The War You’re Not Hearing About

The Fighting Is Fierce Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] The War You’re Not Hearing About - “The world is now in an acute phase of a long-standing currency war”… - Starving people fighting over a few breadcrumbs… - Then Jim Rickards shows you why currency wars are really destructive races to the bottom… Recommended Link [Emergency Broadcast from Jim Rickards]( You’ve seen the news. Stocks are crashing, crypto is plummeting and the Dow seems to just keep going down. That’s why, Jim just went live with [a kill list of 153 stocks]( that he recommends you remove from your portfolio today, before the market closes if possible. This is an extremely urgent situation, and this message should NOT be ignored. But you don’t have long to act. Jim and his team moved heaven and earth to get [this information]( to you as soon as possible. [Click Here Now]( Portsmouth, New Hampshire May 31, 2022 [Jim Rickards]Dear Reader, Let’s forget about the war in Ukraine and the tumbling stock market today. Let’s instead focus on something that hasn’t gotten too much attention lately — currency wars. The world is now in an acute phase of a long-standing currency war. The current global currency war started in 2010. My book [Currency Wars]( came out a little bit after that. One of the points that I make in the book is that the world is not always in a currency war. But when we are, they can last for a very long time. They can last for five, 10 or 15 years, sometimes longer. And so it’s really not a surprise that here we are in 2022 fighting currency wars. It’s the same currency war, actually; we’re just in a different phase or battle. Currency wars have a lot of explanatory power. It’s one of the most important things going on in economics today. Let’s review the basics of what a currency war is… Currency wars begin in a condition of too much debt and not enough growth. There’s not enough growth in the world to go around for all the debt obligations. In other words, when growth is too low relative to debt burdens. And that’s the world we live in today. Currency wars are a way to steal growth from trading partners by reducing the costs of exports. Countries engage in them to fight deflation and encourage inflation by cheapening the currency and creating inflation in the form of higher import prices. Think of a bunch of starving people fighting over a few crumbs. That’s what happens when there’s too much debt in the world and not enough growth. That’s what a currency war is. It’s an age-old economic policy, used most famously in the late 1920s and 1930s in what became known as ‘beggar thy neighbor.’ Countries were stealing growth from each other by debasing their currencies, trying to import inflation and improve their trade balances by causing cheaper exports for foreign buyers and more expensive imports for domestic buyers. That combination was seen to bolster growth. In a currency war, it’s not that you want to destroy the other currencies, it’s that you want to cheapen your own currency; that actually means you’re strengthening the other currencies. You want to import inflation through higher import prices. The single-most important factor in the analysis is that two currencies cannot devalue against each other at the same time. It’s a mathematical impossibility. If one currency is going down against another, then the other must be going up. There’s no other way. But in the end, like with most wars, currency wars can be highly destructive. Read on to see precisely why. Regards, Jim Rickards for The Daily Reckoning P.S. I’ve just issued [a “kill list” of 153 stocks]( you should sell right now. All of them can be found on the following page. [Ticker 1 Ticker 2 Ticker 3 Ticker 4 Ticker 5 Ticker 6 Ticker 7 ... ... ... Ticker 148 Ticker 149 Ticker 150 Ticker 151 Ticker 152 Ticker 153]( And I recorded a video to show you exactly why you should sell these stocks. It won’t take too much of your time, but it’s important to get this list ASAP. [Click here for my thesis and the complete list.]( Recommended Link [“Financial Nostradamus” makes bone-chilling prediction…]( [Read more here...]( In 2019, this man wrote a book called Aftermath that shocked the world by predicting that “Something on the scale of a global pandemic will be the cause of the next financial crisis.” And that “it will happen with 100% certainty” in the next few years. Just four months later we had the first reported case of the coronavirus. Now he’s back with another bone-chilling prediction. A prediction that’s already starting to come true. A prediction I’m urging you to watch right away. Because if what he says is true, within days this single event will have a profound effect on your retirement assets, your banks account and your entire way of life. Warning: What you’re about to see is a REAL exclusive interview with a former CIA and Pentagon insider. The content herein is NOT for the faint of heart. [Click Here To See This Exclusive Interview]( The Daily Reckoning Presents: “It turns out most of the claims about a cheap currency are illusory, temporary or both”… ****************************** Currency Wars: Race to the Bottom By Jim Rickards [Brian Maher]What are the benefits of a cheap currency relative to the currencies of major trading partners? The answer depends on whether you are considering political benefits or economic benefits. The political benefits are obvious and explain why currency wars (the act of cheapening your currency) have broken out periodically over the past 100 years. A cheaper currency makes your exports cheaper from the perspective of a foreign buyer. If Indonesia is considering buying wide-body jets for their national airline, they can look at the Boeing 787 or the Airbus A350 among other choices. Manufacturing costs for Boeing are primarily in U.S. dollars while Airbus manufacturing costs are mostly in euros (although both manufacturers source various components and inputs from around the world). If the euro is weak against the U.S. dollar, it means that Indonesia will probably get a better deal from Airbus. A sale by Airbus ripples through the supply chain and helps create export-related jobs and produces other exogenous economic benefits to the company and its host countries (primarily Germany and France). The perceived benefits of a cheap currency are not limited to more exports and export-related jobs. A cheap currency is also a way to import inflation. This happens because citizens of the cheap-currency country need more of their currency to buy imports from trading partners. For example, if a U.S. computer costs $1,500 and the euro is valued at $1.20, then it takes €1,250 to buy the computer. If the euro drops to $1.05 (about where it is today), it takes €1,430 to buy the same computer, a 14% price