Tuesday, April 26, 2016

The Newest Secret Monetary Accord
Among The Ruling 'Families'
"Enter the Secret Shanghai Accord… The heads of the five families gathered in Shanghai, China, on Feb. 26 of this year. Technically, this was a G-20 meeting of finance ministers and central bank officials. But formal G-20 and IMF meetings are used to conduct informal private meetings on the sidelines. The G-20 meeting in Shanghai was the perfect cover for a 'sit-down' of the five families, led by the boss of bosses — Christine Lagarde. The U.S., China, Japan, Europe and IMF all agreed that China needed some relief. The world’s second-largest economy cannot go down without taking most of the world with it. The purpose of the sit-down in Shanghai was to come up with a plan to give China relief without causing a global panic. The solution was to take action in the U.S., Europe and Japan while China did nothing. This was the heart of the Shanghai Accord. Europe and Japan would both tighten policy and strengthen their currencies. The U.S. would ease policy and weaken the dollar. China would maintain their dollar peg so CNY/USD would be unchanged. A stronger euro and yen is the same thing as a weaker yuan, from China’s perspective. China has a larger combined trading relationship with Europe and Japan than it does with the U.S. Relief for China from a strong euro and strong yen is significant. At the same time, a weaker dollar means a weaker yuan if the peg is maintained. China is just 'along for the ride' as the Fed trashed the dollar. That’s the essence of the Shanghai Accord. China does nothing but gets a major devaluation in the currency wars, and no one notices because CNY/USD is steady. Voilà.
- Jim Rickards*
LINK HERE to the essay

1 comment:

Anonymous said...

April 25, 2016 Lessons From The Iron Law of Equilibrium John P. Hussman, Ph.D.

Across the pond in London, my friend Albert Edwards at Societe General notes the increase in political extremism, including the extreme right-wing Alternative for Germany party, and observes that much of this shift can be linked to economic policies that focus on nothing but debt expansion and financial-market distortion. “Quick-fix monetary QE nonsense has made virtually no difference to the economic recoveries other than to inflate asset prices, make the rich richer, inequality worse and make Joe and Joanna Sixpack want to scream in rage. They are doing so by rejecting the establishment political parties and candidates at almost every electoral turn and seeking out more extreme alternatives at both ends of the political spectrum. I have not one scintilla of doubt that these central bankers will destroy the enfeebled world economy with their clumsy interventions, and that political chaos will be the ugly result.”

I have to agree. This wouldn’t be the first time in history, nor even in the past century, that inept economic policy, class divisions, and growing nationalism led humanity to choose leaders that seduced them to abandon the better angels of their nature.

The same trend is apparent in our own political process. Speaking as someone who values human rights and diversity, some elements strike me as more offensive than others, but the current environment is bathed in the language of “enemy,” of division, of coercion, and of simplistic solutions. It also largely ignores the Federal Reserve’s role in creating the bubbles and crashes that still weigh on the economy, and now threaten a third act.