The Established Order Will Be Challenged, by Raymond Matison

Source: Zerohedge

Submitted by Raymond Matison via The Market Oracle,

With its recent miniscule 2% devaluation of the Yuan, media pundits noted that China had now also entered into the global currency war.  What this comment implies is that other countries with the ability to issue or print their own currency, including the U.S., have been participating in a currency war by devaluing their own currency as a hoped for means to increase their country exports and thereby stimulate their economies.  As China’s currency has been pegged to the USD, it had recently grown stronger as a byproduct of dollar’s recent dramatic strength.  Accordingly, the peg that China used to tie-in to the dollar’s value had increased the Chinese yuan to a level that was hurting their exports.  The resulting devaluation was China’s attempt to correct partially this unwelcome currency appreciation.

With FED’s past QE series of money printing, we have been at the forefront attempting to devalue our own currency as a means to improve our exports, reach the FED’s stated goal of increasing inflation which would produce higher GDP figures, allowing government officials to claim that economic growth or recovery is resuming.  Not to be outdone, the European Central Bank has been purchasing weak credits from their banks, in order to make member bank financial solidity ratios appear stronger – which also requires substantially increasing its money supply.  The largest and most outrageous example of intentional destruction in the value of its currency is Japan, which for nearly two decades has been on a mission to devalue its currency in order to stimulate inflation.

Currency expansion may seem like an ideal, benign solution to a country trying to stimulate its exports, but it does create a financial assault or loss to their trading partners.  For example, China’s recent holding in excess of $1.3 trillion assets (until some recent sales of under $200 billion) from accumulated annual trade surpluses, would lose great value in its assets by the amount of such U.S. devaluation.  If the U.S. were to expand its currency by 10%, China’s Treasury holdings could be reduced by $100 billion – not an insignificant amount.  That is of course why the well known phrase “race to the bottom” stipulates that once one country starts to print currency, other countries, in order to protect themselves against the action of the initiator, have to follow and also devalue their own currency.  We are currently witnesses to a race to the bottom in a continuing global currency war.

Definition of Currency War.

Wikipedia defines a currency war as “competitive devaluation where countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a country’s currency falls so too does the price of exports. Imports to the country become more expensive. So domestic industry, and thus employment, receives a boost in demand from both domestic and foreign markets. The policy can also trigger retaliatory action by other countries which in turn can lead to a general decline in international trade, harming all countries.”

It is arguable that currency wars are not only fairly current affairs, but that they last for relatively brief periods of time not extending beyond a few short years – as highlighted by our FED’s recent QE series.  How might our understanding of currency war change if we were to expand slightly the definition of currency war, and by also taking a far longer view – that of going back to the founding of the FED?  How would we appraise the big picture of government and FED policy over the years, and its now fully observable results on the populace?

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Russia Returns to the Middle East, by Israel Shamir

Source: Information Clearing House

September 26, 2015 “Information Clearing House” – These autumn days are the most important in the Middle East calendar. The Muslims celebrate Eid al Adha, the Feast of the Sacrifice; the Jews fast at Yom Kippur, the Day of Atonement; and the Eastern Orthodox Christians rejoice at Nativity of Our Lady Mary. It appears, surprisingly, the best place to be at this time is Moscow, where Putin received in quick succession the Israeli Prime Minister Bibi Netanyahu, the Palestinian President Mahmoud Abbas and the Turkish ruler Recep Erdogan.

They did not come for the lovely Indian summer that blessed Moscow this week, not for the yellow and red leaves covering the maple and birch trees, though this sumptuous new Xanadu is quite fetching this time of the year; its streets refashioned at enormous expense, parks tended by best gardeners; bicycle paths and sidewalks repaved and even its feared traffic jams abated somewhat.

Ostensibly, Abbas and Erdogan came to unveil, together with Putin, the grand new Cathedral Mosque of Moscow, a vast and opulent structure where ten thousand worshippers can pray at once. This city has more Muslims than many a Muslim city has; about two millions of its 14 million dwellers are nominal Muslims.

They unveiled the mosque all right, and used this occasion for a good lengthy talk with Putin. So did Benjamin Netanyahu, the Israeli PM, who gave a miss to the mosque. And he came with his top brass: the head of staff and the head of military intelligence, after a long-time no-see.

This sudden interest to Moscow is a sign that the Russian entry into the Syrian fray has been playing to a full house. When, some three weeks ago I reported on this decision of Kremlin, my report was met with great doubt, to say the least. Could it be that Russia, after being licked in the Ukraine, will venture that far from home? They were supposed to sulk in the Kremlin under the heavy load of sanctions, not roam around. Now the facts on the ground had justified my previous report. Russian soldiers and marines, Russian weapons, jets and boats are seen on the shore; they are building a new base and fighting the enemy, giving a new lease of life to the embattled Syrian state.

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