Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
The Three Stocketeers: One for All and... - 2nd Aug 14
Significant Day in the Bitcoin Market - 2nd Aug 14
Gold Prices 1971 - 2014 in 3 Waves - 2nd Aug 14
Gold’s Seasonal Sweet Spot - Strongest Months Are August, September, November And January - 1st Aug 14 - GoldCore
Flagrant Rush To War In The Ukraine Crisis - 1st Aug 14
What Russian Sanctions Mean for Your Money - 1st Aug 14
The West's Reckless Rush Towards War with Russia - 1st Aug 14
Gold Price Advance Capped by the Dead Cat Dollar’s Recovery - 1st Aug 14
Big Banks Shift to Lower Gear Banking Operations - 1st Aug 14
Africa: New Land of Investor Opportunity? Pointing to the Positives - 1st Aug 14
Turning a Clinical Eye on Biotech Stocks with High Potential Investor Reward - 1st Aug 14
Gaza Death Cloud Hangs Over Sheffield Eid Festival 2014 at Millhouses Park - 1st Aug 14
Israels Final Solution of Turning Gaza Concentration Camp into a Grave Yard - 31st July 14
US Failure: Unintended Consequence - 31st July 14
Stock Market Breakdown! - 31st July 14
Echoes Of The Great War – Only An Echo In The Elite Mind - 31st July 14
This is Bad News for U.S. Economy and Stock Markets - 31st July 14
The Important Impact of This “Secret” Gold Agreement - 31st July 14
The Something For Nothing Society Death Spiral - 31st July 14
The Social Memory Dump, Shredding Society - 31st July 14
How Safe Are Unallocated Gold Bullion Accounts? - 31st July 14
USDJPY Big Bear Market - 31st July 14
No More School in Gaza Because All the Children are Dead Chant Israel's Jewish Fundementalists - 31st July 14
The Iron Dome Inside The Heads of Israel’s Leaders - 31st July 14
You Know a Politician or Talking Head is Clueless When….. - 31st July 14
Don't Get Married to Your Gold Stocks—It's a Performance-Based Relationship - 31st July 14
Stock Market Parabolic Collapse - Sowing the Seeds of the Next Depression - 30th July 14
How to Profit from the Russia Ukraine Conflict - 30th July 14
Greenspan: U.S. Economy Running Out of Buffer; Stock Market to See Significant Correction - 30th July 14
Rogue States And Loony Tunes - 30th July 14
Anne Elk’s Theory On Brontosauruses - 30th July 14
Our Totalitarian Future - Totalitarianism NOW! - 30th July 14
Stocks Bear Market Formation Revealed - 30th July 14
We Just Found “The Future” - 30th July 14
What the “Steak Bandit” Says About Asset Values - 30th July 14
Designer War By Default - Seven Types of Elite Madness - 30th July 14
Death of the U.S. Dollar? Gold an Inflation Hedge? Really? - 29th July 14
We’re Ready to Profit in the Coming Gold Price Correction—Are You? - 29th July 14
Their Economy Will Collapse, Including Ours - 29th July 14
Silver Prices – Megaphone Patterns - 29th July 14
Real U.S. Interest Rates - Fed Exit a Blue Pill? - 29th July 14
Why Israel Should NOT Exist, Just Like Any Other Rogue State - 29th July 14
Gold Still Looking Good - 29th July 14
Silver Price Set To Star - 29th July 14
Our Population Growth Totalitarian Future - 29th July 14
World War 1 Cause and Consequences - The Planned Destruction of Christendom - 29th July 14
Will Crashing Commodities Crash the Stock Market? - 29th July 14
Ukraine MH17 - Washington Thinks Americans Are Fools - 29th July 14
Stock Market Bubble Warning - 29th July 14
Gold Price and U.S. Dollar’s July Rally - 28th July 14
Second Quarter Corporate Earnings: Marching Toward a Strong Economic Recovery - 28th July 14
Time to Put a New Economic Tool in the Box - 28th July 14
Mossad in Gaza, Ukraine and the Cult Of The All-Powerful Elite - 28th July 14
Elliott Wave Gold Price Projection Since 1970 - 28th July 14
Investors Remain Uncertain As Stock Fluctuate Near Long-Term Highs - Will The Uptrend Extend? - 28th July 14
The Mass Psychology Of Decline - 28th July 14
Will the US Destroy the World? - Don’t Expect to Live Much Longer - 28th July 14
GDM and GDXJ Gold Stocks In-depth Look - 28th July 14
Stock Market One FINAL High? - 28th July 14
What It Means - Paradigm Collapse And Culture Crisis - 27th July 14
Wall Street Shadow Banking: You Can’t Taper a Ponzi Scheme: “Time to Reboot” - 27th July 14
6 Tips for Picking Winning Gold Mining Stocks - 27th July 14
Israel's War on Children, Exterminating the Palestinians Future - 27th July 14
Guilt By Insinuation - How American Propaganda Works - 26th July 14
Surprise Nuclear Attack On Russia To Liberate Ukraine - 26th July 14
Use "Magic" Of Gold/Silver Ratio To Greatly Increase Your Physical Holdings - 26th July 14
Derivatives Market Species Origins - Abuse, Props and Risks - 26th July 14
Stock Market Manipulation and Technical Analysis - 26th July 14
China’s Stock Market Finally Looks Like A Buy - 26th July 14
Ed Milliband Fears Israel Jewish Fundamentalist Gaza War Massacres Backlash - 26th July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

