Before the U.S. has even opened for 2017 business, global markets have taken a dramatic step towards implosion – as the “year of monetary revolution” commences. Yes, the gold Cartel started the year as they start nearly every day; i.e., with a “Sunday Night Sentiment” raid, for the 170th time in the past 178 weekends (albeit, on a Monday due to the holiday); and subsequently, when gold had the nerve to rebound, a “2:15 AM” attack for the 761st time in the past 876 trading days, to make sure the year “starts right.”
However, with each passing day of gargantuan East/West physical premium differentials the odds of the Cartel’s inevitable implosion grow larger – particularly in light of the political, economic, social, and monetary carnage being wrought, at an increasingly parabolic rate by the “powers that be” known as governments, Central banks, and their Wall Street and corporate partners-in-crime” – as history’s largest, most destructive fiat Ponzi scheme, races through its cancerous, terminal phase. And nowhere is such self-destruction more evident than in the United States of Exceptionalism, where Barack Obama’s outgoing failure of an Administration is not only doing everything in its power to sabotage Donald Trump’s incoming Administration – but objectively speaking, catalyze World War III!
Moreover, despite the global currency collapse accelerating dramatically as I speak, the fallacious “Trump-Flation” meme hasn’t yet died – as exemplified by Chinese iron ore prices having risen 20% from their early 2015 lows, on a day when inventories hit an all-time high! Even JP Morgan, questionable motivations aside, espoused this weekend that Central banks have created “unprecedented distortions” in financial markets; which I assure you, will end with unprecedented losses – perhaps nominally, and definitely in real terms. Particularly those “betting” that Precious Metals, amidst historic physical market tightness, monetary destruction, and political uncertainty, will continue to trade at historically suppressed prices – to the point that the mining industry is now assured to experience an unprecedented production collapse.
Regarding said “dramatic step toward monetary implosion,” as I write in Tuesday’s wee hours, fiat currencies the world round are crashing – including the world’s second largest currency, the Euro, sitting mere basis points from a fresh 14-year low; the third largest, the Yen, which is in freefall mode; and essentially everything else – particularly of note, the Indian Rupee, whose fundamentals have plunged so dramatically following Narendra Modi’s psychotic cash ban decree, it is prompting banks to slash interest rates unilaterally, without even waiting for India’s Central bank to do so itself (it wouldn’t dare, as this would amount to an admission that the cash ban is failing).
However, the potentially cataclysmic monetary risk that surpasses all others combined is what has me most worried – and apparently, a billion Chinese, if this weekend’s parabolic Bitcoin surge, to nearly $1,100 on Chinese exchanges, is any indication. Which is, the rapidly declining state of China’s financial condition, as evidenced by the Yuan devaluation I first warned of in April 2015; followed by August 2015’s “upcoming, cataclysmic, financial big bang to end all big bangs,” mere hours before the first leg of the catastrophic, nuclear salvo of the “final currency war” was launched; i.e., the PBOC’s initial 7% devaluation of the Yuan.
I subsequently spent the summer of 2016 warning that as soon as the Yuan was officially accepted into the IMF’s “strategic currency basket” on September 30th, it would likely be devalued further, in response to an unprecedented collapse in Chinese export demand. Which it subsequently did, taking the officially pegged “onshore” Yuan to an all-time low fix last night of nearly 6.95/dollar, whilst the speculatively traded “offshore” Yuan plunged to nearly 6.99/dollar, as the lunatic Chinese government kicked and screamed, Animal House-style, of how “all’s well”; whilst, in true Keystone Kops form, it “adjusted” the dollar’s weight in the Yuan’s trade-weighted basket, to make it appear the Yuan is not free-falling.
This, as capital outflow is accelerating so dramatically, the Chinese government is selling U.S. Treasuries by the hundreds of billions, and expanding capital controls at an India-like pace – like yesterday’s PBOC decree, reducing the amount of Yuan-denominated cash transactions banks are required to “report” from 200,000 Yuan (~$28,000) to 50,000 Yuan. Which, I kid you not, was justified by today’s universal Central banking propaganda meme, of “improving the monitoring of money laundering, terrorist financing, graft, and tax fraud.” Moreover, following last week’s “unofficial” comments from a leading, but recently retired PBOC board member, that China should enact a “large, one-time” Yuan devaluation to preempt Donald Trump’s potentially protectionist policy proposals; just yesterday, an “official” Chinese trade publication “recommended” the same. To which I retort, that such draconian proposals, “trial balloons,” or whatever you want to call them couldn’t possibly be due to collapsing Chinese exports; a parabolically surging dollar; and the free-falling Euro, Yen, and essentially all other “competing” currencies; could they?
