Visual Update Of The British Pound And Euro, Timely Concerns About Britain And Conspiracy Theorists
Price swings in the currency markets have become very, very large again to show up so substantially on a monthly chart. Both the pound and the euro have experienced what we can classify as a mini crash in early 2010. The pound is now closing in on the crash level seen during the financial market collapse in 2008. Volatility is returning and it appears currency markets are the first to experience it. What's next? Bonds? Commodities? Stocks? All of the above? (As I have remarked recently, I suspect we will look back on U.S. equity market relative out-performance recently as repatriation of hot money from many overseas markets. If so, that's not a good sign for the global economy or for those invested internationally.)
Over the last few years I have remarked on quite a few occasions that I think the British pound is in serious trouble. We haven't really explored those statements in any detail as I said we would. Let's take a moment and delve into my concerns re the pound. (Added to my euro, ruble, yuan and every other emerging market currency concerns.)
First of all, I believe Britain is one of a few candidates for a hyperinflationary collapse. I don't remember if I actually articulated that in my prior posts regarding the pound and I'm too lazy to go back and look at the moment. This is not a prediction. It's a statement of risk. And I don't expect it to be anything that will develop imminently. As a point of reference, there is no one who is currently talking about hyperinflation in the U.S. or Japan who has gotten any currency specifics correct in advance of this crisis. In other words, I don't see any evidence the hyperinflationistas predicting doom for the dollar or yen really understand what dynamics actually cause a hyperinflationary currency collapse. That is, beyond the incessant babble of printing endless money as Zimbabwe has. That clearly is not going to happen. These comparisons to Zimbabwe are either made tongue in cheek as a joke or are made by people who have absolutely no idea what they are talking about. Most people anticipating hyperinflation seem to use profligacy as a primary predictor. That is a fool's game with no legitimacy. Every bureaucracy is profligate. And that will never change. This is a primary example of why opinions are worthless and one must understand the data and a qualitative interpretation of building fundamentals.
Over the last few years I have remarked on quite a few occasions that I think the British pound is in serious trouble. We haven't really explored those statements in any detail as I said we would. Let's take a moment and delve into my concerns re the pound. (Added to my euro, ruble, yuan and every other emerging market currency concerns.)
First of all, I believe Britain is one of a few candidates for a hyperinflationary collapse. I don't remember if I actually articulated that in my prior posts regarding the pound and I'm too lazy to go back and look at the moment. This is not a prediction. It's a statement of risk. And I don't expect it to be anything that will develop imminently. As a point of reference, there is no one who is currently talking about hyperinflation in the U.S. or Japan who has gotten any currency specifics correct in advance of this crisis. In other words, I don't see any evidence the hyperinflationistas predicting doom for the dollar or yen really understand what dynamics actually cause a hyperinflationary currency collapse. That is, beyond the incessant babble of printing endless money as Zimbabwe has. That clearly is not going to happen. These comparisons to Zimbabwe are either made tongue in cheek as a joke or are made by people who have absolutely no idea what they are talking about. Most people anticipating hyperinflation seem to use profligacy as a primary predictor. That is a fool's game with no legitimacy. Every bureaucracy is profligate. And that will never change. This is a primary example of why opinions are worthless and one must understand the data and a qualitative interpretation of building fundamentals.
Today there is much comparison talk between the United States and Germany's hyperinflation during the Weimer period. We have already remarked before that this is ridiculous. This invalid comparison is similar to the countless interpretations of what caused the Great Depression. There are many accounts of the Great Depression but every mainstream interpretation is generally a revisionist theory using correlation rather than causation. In other words,the Great Depression is explained away by debt collapse. Debt collapse is a serious, serious problem and it looks like we are going to live through it again but this wasn't the cause of the Great Depression. Debt collapse in today's world will only happen because the status quo is in charge of economic policy decisions courtesy of the legalized bribery of our government. One must remember that the Great Depression was not "great" everywhere. It was great specifically in the United States even though there were many countries that experienced a debt collapse. In fact, many countries recovered very quickly. So what was the difference? :) Debt is not the lasting crisis everyone wants to make it out to be.
Anyhow, back to hyperinflation. With no real understanding of the dynamics behind hyperinflation, we hear countless opinions that every country which is profligate is a candidate for currency collapse and hyperinflation.
So, here's a few remarks you won't read from the general hyperinflation carnival barkers. Hyperinflation caused by a currency collapse will only have a chance to develop under some very necessary but not sufficient dynamics. Here are five to consider:
1) A currency that involves very substantial financial speculation. Speculation made available by a government which makes excess currency available to financial speculators.
2) A currency that has little to no intrinsic demand outside of a country's borders.
3) A currency that involves a substantial debtor nation with that debt held outside its borders.
4) A currency which allows unregulated capital flows.
5) A currency in which the government is willing to print money beyond the capital formation demands of a domestic economy.
These five dynamics are necessary but not sufficient. They also existed in Iceland and Weimar Germany. They also exist in Britain today. Let me give you an example of a particular statistic as it relates to one of the five points above. Both Britain's long term and short term gross debt to GDP ratios held abroad are more than 800% higher than Japan. That's right. 800%. I think we can discount Japan as a hyperinflationary threat as now seems to be the most common prediction of the financial community.
