There’s an interesting situation developing between the $ and the Yen at the minute. The Tokyo Government may step in again to sell Yen and keep the rate competitive for its exporters. So in theory the markets will go to the European currencies, the US now looking more and more like
scampi in a basket – and seemingly happy to let the buck not stop here….but keep sliding.

Seeing its holding in US securities devalued is not going to please China, but how would they then ‘punish’ the USA without it backfiring? It’s a tricky one – but an even trickier one is what the markets will do if  when the eurozone’s dance of the seven debtors finally reveals that things are (560 x 2000%)n power worse than they thought? The £ is close to the zone and the euro is in it (so to speak) and so that would leave the Swiss franc rising to about 0.003 to the dollar by Christmas. Nice for Swiss tourists buying presents, catastrophic for the Swiss banking system.

Are you yet confused/bored/fed up/anxious/ or just accepting of the current madness? I know – there are times when even writing about it gets sort of tediously mystifying.

The currency war getting into its stride now represents a vicious circle of dysfunction. In my view it represents the start of protectionism and mercantile trade wars. This will reduce the total volume of trade with as yet unaudited consequences – although in the long-term it might do for Globalism, which would be something of a result. But the mind-concentrator about America is this: it consumes a quarter of all the items sold on planet Earth. If the US gets pneumonia, the world economy’s lungs will collapse. Right now, America has a serious chest infection and no health cover. We should be very afraid about this…and even more afraid of just how little the American People grasp the situation.

The one bright light on the horizon, in fact, is that Beijing is well aware of this: without the US market, China would be forced back into its domestic market. While the Chinese home market is almost insatiable, without its export earnings, China would soon find itself in exactly the same position as the West….but plus the unpleasant complication of its people getting better off, and becoming more demanding.

The Stock markets, bizarrely, display near to zero awareness of any of the above. This is partly because market traders are not very bright, but also because for years now the world’s bourses have been places where only the short-term counts, and all responses to events are neurotically exaggerated. The gold market, however, is ahead of the game: overnight, the shiny stuff stabilised at $1294. An EU default and/or a big Fed investment in QE would send it to at least $1350.

It’s nice to make money out of gold, but it’s far more important to rescue the US. Everyone in the econo-fiscal elite knows this. We must wait and see whether calm minds or hot heads triumph.