growth. But the starting point of inflation is entirely different to the post-COVID hiking cycles of the Fed and ECB. By extension, the inflation pain is far less and the urgency to hike far less too. No where is this more obvious than the fact that Japanese consumer confidence are close to their cycle highs.

3. Negative real rates are great. There is a huge attraction to running negative real rates for the consolidated government balance sheet. As we demonstrated last year, it creates fiscal space via a $20 trillion carry trade while also generating asset gains for Japan's wealthy voting base. This encourages the persistent domestic capital outflows we have been highlighting as a key driver of yen weakness over the last year and that have pushed Japan's broad basic balance to being one of the weakest in the world. It is not speculators that are weakening the yen but the Japanese themselves.

The bottom line, Deutscxhe concludes, is that for the JPY to turn stronger the Japanese need to unwind their carry trade. But for this to make sense the Bank of Japan needs to engineer an expedited hiking cycle similar to the post-COVID experiences of other central banks. Time will tell if the BoJ is moving too slow and generating a policy mistake. A shift in BoJ inflation forecasts to well above 2% over their forecast horizon would be the clearest signal of a shift in reaction function. But this isn’t happening now.

The Japanese are enjoying the ride.

Finally, it goes without saying that the only true circuit-breaker for yen weakness is lower US yields/weak US macro, which is unlikely until the election if, as so many now speculate, there has been a directive by the Biden admin to make the economy look as good as possible ahead of the elections, even if that means manipulating the data to a grotesque degree.

One added complexity for MoF/BoJ is that their two options for tackling yen weakness indirectly adds upward pressure to global rates/yields. They’re caught between a rock and a hard place… and speculators know (enjoy) this.

And finally there is China: the longer BOJ/MoF does nothing to curb the collapse of the yen, a move which is seen a pumping up the country's exporting base at the expense of other mercantilist nations such as China, the higher the probability Beijing will retaliate against Tokyo by devaluing its own currency. At which point all hell will break loose.

But, one way or another, as Goldman noted, it's crunch time for USDJPY.

Italy's economy is sinking. Will it sink the Euro? (Video - 10mn)

  On its own, probably not as Europe will just throw some more money at the problem. But as one more black Swan, it's another question. 

  Europe is investing massively in a war in Ukraine that is being lost by the day. This money doesn't matter until it does. Suddenly credit will become tight. Companies, then banks and finally countries will go belly up. As long as this day seems far in the future, it doesn't matter much. But what happens when the future becomes the present. Stay tune. We will know the answer soon.

 

LOS ANGELES GOV. NUCLEAR WW3 PREPARATION! (Video - 39mn)

   At last Canadian Preper is starting to see the light! Forget about your bug out cabin in the woods. If we have war in the coming months or years, including nuclear war, it will be nothing like a zombie apocalypse. That's Hollywood entertainment. 

  What we will have is what people had in the past: A state of emergency is declared. The army is in the street with orders to shoot everyone after lookdown. Yes, Covid was preparation... just very mild! (As was the virus!)

  When you see how Blinken was welcome in China (quite rightly to my opinion) needless to say that relations between the US and China are at the bottom and getting lower by the day. 

  The Ukrainian army is on its last leg. The credibility of Europe and the US are at stake. Inflation is burning and about to revive. The bond and real estate markets are about to break. Banks are technically bankrupt. People are polarized socially, their purchasing power sinking. What could go wrong? (Except everything at the same time?)

  And if that is the case how can we avoid war? This has always been the solution in the past. How could it be different this time?

 The problem, as always, is that governments need wars and people do not. So you need an event to unite the country behind the flag. This is the Shock and Awe doctrine. In 1914, it was the assassination in Sarajevo. In 1941 it was Pearl Harbor. What will it be in 2024?

 

Colonel Douglas Macgregor On the coming changes for America with Russell Brand (Video - 1h)

  This video is interesting, especially the second part (You have to move from YouTube to Rumble with the link in the YouTube comments.) where Macgregor discuss the state of the US. (Heading towards a revolution?) 