So, here's a few remarks you won't read from the general hyperinflation carnival barkers. Hyperinflation caused by a currency collapse will only have a chance to develop under some very necessary but not sufficient dynamics. Here are five to consider:
1) A currency that involves very substantial financial speculation. Speculation made available by a government which makes excess currency available to financial speculators.
2) A currency that has little to no intrinsic demand outside of a country's borders.
3) A currency that involves a substantial debtor nation with that debt held outside its borders.
4) A currency which allows unregulated capital flows.
5) A currency in which the government is willing to print money beyond the capital formation demands of a domestic economy.
These five dynamics are necessary but not sufficient. They also existed in Iceland and Weimar Germany. They also exist in Britain today. Let me give you an example of a particular statistic as it relates to one of the five points above. Both Britain's long term and short term gross debt to GDP ratios held abroad are more than 800% higher than Japan. That's right. 800%. I think we can discount Japan as a hyperinflationary threat as now seems to be the most common prediction of the financial community.
Hyperinflation in the United States or Japan just isn't likely to happen in today's environment. There is no such thing as certainty, but I would go to far as to say not only is it unlikely, it really isn't even possible. In fact, as we have noted many times in the last eighteen months, the Federal Reserve could print a fair amount of money to ameliorate this crisis and still not negatively impact the dollar.
There is a chain of events of some sorts that needs to unfold for a currency collapse. These dynamics are nearly impossible to predict far in advance. But I have been watching the financial and political idiots across the pond quite closely. (My God are their politicians even more stupid than ours. Haha.) Regardless Britain is surely in serious trouble without new policies.
There is a chain of events of some sorts that needs to unfold for a currency collapse. These dynamics are nearly impossible to predict far in advance. But I have been watching the financial and political idiots across the pond quite closely. (My God are their politicians even more stupid than ours. Haha.) Regardless Britain is surely in serious trouble without new policies.
It's time for you to finish this post by doing some further noodling and filling in some blanks.
Let me finish this post by taking a jab at many conspiracy theorists as I have before. There are some seeking to sell books, subscriptions or whatnot as it pertains to a global elite's plot to kill or starve or enslave the rest of us. Or whatever notion they have dreamed up. Many of these people believe the U.S. and Britain are engaged in some conspiratorial scam together. And because of that Britain could never experience hyperinflation. ie, It is a perpetrator of this crisis. Let me just say one thing as it pertains to this environment. Never assign brilliance or malice to incompetence as so many before us have noted. Because fundamentals are lining up with what many would conspire to paint as a malicious outcome that was planned, we see all types of conspiracies. That is really curve fitting the data to a theory. It's what Wall Street has been so good at with quantitative finance. In other words, I could make up any type of story to fit data for any event. I could make up a plausible conspiracy as to why you went to the grocery store. Some conspiracies are surely true. Not too many conspiracy theories are true. It's preposterous that anyone would wish to cause global chaos, threaten their own well-being, threaten global war and loss of their own security with theories typically perpetuated by paranoids, fringe elements, radicals and even emotionally-unstable crackpots.
Here is the reality. Everything is in plain sight for everyone to witness. What we are experiencing around the world today is utter incompetence on a grand scale. Incompetence by a self-appointed bureaucratic class of mental morons. A timeless pastime of those who somehow believe in their superior abilities comparative to us poor peasants and conclude they must tell us boneheads how we are going to lead our lives. (A strong case for a federal government's limited powers as outlined in the Constitution. Or at least limited powers without complete transparency into all federal government dealings and affairs.) Contrarily, people who seek power (control) are seldom brilliant. Where is the source of brilliance within the political or bureaucratic class today anywhere in the world? It simply does not exist. All we see is systemic incompetence. To assign theoretical brilliance required to plan these massive conspiracies is simply an overactive imagination. This environment is because incompetent bureaucrats (bankers, politicians, CEOs, the state) have completely screwed up the world with their laughable elitist ideology.
Here is the reality. Everything is in plain sight for everyone to witness. What we are experiencing around the world today is utter incompetence on a grand scale. Incompetence by a self-appointed bureaucratic class of mental morons. A timeless pastime of those who somehow believe in their superior abilities comparative to us poor peasants and conclude they must tell us boneheads how we are going to lead our lives. (A strong case for a federal government's limited powers as outlined in the Constitution. Or at least limited powers without complete transparency into all federal government dealings and affairs.) Contrarily, people who seek power (control) are seldom brilliant. Where is the source of brilliance within the political or bureaucratic class today anywhere in the world? It simply does not exist. All we see is systemic incompetence. To assign theoretical brilliance required to plan these massive conspiracies is simply an overactive imagination. This environment is because incompetent bureaucrats (bankers, politicians, CEOs, the state) have completely screwed up the world with their laughable elitist ideology.
Remember, this is not a Wall Street crisis as so many have postulated. It is indeed a full blown global economic crisis. Those focusing on Wall Street as the source of this crisis are missing the forest through the trees. Wall Street is in a massive bubble as we uniquely wrote years before this crisis unfolded but the outcomes to this mess will be felt in every corner of the globe.
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