Theory of Central Banking Rapidly Falling Apart

Currencies / Central Banks May 14, 2010 - 11:53 AM GMT

By: Mike_Shedlock

Currencies

Best Financial Markets Analysis ArticleCentral banks are about to learn the global economy is not Alice's Restaurant.

In case you don't know the tune, here is the crucial line: "You can get anything you want at Alice's Restaurant"

Anything you want, seems to be the attitude of central banks. The problem is, it is virtually impossible for every central bank to get what it wants at the same time, when they all want the same thing, cheaper currency relative to each other to stimulate jobs and exports.


Here are a few examples to help explain what I mean.

UK at Mercy of Demand in EU

Please consider U.K. Trade Deficit Widened in March on Import Jump

The U.K. trade deficit widened in March as imports jumped the most in six months, led by demand for goods from cars to engineering equipment.

The Bank of England is counting on a weak pound to boost exports and support economic growth it helped manufacturing jump the most since 2002 last month. The sovereign debt crisis in Europe has darkened the outlook for U.K. exporters at a time when domestic demand may come under pressure from measures to tackle the public finances.

“With a fiscal squeeze looming, and set to have knock-on effects on consumer incomes, we think that the onus is still on the external sector to keep the recovery going,” Vicky Redwood, an economist at Capital Economics Ltd. and a former Bank of England official, said in a note. “Recent events in the euro zone -- the U.K.’s biggest trading partner -- clearly cast a shadow over the longer-term prospects for U.K. exporters.”

The U.K.’s trade deficit with the European Union widened to 3.4 billion pounds in March, a three-month high, from 2.9 billion pounds in February. Bank of England Governor Mervyn King yesterday cautioned that the U.K. economy remains vulnerable to the fiscal crisis in the euro area, its biggest trading partner.

King said that rebalancing the U.K. economy after the deepest recession on record relied on “a prosperous European economy.”

“We’re seeing a big, big increase in manufacturing,” Alan Clarke, an economist at BNP Paribas in London, said in a phone interview before the report. “It may be that at long last we have an improvement in external demand or are reaping the benefit of a weaker sterling. We’re at the mercy of demand in the euro zone.”

China’s Trade Surplus Shrinks 87%

Inquiring minds note China’s April Trade Surplus Shrinks 87% on Imports

China’s trade surplus shrank 87 percent in April from a year earlier as imports grew faster than exports because of stimulus-driven domestic demand.