  I am also of the opinion that major changes are coming in the next few months. These changes have been in the making over several decades and are now long due. The "deep state" will probably try to preempt the inevitable by a "shock and awe" event on the scale of 11/9. Will it work this time? Macgregor offers a lot of food for thoughts in this video which goes much beyond Ukraine as a subject. 

 The direct link to the Rumble video is here:

https://rumble.com/v4rosxb-bombshell-us-army-to-revolt-against-biden-stay-free-354.html

 

JPY Plunges To Fresh 34-Year-Lows After BoJ Does Nothing... Again

  How long can this last until inflation explodes in Japan and market disruption starts piling up? Because the Japanese have so little purchasing power, inflation will take longer to appear but when it does, energy driven, the Japanese will feel the pain.

 For the time being the carry trade will probably push the Yen a little lower. Up to 160 per dollar? But then the 20 trillion USD market will reverse. What happens then? The end of free money?

 The interesting thing is that there are so many black swans coming our way in May/June 2024 that we are almost guarantied a fireworks of some sort... Buckle up!

JPY Plunges To Fresh 34-Year-Lows After BoJ Does Nothing... Again

Having already lost more than 10% of its value versus the US dollar this year, the yen plunged further overnight after Bank of Japan Governor Kazuo Ueda indicated monetary policy will stay easy as he kept rates unchanged and showed little to no support for the embattled currency during the press conference.

While investors had not expected the BoJ to change its policy this week, there was an expectations that Ueda would strike a hawkish tone regarding future rate rises to slow the yen’s decline.

Instead, Ueda said at a news conference on Friday that the central bank’s board members judged there was “no major impact” from the weaker yen on underlying inflation for now.

“Currency rates is not a target of monetary policy to directly control,” he said.

“But currency volatility could be an important factor in impacting the economy and prices. If the impact on underlying inflation becomes too big to ignore, it may be a reason to adjust monetary policy.”

And that sent the currency reeling (amid chaotic swings) back above 157/USD...

Source: Bloomberg

“There is no intention by the BoJ to stop the yen’s decline, at least looking at its statement and its outlook report,” said UBS economist Masamichi Adachi.

“The finance ministry will have to act [to stem the yen weakness]... It would have been more effective if both the government and the BoJ faced the same direction,” he added.

Blowing further below the 'interventionist' levels seen previously to a fresh 34-year low...

Source: Bloomberg

“Markets remain on high alert for any indication of whether the yen’s current weakness will be interpreted as a lasting inflationary signal,” said Naomi Fink, global strategist at Nikko Asset Management.

“The BoJ however is likelier to find any knock-on impact from yen weakness upon inflation as more concerning than short-term currency moves.”

Driving the depreciation is the yawning gap between the interest rates in the US - which are at highest in decades after the Fed’s aggressive tightening cycle last year - and those in Japan, where borrowing costs remain stubbornly low near zero.

“Intervention is possible at anytime, but it could have been just someone selling a large lot, which stoked intervention speculation and spurred follow-through moves,” said Koji Fukaya, a fellow at Market Risk Advisory Co. in Tokyo.

“It does not look like intervention, but the only way to confirm is to check data that will be released later by the Ministry of Finance.”

Policymakers have repeatedly warned that depreciation won’t be tolerated if it goes too far too fast.

Finance Minister Shunichi Suzuki reiterated after the BoJ meeting that the government will respond appropriately to foreign exchange moves.

Potential triggers for interventions are public holidays in Japan on Monday and Friday next week, which bring the risk of volatility amid thin trading.

“Should the yen fall further from here, like after the BOJ decision in September 2022, the possibility of intervention will increase,” said Hirofumi Suzuki, chief currency strategist at Sumitomo Mitsui Banking Corp.

“It is not the level but it’s the speed that will trigger the action.”

But so far, nothing! And so the market continues to call Ueda and Suzuki's bluff, knowing full well that a sudden intervention will perhaps briefly support the currency but will pancake the current gains in Japanese stocks.

However, not everyone is convinced intervention is imminent.

In a note this morning, Deutsche Bank says the currency's decline is warranted and finally marks the day where the market realizes that Japan is following a policy of benign neglect for the yen.

