A currency war.
Like what happened in the 1930s.
There’s growing talk about it these days. From Matt Clinch on the CNBC website this morning:
As countries try to weaken their currencies to boost exports, the risk of a currency war similar to events seen in the 1930s has heightened and policymakers are making sure they are on the winning side, according to Morgan Stanley.
The balance of power now rests with Japan, according to the bank, as Japan’s policy-makers’ more dovish approach looks set to bring the world a step closer to a currency war…
“If a weaker yen is an important pillar of the strategy to make this export-oriented economy more competitive again, it brings into the picture something that was missing from earlier interactions among central banks of the advanced economies- competitive depreciation,” it said in a research note.
“This, in turn, takes us one step closer to a currency war.”
(Editor’s note: Italics added for emphasis)
Yesterday I mentioned trends forecaster Gerald Celente. The founder and director of The Trends Research Institute appeared on the FOX Business Network’s The Tom Sullivan Show on January 26 and talked a good deal about currency wars, and thinks one is already underway. Celente told viewers:
Pick up the Financial Times, pick up the Wall Street Journal, pick up anything. Read the headlines. Currency Wars, Currency Wars, Currency Wars, Currency Wars. That’s what I’m concerned about. We’re seeing a replay in time. The Crash of 1929, a Great Depression, Currency Wars, Trade Wars, World War. The Panic of ’08. The Great Depression is a depression going on in a lot of places around the world. There’s Currency Wars.
Listen to Weber, the head of the UBS, former president of Deutsche Bank. His words at Davos- there’s a currency war. Listen to Mervyn King, the outgoing head of the Bank of England- there’s a currency war. Listen to Mantega, Brazil- there’s a currency war.
Celente went on to predict trade wars are on the horizon.
“Gerald Celente – Tom Sullivan on Fox Business News – January 26, 2013”
By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)
Clinch, Matt. “Currency Wars Return, 1930s Style: Who Will Lose Out?” CNBC. 7 Feb. 2013. (http://www.cnbc.com/id/100441340). 7 Feb. 2013.
In my neighborhood on Chicago’s Northwest Side, there a number of individuals who come around on a regular basis to “aid” residents in their recycling efforts.
First, there’s “Sanford and Son,” who drive their old, red pickup truck around the back of nearby condominium/apartment complexes, hauling away large household items that might be of value.
Second, there’s “Can Man,” a senior citizen who pedals up to the back of these multi-housing buildings and retrieves pop (soda to non-Chicagoans) cans out of the recycling bins.
And as of a couple of days ago, there’s the “Two Amigos,” two young Hispanic men in a North Carolina-plated pickup truck who I saw digging through the garbage dumpsters of these properties, retrieving anything that could be worth something. From the looks of it, they got their hands on some old computer equipment.
Thankfully, these newcomers were courteous enough to put everything back in place once they were done for the day.
But their arrival got me thinking. Who’s next? Should economic conditions keep deteriorating over the long-run (like I think it will), will we be seeing hungry Americans picking through the trash for their next meal?
Will we be one of the famished?
Don’t think it will get to that point? We’ve been down that road before- in the Great Depression. A quick search engine query with relevant keywords reveals accounts like:
Although few people died from starvation, many did not have enough to eat. Some people searched garbage dumps for food or ate weeds. Malnutrition took a toll: A study conducted in eight American cities found that families that had a member working full time experienced 66 percent less illness than those in which everyone was unemployed.
“Food and jobs were hard to get and many people stood in lines for government hand-outs. A lot of people lived on powdered milk, dried beans, and potatoes.” In Chicago, a crowd of men fought over a barrel of garbage — food scraps for their families.
I can only hope Americans will never witness anything like this again. But it did happen here. And it’s taking place overseas today even in “First-World” countries like Spain as the global economic crisis that reared its ugly head in 2008 marches on:
“Spain: The economic crisis forces people to eat waste food”
Obviously, there’s a lot to be said for setting aside extra food in case the means to pay for it dries up or some other disaster strikes. While that’s a topic I will talk about more in the future, just remember that’s it’s never too late to starting looking into and implementing some kind of food acquisition and storage program.
If anything, because I don’t want you to be that person rifling through garbage cans some day.
Well here we are.
Post number 1,000 on Survival And Prosperity, “Protecting and Growing Self and Wealth in These Uncertain Times.”
It feels like it was only yesterday when I launched this successor to Boom2Bust.com, “The Most Hated Blog On Wall Street.” In fact, it’s been almost 22 months since its debut. My how time flies. Especially when bad economic news keeps piling on. The Pollyanna gang might argue that Keynesian strategies pursued by Washington and the Fed successfully ended the “Great Recession” and have put the United States on a sustainable path to recovery. I’m of the approach that when a lot of money is poured into the financial system you’re bound to see some sort of pick-up in activity. At least initially. And, as we’ve witnessed, only temporarily, as more “stimulus” is required to keep the whole thing afloat.
But where has that left the country? As of last week, over $16 trillion in debt. And on the verge of yet another “quantitative easing.” And anyone who really believes debt doesn’t matter is in for a rude awakening when the nation’s “financial reckoning day” finally does arrives.
