QE3 Strengthens Yuan While Devaluing Dollar

Just to recap, the Federal Reserve is now pumping cash into the money supply at a rate of $40,000,000,000 a month (that’s forty billion) and buying mortgage-backed securities with the fresh cash. These are derivatives (bets) on home mortgage packages.

So in other words these potentially toxic assets (underwater mortgages) are being bought up by the Fed to strengthen the value of mortgages. In other words if the mortgage derivative market collapsed it would likely collapse the value of homes. You might also think of it as the powers-that-be directly protecting and extending our current way of life.

But pumping cash into the U.S. Dollar is the definition of inflation, which can also be described as devaluing the dollar. Understanding this is as simple as understanding supply and demand… the more rare a desirable thing the more it’s value increases. So as the money supply increases the more the buying power of each dollar decreases.

So while the dollar declines the Yuan appears to climb in value, improving the prospects of the Chinese currency becoming a de facto reserve currency. This would crush the U.S. Economy.

China’s yuan climbed Friday to its highest level against the U.S. dollar since the currency was revaluated in July of 2005, buoyed by the U.S. Federal Reserve’s recent QE3 program as well as data this week showing that the People’s Bank of China injected a record amount of cash into the financial system, according to analysts. – MarketWatch.

So on one hand, Washington D.C. is seemingly trying to protect the world’s reserve currency status of the U.S. Dollar by attacking any nation (next up, Iran) that trades for oil with something other than the petrodollar – and on the other hand they print U.S. Dollars wildly, forcing the value of the Dollar down and weakening it’s desirability as a reserve currency.

Why? I don’t now. I won’t go there.

What I do know is that these policies are doing two things that can’t be obscured.

  1. We’re being led to war with Iran and possibly China and/or Russia. Yes a world war.
  2. The U.S. Dollar is at risk of becoming worthless. Why? Paper (fiat) currencies are only valuable because people agree they have value and use them for trade for things that have real value like commodities (food, water, shelter, security, etc). If people (or markets) decided that a currency has low or no value then the commodities themselves would likely become the new preferred form of trade. Gold and silver would also rise in value exponentially in this scenario.

Since I have no idea why the powers-that-be would risk these two things, I simply have to assume that these outcomes are not only on-the-table but increasing in risk daily as the war drums beat in Washington D.C. and the Fed’s presses roll.

Tick Tock The Countdown Continues

The plot thickens and the narrative builds, but I’m not buying it for a second.

“Senate Homeland Security committee chairman Joe Lieberman I-Conn. said Iran has targeted the American financial system in response to U.S. sanctions placed on the country because of its nuclear program.” – latimes.com

Now this I can believe:

“Researchers have found evidence suggesting that the United States may have developed three previously unknown computer viruses for use in espionage operations or cyber warfare.” – businessinsider.com

…and this:

“The United States and Israel jointly developed the Flame virus, which collected intelligence for a cyber-attack on Iran’s nuclear program. This has been confirmed by a number of Western officials familiar with classified data on the effort.
The CIA, the National Security Agency (NSA) and the Israeli military were all involved in developing malware to sabotage Iran’s nuclear program, the officials confirmed.” – rt.com

Why don’t I believe the U.S. Governments story?

  1. Iran has nothing to gain by provoking war with the U.S.A. and everything to loose.
  2. The U.S. government seems prepared to do anything to protect the petrodollar and world reserve currency status of the U.S. Dollar.

Brief History

Since WWII the U.S. Dollar has been the primary currency used to trade oil worldwide, which in-turn helps to support the value of the dollar. So when any nation chooses to trade oil for something else (like gold) the value of the dollar is threatened. Even with the sanctions in place some countries like China, Japan, and India are still permitted to trade with Iran. These trades are not being made in U.S. Dollars.

Current Situation

I suspect the American powers-that-be see any threats to the dollar’s status as a top-priority national security issue warranting the appropriate response. What the powers-that-be don’t seem to want to allow themselves to believe is that the current paradigm, a paradigm that values acquisition over all other things, is fatally flawed. You see a paradigm that uses the tools of war & debt to perpetuate itself has no future but death, destruction, and slavery.

The Solution

I don’t think these masters of the current paradigm can see the obvious solution – a paradigm shift back to core values like fairness, balance, and honor. A way of life that’s closer to home, closer to each other, and closer to the ground we live on. A paradigm I think most Americans would embrace.

Tick Tock… When Will The Boot Drop?

So we wait for war to begin. I think it’s inevitable. The powers-that-be must be in a frenzy right now looking for any reason to attack this threat to their reality, since for them this threat represents and end to everything the know and value.

How this war will effect the world and folks here on main street America I don’t know. I imagine it will really depend on (1) the catalysts for war, (2) the speed of regime change in Iran (if any), (3) how China & Russia react, (4) the economic hit to the petrodollar, and (5) the conflicts that may arise between the American people and our government.

 

We Are on the Brink of War

When I went to Google News this morning the top story was on our Peace Prize Packing President taking off the gloves… oh wait his gloves have been off since the get-go.

“US President Barack Obama will warn Iran on Tuesday that the United States will “do what we must” to prevent it acquiring a nuclear weapon, and appeal to world leaders for a united front against further attacks on US diplomatic missions in Muslim countries.” – Obama to warn Iran: US will do what it … JPost – International.

Today is going to be an interesting day.  Iranian President, Mahmoud Ahmadinejad is in New York speaking at the UN General Assembly, Obama will be there too to draw a line in the sand, a fleet of western warships is off the coast of Iran, the Middle East is in an uproar and hating America more than usual, and Israel is battening down the hatches on this Yom Kippur. Fingers off triggers folks!

Warships Massing in the Gulf

When I went to Google News this morning I found no mention of this story without a little digging. Instead the top stories told me that Romney is focusing his message on the economy (duh) and that the television shows ‘Homeland’ and ‘Modern Family’ made it big at the Emmys. I think America is mostly asleep. Here’s the news we might want to consider keeping on our radar:

“An armada of U.S. and British naval power is amassing in the Persian Gulf in the belief that Israel is considering a pre-emptive strike against Iran’s covert nuclear weapons program.

Warships, aircraft carriers, minesweepers and submarines from 25 nations are converging on the strategically important Strait of Hormuz in an unprecedented show of force as Israel and Iran move towards the brink of war.” from: US And Britain Sending Warships To Gulf – Business Insider.

This whole situation makes me wonder if Israel is planning to attack as early as Yom Kippur (starting 9/25 at dusk through 9/26). The timing just seems too coincidental and there is a historical precedent (1973 Arab–Israeli War); or maybe it’s just more saber rattling.

I hope the latter is true because Iranian oil supplies much of the world (China, India, Turkey, etc). So a disruption to the flow of Iranian oil would expectedly piss a lot of people off – including some U.S. allies.

Such a mess. Hope everyone keeps their fingers off the triggers.

Update (same day): I just learned that the Iranian President, Mahmoud Ahmadinejad, will be speaking at the UN tomorrow. So Iran’s leader is not even at home as the UN fleet bears down on his nation. To top it all off the Israeli press are calling for some swift action. Yikes! I hope the next few days are uneventful.

QE3 – Bernanke Throws Gasoline on the Fire!

So here we are, QE3. Many of us watching this slow motion train wreck have been wondering when this big milestone would be reached.

“To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40bn per month.” – Fed launches QE3: the full statement – Telegraph.

I’m a bit surprised that the freshly printed money is being used to buy mortgage-backed securities. Tossing more money at these derivatives just seems like throwing gasoline on a fire to me – a very bad sign me thinks.

By the way, I really love this photo of Bernanke! It really shows his mad-scientist side well.