Venezuela devalued their currency, the Bolivar, by nearly 50% on Friday and it now looks like Egypt will be next. The story in the Financial Times is headlined “Venezuelan devaluation sparks panic.” I read the article and was surprised at the content because when I read the headline I was fooled. OF COURSE the Venezuelans are in a panic, they just lost nearly 50% of their purchasing power over one evening. The “panic” that I thought would have been written about was “who’s next?”
This is merely a small chapter in the current global currency war. The funny thing is that these mainstream writers are gauging the “devaluation” versus the Dollar when in fact it is the U.S. who is working the hardest at devaluing. Zerohedge wrote yesterday thatRussia has been exporting oil and buying Gold for years …because they know! They know that the U.S. Dollar will be devalued at some point much harder and faster than it already has been.
The same goes for China who is now THE largest trading entity on the planet because they also know. Why do you think that the Chinese have structured deal after deal to purchase assets in Dollars? Why do you think that they have structured trade deals in Yuan? They want to take in less Dollars and spend as many as they can before this thing goes terminal. They are simply illustrating how to play the game of hot potato! Don’t get me wrong, I know that China has blown its own bubble with debt and an exploding money supply but they are novices compared to what we’ve done.
As my title implies, the world should get used to devaluations. They will now come more often and with deeper cuts because of what has happened and the responses by central banks over the last 5 years. The world (central banks) has collectively jumped head first into papering over the paper problems with more and more paper. What began as a solvency problem has been remedied as a liquidity problem which worsened debt ratios and watered down the currencies… until… everyone is forced to devalue versus Gold.
Read More at Miles Franklin . By Bill Holter.