increase relative to the stronger euro. Of course, actual supply chains of global manufacturers are more sophisticated than this simple example. Manufacturers will often maintain a set price in both currencies and absorb any profit or loss against their margins or hedge the exchange rate fluctuations in futures markets. Still, the basic dynamic remains and does play out over time. It sounds strange for a country to import inflation at a time when inflation is surging in many places. But the inflation wave is relatively recent. From 2008–2021, disinflation and outright deflation were serious problems in many developed economies. Deflation is still a problem in Japan and may become a worldwide problem if higher interest rates used to fight today’s inflation result in a global recession. In any case, the art of fighting deflation with a cheap currency is tried and true. So the political benefits of a cheap currency are clear. Political leaders can claim that exports are up, imports are down (which helps the balance of trade and GDP), export-related jobs are being created and the risks of deflation are being mitigated. That’s a nice package of accomplishments for any politician to run on. But is any of this true? The claims are clear but what about the economic reality? It turns out most of the claims about a cheap currency are illusory, temporary or both. It may appear that the finished prices of exports look cheaper to a foreign buyer when the seller’s currency is cheaper. But this ignores the nature of global supply chains. Labor costs and technology research and development for an Airbus may be incurred in euros, but the aluminum for the airframe comes from Russia, subcomponents may come from Southeast Asia, avionics may come from the United States and so on. A cheaper currency means that the prices of those inputs go up since it takes more local currency to buy the components. That’s crucial. Very few sophisticated big-ticket exports are made entirely in one country. A cheap currency makes foreign inputs more expensive, and those costs offset the benefits of a cheap currency in terms of labor and local inputs. Recommended Link [Strange 2021 Prophecy Rapidly Coming True]( [Read more here...]( America’s #1 Futurist George Gilder is telling American’s to “brace yourself” for the coming $16.8 trillion revolution. This same revolution could redefine millions of jobs and radically transform the way just about every major corporation does business. It could even change the way you get paid, save and invest for retirement. And, says George, it could make you exceedingly rich... [Click Here To See Why]( It’s also the case that many commodities have global markets and are priced in dollars. To the extent that local demand is inelastic (as is the case for food and energy), a country with a cheap currency simply has to pay more for those goods. A cheap currency is like a hidden tax (that’s what inflation is) that is paid for dollar-denominated imports. That leads to demand destruction in other categories of goods and services and may lead to job losses in local industries as consumers spend more on unavoidable imports. Finally, even when benefits from a cheap currency are realized, the effects are very short term. That’s because trading partners won’t stand still while you cheapen your currency. They will react by cheapening their own currencies in tit-for-tat devaluations. That’s the nature of currency wars and it was a major reason why the Great Depression lasted so long instead of just a year or two. Countries can retaliate against trading partners to get a cheap currency by intervening in foreign exchange markets, lowering their interest rates (to discourage capital inflows), imposing capital controls and using other forms of manipulation. As I said earlier, the world is now in an acute phase of a long-standing currency war. The yen (JPY) is collapsing because the Bank of Japan needs help with exports to fend off another recession. The euro (EUR) has crashed because the ECB also wants to keep interest rates low and exports high to help member economies. The Chinese yuan (CNY) is falling rapidly because China’s economy is suffering from the effects of its ridiculous zero-COVID policies and softer demand from the U.S., the EU and Japan. The same is true in pounds sterling (GBP) because the U.K. is on the brink of a recession. In effect, the second-, third-, fourth-, sixth- and seventh-largest economies in the world (China, Japan, Germany, the U.K. and France) and others comprising over 40% of global GDP are free-riding on a strong dollar by pursuing cheap-currency policies. The question is how long will the U.S. stand for this? The U.S. clearly does not mind the strong dollar for the time being. The Fed’s interest rate and quantitative tightening policies point toward an even stronger dollar ahead. As long as U.S. growth is solid, the U.S. might not mind being a financial life preserver for the rest of the world by allowing its trading partners to pursue cheap currency policies. This can help fight inflation in the U.S. by making foreign imports cheaper when paid for in strong dollars. History shows this won’t last. The Fed’s policies will put the U.S. into a recession by late this year or early 2023. That may help kill inflation, but it’s a nightmare for politicians running for reelection in 2024. Suddenly, the Fed may slam the brakes on rate hikes and even begin rate cuts as they did in 2019. When that happens, the U.S. dollar will plunge and the dollar price of gold will soar. Currency wars don’t end quickly. They do take time to play out. The U.S. is propping up the world today with its strong dollar approach because policymakers think we can afford it. When a recession hits the U.S., that policy will change fast. It always does. Regards, Jim Rickards for The Daily Reckoning P.S. I’ve just issued [a “kill list” of 153 stocks]( you should sell right now. All of them can be found on the following page. [Ticker 1 Ticker 2 Ticker 3 Ticker 4 Ticker 5 Ticker 6 Ticker 7 ... ... ... Ticker 148 Ticker 149 Ticker 150 Ticker 151 Ticker 152 Ticker 153]( And I recorded a video to show you exactly why you should sell these stocks. It won’t take too much of your time, but it’s important to get this list ASAP. [Click here for my thesis and the complete list.]( --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [James Rickards][James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. Add feedback@dailyreckoning.com to your address book: [Whitelist us]( Additional Articles & Commentary: [Daily Reckoning Website]( Join the conversation! Follow us on social media: [Facebook]( [LinkedIn]( [Twitter]( [RSS Feed]( [YouTube]( The Daily Reckoning is committed to protecting and respecting your privacy. 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