Since the launch of Boom2Bust.com back in May 2007, I’ve been warning about a coming U.S. financial crash. As much as some might credit me for calling it, the maelstrom that blew through the U.S. and global economies back in the fall of 2008 was only a part of the collapse that I still see heading our way. Somewhat surprisingly, Washington and the Fed have managed to “kick the can down the road” for the time being. But the road only goes so far. Will the crash happen all it once, or will it be drawn out over several years? I don’t know. I just know that my interpretation of the available data leads me to believe its coming.
To complicate matters, these days Americans must take into account other threats besides an economic crash. Depending on what one believes, these could include:
• Global warming
• Nuclear terrorism
• Peak oil production
• Resource shortages
• Solar flares
There are others. Nevertheless, a lot of threats exist these days which endanger our survival and prosperity.
So in 2012, are we looking at the end of the world? Probably not. But most likely the end of the world as we know it (TEOTWAWKI), particularly as it relates to the U.S. economy and larger financial system. Accordingly, life in America is about to get a whole lot tougher for most (if it already hasn’t). A number of really smart individuals who predicted the 2008 global economic crisis and “Great Recession” suggest we could see:
• Civil strife, including rioting and looting
• Currency controls
• Martial law
• Much higher taxes and fees
• Rampant crime
• “Second Great Depression”
There’s more, but I think you get the picture.
Despite all this, I must remind you that I’m not talking about the end of the world here. Remember, even at its worst unemployment during the Great Depression ran somewhere around 25 percent. While that really sucked for those without a job, not everyone found themselves in a soup kitchen line. The economy and society, though hobbled, still functioned.
I’m a big believer that, despite the coming crash, things will turn out okay for America in the long-run.
I also believe that focusing on one’s personal and financial safety and growth right now will go a long way in helping you and your loved ones come out on the other side of the approaching storm in reasonably good shape.
Wishing you all the best now, and down the rocky road I see in store for us,
Christopher E. Hill
The following is something many of you probably already knew. From the Associated Press yesterday:
The recession that ended three years ago this summer has been followed by the feeblest economic recovery since the Great Depression.
Since World War II, 10 U.S. recessions have been followed by a recovery that lasted at least three years. An Associated Press analysis shows that by just about any measure, the one that began in June 2009 is the weakest.
(Editor’s note: Italics added for emphasis)
Technically, the recession is over and the U.S. economy is recovering.
However, spend as much time as I do sifting through economic/investment-related material out there in cyberspace and you might conclude the financial crisis marches on.
If anything during this “recovery,” instead of heading into the bunker it might be a good time to bolster one’s situation before the next wave of the crisis sets upon us. That could mean changing jobs for a more “crash-proof” position or taking on another one to afford preps that you’ve decided you need. I don’t know, but it’s probably worth considering so long as opportunities are still available.
(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)
“Business Highlights.” Associated Press. 15 Aug. 2012. (http://www.google.com/hostednews/ap/article/ALeqM5gKQeTkUjpCB0CUe_egH2qBjQVVKw?docId=ad320c411c7147ab9eb5631921
abae13). 16 Aug. 2012.
You may have heard that Federal Reserve Chairman Ben Bernanke has been on the lecture trail lately, giving a series of four public lectures at George Washington University that some think is the U.S. central bank’s latest effort to counter negative public sentiment. Truth be told, I haven’t been really following it, but a cursory glance at some of what the Fed Chair’s been saying is “interesting,” to say the least:
I think the view is increasingly gaining acceptance that without the forceful policy response that stabilized the financial system in 2008 and early 2009, we could’ve had a much worse outcome in the economy
-March 27 lecture
There’s no consensus on this, but the evidence I’ve seen suggests that monetary policy did not play an important role in raising house prices during the upswing
-March 22 lecture
I think, though, that the gold standard would not be feasible for both practical reasons and policy reasons
-March 20 lecture
While surfing the Los Angeles Times website this morning, I came upon a piece that announced “crash prophet” and Euro Pacific Capital CEO Peter Schiff would be giving a rebuttal to Chairman Bernanke’s lectures later today. From a March 26 press release on the website of Washington, D.C.-based non-profit FreedomWorks:
WHAT: FreedomWorks Foundation and Reason will co-host a special lecture by renowned economist Peter Schiff as he responds to Federal Reserve Chairman Ben Bernanke’s four-part College Lecture Series at George Washington University School of Business.
WHEN: Thursday, March 29, 2012 at 3:00pm ET, lasting approximately one hour.
An opportunity for Q&A and a reception will follow the formal response.
WHERE: Reason’s DC Headquarters, 1747 Connecticut Avenue, NW, Washington, DC 20009.
The event will also be live-streamed from the FreedomWorks Facebook page, www.facebook.com/FreedomWorks.
WHY: While Chairman Bernanke explains to students how the Federal Reserve “saved the economy,” Peter Schiff will outline the ways in which the Federal Reserve contributed to the housing crisis and current economic recession in the first place.
The Federal Reserve bears significant responsibility for every financial crisis over the past century, including the Great Depression, stagflation in the 1970’s and most recently, the 2008 economic meltdown.
