It has been a fascinating week watching the international bankers and developed countries play their game of chess.  It’s not really that fair of a game since the bankers always get to play white, and they handicap the governments by taking away both black rooks.  Nevertheless, we can see signs where the governments are attempting to stabilize things through interdiction in the currency markets.  Will this work?  No, it won’t.  But it could slow down the crash sequence for a very short while.

We see where the Euro has gained some “strength” today against the US dollar.  This is meant to make investors hopeful that the imminent crisis is improving.  However, one must look at HOW the Euro is gaining.  It’s not by the Euro getting healthier all of a sudden – rather it’s by the US dollar being purposefully devalued in order to make the Euro appear stronger.  We just had a massive down day in the equities markets, which should have been coupled with a rocket shot upwards in the value of the US dollar.  Instead, we saw government intervention.

There’s a very serious problem with the tactic of devaluing the US dollar in order to give perceived strength to the Euro.  It affects other countries as well.  For example, ALL of my crash indicators triggered this past Monday – except for one….the exchange rate between the US dollar and the Japanese yen.  Japan is mired in a deflationary depression that is helping to drive up the value of their currency (since the credit destruction is making their money supply smaller).  One of my crash indicators requires the yen to trade at lower than 90 yen to the US dollar.  This value has been at around 92 for most of the week.

The purposeful devaluation of the US dollar is an extremely dangerous tactic.  It has the effect of making the Japanese yen appear stronger – thus causing the exchange rate to dip down to the 90 level and below.  This is very foolish for governments to do since it will only be a very short-term solution to the Euro devaluation problem.  The Euro will turn down again, and the yen exchange rate will still have triggered the crash indicator.  In other words, it will by the “royal flush” of all triggers having fired.

Think what this means.  The US government can do things to cause their currency to artificially devalue – helping out the Euro and creating a problem with the yen…or they can let things run their course which will hurt the Euro and help out the yen.  It’s an absolutely no-win situation.

The other economic monster that nobody is talking about is China.  People have a tendency to think of China as the one government that will gain power and strength at the expense of all of these other collapsing countries.  Nothing could be further from the truth.

China is a factory nation – nothing more, nothing less.  Their economy survives ONLY through the sale of goods to Europe and the US.  That’s a problem that will continue to get worse for them as deflationary depressions grip many countries.  The US has long desired China to “de-peg” their currency from the US dollar and let it float “freely” against other currencies.  It is hoped that China would then work to increase the strength of their currency to make their products more expensive and help our country’s economy.  Do you see how foolish this thinking is?

China needs to keep money rolling in the door in order to avoid an uprising of discontented peasants in their own country.  There is absolutely no way that they would strengthen their currency in the face of deflationary depressions.  Instead, they would devalue it – by a lot.  Why is this?  It would be a realization that Europe and the US cannot support the Chinese factory economy.  They would understand that their only hope of economic survival would be to devalue their currency in order to make their products affordable to other very populous countries – namely India and Brazil.  This will cause Chinese products to become much cheaper in Europe and the US, further killing our economies.

It is imperative for people to get out of debt and avoid new debt, such as the purchase of homes, cars, appliances, etc.  The governments of the developed world are in their economic death throes.  Being as economically “liquid” as possible is the best place to be in my opinion.

Your comments are appreciated…

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-Brad Hamill