A 79 percent decline in the trade surplus in the first four months of 2010 from a year earlier may ease pressure for gains in the yuan and support Premier Wen Jiabao’s argument that the currency isn’t undervalued. The sovereign-debt crisis in Europe that today prompted a loan package of almost $1 trillion to help nations under attack from speculators may also encourage Chinese officials to delay ending the yuan’s peg to the dollar.

Yuan gains would be “a disaster,” Song Zimin, an executive in the import and export department of apparel maker Shanghai Dragon Corp., said in an interview at China’s biggest trade fair in Guangzhou on May 3. “If the yuan rises 3 percent, where’s our profit? Many, many factories will close.”

Chinese President Hu Jintao told his U.S. counterpart Barack Obama last month that the nation will adjust currency policies according to its own need and won’t bow to foreign pressure. U.S. Treasury Secretary Timothy F. Geithner meets with Chinese Vice Premier Wang Qishan in Beijing on May 24-25 for the so-called Strategic and Economic Dialogue between the two nations.

India and Brazil have backed calls from the U.S. and Europe for a stronger yuan.

Europe is China's biggest export partner. Since China pegs to the US dollar, China's exports to Europe just got a lot more expensive following this mini-crash of the Euro. That is not what China wants at all.

India, Brazil, the US, Europe, and Japan all want the Yuan to rise.

Adding fat to the trade war fire, the US is threatening to label China a currency manipulator on the misguided notion that US exports will rise if the Renminbi (Yuan) rises.

Japan Wants the Yen to Sink

As noted in Equity Plunge Yen Connection; Reflections on Ponzi Markets and Program Trading, last week's equity meltdown all started with a sudden spike in the Yen.

In response, to the strengthening of the Yen, the Bank of Japan pumped 2 trillion Yen ($21.8 billion), into the banking system, triggering selling of the Yen.

ECB's Action to Save the Euro

In Europe, the ECB's plan to "save the Euro" consists of printing $1 trillion worth of Euros. Given that it is impossible to strengthen a currency by printing more of it, the real goal was not to save the "Euro" but to bail out European banks sitting on bad Greek debts.

Long term, the plan increases debt, exactly the wrong thing to do in a deflationary world.

Short term, that action spawned an unprecedented round trip move on the Euro vs. the US dollar from 1.27 to 1.31 and back in little over a day.

Bounce or Die for the Euro and British Pound

For charts and additional commentary on the Euro and British Pound, please see Bounce or Die for the Euro and British Pound?

Make no mistake about. Trichet wants a cheaper Euro to help European exports, even as the UK is at the mercy of demand in Eurozone countries.

To top it off, the US does not want a cheaper Euro or a stronger dollar out of fear of losing Boeing contracts to Airbus, and grain exports to Brazil and Australia.

In 2001-2002 Greenspan thought slashing interest rates and printing money was a free lunch. Instead, it spawned the biggest real estate/debt bubble the world has ever seen. For a while, Greenspan's efforts created jobs. Then came the global bust. The debt still remains, the jobs didn't.

Now the EU has adopted the same nonsensical plan. Yet all the EU has accomplished is to increase the amount of debt that cannot be paid back. Trichet needs a clue, and here it is: You cannot fight deflation by taking on more debt. Here's a second clue: central banks can print, but they cannot dictate where the money goes.

The housing bubble collapsed years ago, but the global central banker fight against deflation still remains, with one big beneficiary: Gold.

Gold Monthly Chart


Amazingly, until this crisis started last week, there was near unanimous opinion that the US dollar needed to sink and for the Yen, Yuan, Pound, and Euro to strengthen.

"Near Unanimous" is the opportune phrase because Japan wanted the Yuan to rise but not the Yen, and China was just happy with the status quo.

If that is not one totally *upped daisy chain of impossible Central Banker wants and needs, what is?

Hello Ben Bernanke, Jean-Claude Trichet, and Mervyn King, this is Alice, and you are in Wonderland, not my restaurant. At Alice's there is no free lunch. We only take gold.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2010 Mike Shedlock, All Rights Reserved.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014