The Raging “Currency Wars” across Europe
By Gary Dorsch, Gold Seek The theater of the absurd became even more bizarre on Jan 22nd, when the European Central bank
However, when translating Kuroda’s jargon into plain English, what he really said to investors was; “The ECB’s decision could end deflationary pressures (ie; reduce selling pressure in the Euro-zone stock markets), and stimulate growth in Europe (ie; inflate EuroStoxx valuations and P/E multiples), which is good for Japan (ie; owners of Tokyo listed equities) and the world (ie the Richest-1%). On October 31st, 2014, the BoJ jolted the world stock markets sharply higher, when it stated its intention to buy ¥80-trillion of Japanese government bonds over the next 12-months, which means the BoJ would soak up all of the new bonds that the Ministry of Finance sells. The BoJ ramped-up its QE operations the same day the Fed mothballed its QE-3 scheme. The BoJ already holds about 20% of Japan’s outstanding government bonds, and if it continues to underwrite the entire deficits of the government, it could end up owning half of the JGB market by as early as in 2018. BoJ chief Kuroda says the massive printing of yen, – dubbed “QQE” in Japan is necessary to prevent a reversal into a “deflationary mindset,” that has stymied Japan’s economy for decades. “Countering such a trend is the most important thing we can do. Whatever we can do, we will,” Kuroda said. Reading between the lines, the “deflationary mindset” that Kuroda aims to turn around is the Bearish psychology that has plagued the Tokyo Stock Exchange for more than two decades. Since the BoJ unleashed QQE in Dec ‘13, the Nikkei-225 stock index has doubled in value to above 17,500-points, – thanks to a -50% devaluation of the Japanese yen versus the US$. ECB Ups the Ante against the BoJ; For almost two years, inflation has been consistently below the ECB’s target rate of +2%, with each month showing a lower figure than the previous one. More than six years after the collapse of Lehman Brothers and the start of the “Great Recession,” conditions are still at Depression-like levels in the peripheral countries of Europe, with double-digit unemployment rates, and ever-lower living standards and rising poverty that have become a permanent situation. Reflecting the deeply entrenched trend of deflation, the yield on Germany’s 5-year schatz turned negative on January 15th, to as low as -5-basis points (bps), before rebounding to +1-bps today. As such, the ECB unveiled its most aggressive effort to date to revive the region’s ailing economy (ie; inflate the EuroStoxx index) with a QE-scheme to print 1.1-trillion Euros and purchase government and private bonds starting in March. Thus, the BoJ and ECB will engage in hand to hand combat the Euro /yen exchange rate in the year ahead. Initially, the BoJ gained the upper hand over the Euro /yen exchange rate, when it struck first, with a surprise attack, by expanding its QQE scheme to ¥80-trillion /year. That act of “shock and awe” lifted the Euro to as high as ¥150 in December. However, the ECB quickly retaliated by driving German T-bill rates to zero percent, and -16-bps below Japanese T-bill rates. And of course, the ECB has upped the ante, by playing the Q€1.1-trillion -Q€ card, and in turn, knocked the Euro sharply lower to ¥130 last week. German firms are competing head-to-head with Japanese firms in the $3.4-trillion capital goods export market, and the central banks have the advantage of being able to move quickly. Politicians always turn to central bankers and say, “Can you fix it? Put some cheap money out there.” Together, these two heavy weight central banks are planning to inject a combined ¥10-trillion and €720-billion into the world money markets in one year’s time. But there is no quick fix.
Switzerland Stuns Markets by Giving Up on Currency Peg; On January 15th, the Swiss National Bank