We have long argued that FX intervention is not credible and the toning down of verbal jawboning from the finance minister overnight is on balance a positive from a credibility perspective. The possibility of intervention can't be ruled out if the market turns disorderly, but it is also notable that Governor Ueda played down the importance of the yen in his press conference today as well as signalling no urgency to hike rates. We would frame the ongoing yen collapse around the following points.

1. Yen weakness is simply not that bad for Japan. The tourism sector is booming, profit margins on the Nikkei are soaring and exporter competitiveness is increasing. True, the cost of imported items is going up. But growth is fine, the government is helping offset some of the cost via subsidies and core inflation is not accelerating. Most importantly, the Japanese are huge foreign asset owners via Japan’s positive net international investment position. Yen weakness therefore leads to huge capital gains on foreign bonds and equities, most easily summarized in the observation that the government pension fund (GPIF) has roughly made more profits over the last two years than the last twenty years combined.

2. There simply isn't an inflation problem. Japan's core CPI is around 2% and has been decelerating in recent months. The Tokyo CPI overnight was 1.7% excluding one-off effects. To be sure, inflation may well accelerate again helped by FX weakness and high wage growth. But the starting point of inflation is entirely different to the post-COVID hiking cycles of the Fed and ECB. By extension, the inflation pain is far less and the urgency to hike far less too. No where is this more obvious than the fact that Japanese consumer confidence are close to their cycle highs.

3. Negative real rates are great. There is a huge attraction to running negative real rates for the consolidated government balance sheet. As we demonstrated last year, it creates fiscal space via a $20 trillion carry trade while also generating asset gains for Japan's wealthy voting base. This encourages the persistent domestic capital outflows we have been highlighting as a key driver of yen weakness over the last year and that have pushed Japan's broad basic balance to being one of the weakest in the world. It is not speculators that are weakening the yen but the Japanese themselves.

The bottom line, Deutscxhe concludes, is that for the JPY to turn stronger the Japanese need to unwind their carry trade. But for this to make sense the Bank of Japan needs to engineer an expedited hiking cycle similar to the post-COVID experiences of other central banks. Time will tell if the BoJ is moving too slow and generating a policy mistake. A shift in BoJ inflation forecasts to well above 2% over their forecast horizon would be the clearest signal of a shift in reaction function. But this isn’t happening now.

The Japanese are enjoying the ride.

But there is potential for yen upside as Bloomberg's Simon White notes that profit taking on foreign asset positions might soon prompt some yen repatriation and pressure USD/JPY lower.

If it is perceived that the yen won’t get much cheaper due to intervention risk, domestic investors might choose to start switching some of their US equity positions back to the domestic market, repatriating yen and pressuring USD/JPY lower in the process.

The chart below shows that on the year, the Nasdaq in yen terms and the Nikkei are both up by the same 13%-14% on the year. A stronger yen would present an ongoing headwind to the US position.

Equity positions are typically less FX hedged than bond positions, meaning that the repatriation of the currency is not neutered by the unwind of the hedge.

The dynamics of spot trading, options barriers and potential intervention as well as US PCE data released later today will dominate the currency’s short-term gyrations, but the slightly longer-term considerations of profit taking on foreign positions will start to drive the medium-term outlook.

Once that trend establishes itself, longer-term drivers of the yen will come into focus. Japan is the world’s largest net creditor, and there is a significant structural short in the yen.

The country’s net international investment position is $3.3 trillion, but its net position in portfolio assets, i.e. so-called hot flows that could be liquidated quickly, is $4.4 trillion.

Only a fraction of that being repatriated has significant potential to drive the yen considerably higher.

The question is, how much pain is China willing to take from its regional neighbor's 'devaluation'?

How America Doomed Its Own Economy (Video - 37mn)

 An interesting take of the financial bubble of the last 50 years. The story of the mighty US dollar. In the end "this time" was not different. The video explains the past but says nothing about the future. 

 A future which is about the happen... now!

 

The US is less and less a democracy by Scott Ritter. (Video - 30mn)

  People who do not toe the line are now deemed "Information Terrorists!"