And yet, as the offshore Yuan plunged – to a low of 6.985/dollar, settling at 6.972/dollar as I write – the PBOC yet again demonstrated what I first discussed in September 2015, of how despite its economic might, China’s monetary politburo is “the most dangerous, destabilizing force on Earth”; when it again stepped up its “war on Yuan short-sellers,” by draining liquidity from the offshore market whilst simultaneously devaluing the onshore market. In other words, wasting billions more of increasingly scant capital fighting speculation in the offshore Yuan market of an exchange rate below the key psychological level of 7.0/dollar – whilst simultaneously devaluating the official rate to nearly that level, and clearly indicating its intention to eventually, perhaps imminently, do so irrespective. To wit, here’s what I wrote in the aforementioned, MUST READ article from 16 months ago.
“However, taking the cake in the category of Keystone Kops financial planning is the fact that – as exemplified by last night’s announcement of massive reserve requirements for those attempting to trade the Yuan ‘non-deliverable forward’ market – the Chinese are wasting countless hundreds of billions supporting the Yuan, whilst at the same time devaluing it! No, I’m not crazy – and actually, I’ve been writing of this since the initial Yuan devaluation three weeks ago. Which is, that whilst the initial devaluation was a modest 6%, the Chinese government clearly aims to de-peg the Yuan entirely – in what will be an equally “cataclysmic financial big bang to end all big bangs.” As is the case with the disclosure of its massive gold holdings – which they are now doing monthly, in very small increments – it doesn’t take a rocket scientist to see that the PBOC’ wants to gradually weaken the Yuan, as opposed to doing so at one fell swoop – and thus, causing a globally destructive monetary shock wave.”
Consider the below chart of Bitcoin’s price relative to the official (onshore) Yuan/dollar exchange rate. As Zero Hedge put it, “based on this chart alone, the recent Bitcoin surge would imply a substantial Yuan devaluation is looming – or even more aggressive capital controls.” Which are certainly major factors, although it’s possible that other factors are contributing, too – such as the ongoing and/or anticipated collapse of dozens of other currencies; as well as increased worldwide Bitcoin uptake and/or functionality. That said, given that roughly 90% of all Bitcoin trading occurs – for now – in China – you can bet an anticipated devaluation is a major factor behind its recent rise; as was “coincidentally” the case in the Spring and summer of 2015, just before the initial 7% Yuan devaluation was launched.
I want to repeat something else Zero Hedge wisely warned of, that “for those buying Bitcoin here on the momentum, we urge readers to be cautious – as by now, the PBOC has certainly noticed that the digital currency remains one of the final, and most successful, means of bypassing Chinese capital controls. Should Beijing mandate that Bitcoin can no longer be a means to illegally transfer capital offshore, there is risk of a dramatic, and sharp, drop in its price.” And the reason I do so, aside from highlighting the trading risks involved, is that it emphasizes the very important point I made in yesterday’s “2017 – The Year of Monetary Revolution.” To wit…
“I believe 2017 will be the year governments start to consider Bitcoin, not gold, to be the biggest threat to the dying monetary status quo – which is why I wrote last week’s MUST READ article, “why Bitcoin will cause gold and silver to go up.” In which, I espoused my strong belief that governments – in Don Quixote-like fashion, flailing at windmills – will spend less time worrying about suppressing Precious Metal prices, and more time futilely attempting to quash Bitcoin. Which, in light of the already historic tightness of the physical gold and silver markets, may well prove the catalyst for finally setting their manipulated prices free.”
In other words, as currency – and most fixed income – markets start to discount the dire consequences of the “cataclysmic financial big bang to end all big bangs” that a significant Yuan devaluation would engender – far larger than the 15% devaluation to date; the “Keystone Kops” PBOC is desperately attempting to limit the collateral damage, using whatever “draconian actions” they have at their disposal. Which other than a handful of brief, perhaps dramatic short-term declines if they word their propaganda carefully, will decidedly NOT work in the decentralized Bitcoin market – which is rapidly evolving into public consciousness as the future of day-to-day, transactional money. And certainly not in the historically tight physical gold market – although my guess is they’d attempt nothing of the sort on that end, given their own manic, overt acquisition of history’s most stabilizing – and currently, historically undervalued – monetary asset, no matter what propaganda is spewed by the world’s leading “anti-gold” forces – principally, from “leading” Western money printers like the U.S. and UK.
The preponderance of evidence – i.e., all one needs for a conviction in civil court – not only suggests a near-term, politically and economically debilitating Yuan devaluation is coming, but that its likelihood has, for all intents and purposes, been “upgraded” from inevitable to imminent. When it occurs, which may well be before Trump’s inauguration, the impact on global financial markets – and geopolitical tensions, to boot – will be nothing short of nuclear; with no markets benefiting more than physical Precious Metals; which incredibly, in the markets of said “leading Western money printers” like the U.S., can still be purchased at historically low prices, no matter what “metric” one uses to value them.
Your last two postings have been particularly interesting. But the problem I have with Bitcoin is essentially “What is it?” Why does Bitcoin have any value? I understand that it is limited as to how many units can be created (unlike fiat currencies), but what type of intrinsic value dies it have and how much did it cost to create? It really doesn’t seem much different from fiat in many respects.
Thanks Andy. Keep up the good work.
Nice article Andy, thank you!