A 2011 audit of the Federal Reserve found $16 trillion in secret bailouts to corporations and banks around the world in less than three years. Documents released in the same year revealed foreign banks to be one of the largest recipients of Federal Reserve money during the 2008 economic downturn.
These secret deals, bailouts, and massive expansion of the Federal Reserve’s balance sheet were all overseen by Ben Bernanke, with almost no Congressional oversight.
You can RSVP to watch the streaming video on the FreedomWorks website here.
Stumbled on the following this morning. Almost as bad as peeing in my Wheaties. From James C. Cooper of the financial site The Fiscal Times earlier this week:
For the first time since the Great Depression, households are receiving more income from the government than they are paying the government in taxes. The combination of more cash from various programs, called transfer payments, and lower taxes has been a double-barreled boost to consumers’ buying power, while also blowing a hole in the deficit. The 1930s offer a cautionary tale: The only other time government income support exceeded taxes paid was from 1931 to 1936. That trend reversed in 1936, after a recovery was underway, and the economy fell back into a second leg of recession during 1937 and 1938.
(Editor’s note: Italics added for emphasis)
Cooper explained the debacle in detail:
Government transfers of income to households started to overtake personal taxes at the start of 2008, and the gap has been widening. In 2010, households received $2.3 trillion in income support from unemployment benefits, Social Security, disability insurance, Medicare, Medicaid, veterans’ benefits, education assistance and other cash transfers of government funds to individuals. Also last year, households paid $2.2 trillion in income, payroll, and other taxes. The difference was $125 billion…
The brick wall rapidly-approaches.
Cooper, James C. “Budget Deficit: Government Handouts Top Tax Income.” The Fiscal Times. 18 Apr. 2011. (http://www.thefiscaltimes.com/Columns/2011/04/18/Budget-Deficit-Government-Handouts-Top-Tax-Income.aspx). 21 Apr. 2011.
The banking crisis is alive and well in the United States. MarketWatch’s Robert Schroeder wrote on November 23:
The number of problem banks in the U.S. grew in the third quarter to the highest level in over 17 years, the Federal Deposit Insurance Corp. said Tuesday, even as the banking industry reported another quarter of healthy profits…
The number of troubled banks rose to 860 from 552 a year ago, the highest since the 928 institutions in March 1993. In the second quarter of 2010 there were 829 problematic banks…
The agency’s deposit insurance fund, meanwhile, remained in deficit at negative $8 billion.
So far this year, 149 banks have failed. From the UPI on November 20:
U.S. bank failures totaled 149 for 2010 by the end of the week, federal bank regulators said.
With failures of the First Banking Center in Wisconsin, the Gulf State Community Bank in Florida and the Allegiance Bank of North America in Pennsylvania, the Federal Deposit Insurance Corp. said bank failures for the year were now nine ahead of the total number of failures posted in 2009, The Wall Street Journal reported Saturday.
In comparison to the Great Depression era, during the 1920s an average of 70 banks failed annually across the country. After the October 1929 stock market crash throughout the first 10 months of 1930, 744 banks failed- 10 times as many. In one year alone- 1933- it’s estimated that 4,000 banks closed their doors. In total, 9,000 banks failed during that entire decade.
The U.S. banking crisis doesn’t appear to be going away any time soon either. Bloomberg’s Phil Mattingly wrote back in June:
U.S. bank failures through 2014 will drain $60 billion from the Federal Deposit Insurance Corp. fund that protects customer accounts in the event of a collapse, the agency said today.
“We expect bank failures to peak this year and start tapering off next year as the banking industry continues to heal and recover, but there are some uncertainties that lie ahead,” FDIC Chairman Sheila Bair said today at a meeting in Washington.
In light of all this information, how can one find out if their bank is safe?
Thankfully, a number of bank rating systems exist to help with this task. Three popular ones, Bank Star Ratings by BauerFinancial, Safe & Sound® by Bankrate.com, and Weiss Ratings on TheStreet.com, can be accessed on the Internet and are free of charge (BauerFinancial charges for more in-depth info about the institution being analyzed). Here’s a breakdown of the three free bank rating systems:
BauerFinancial, Inc. has been analyzing and reporting on the financial condition of the nation’s banking industry since 1983. According to their website, they have earned the reputation of “the nation’s bank rating service,” as hundreds of newspapers utilize their ratings for their readers. Ratings are derived from each bank and credit union being required to file a detailed financial report with federal regulators four times a year. BauerFinancial obtains this data in its raw form from the government. The quarterly data is subjected to a thorough analysis and is compared with historical data for consistency. Upon completion of the analysis, a star-rating is assigned based on a scale of zero to five stars with five stars being the strongest.
Bank Star Ratings by BauerFinancial
Bankrate.com’s Safe & Sound® service is a proprietary system designed to provide ratings information on the relative financial strength and stability of U.S. commercial banks, savings institutions, and credit unions. The system applies more than 20 tests to each institution to measure that institution’s capital adequacy, asset quality, profitability, and liquidity. Individual performance levels are determined from publicly-available regulatory filings and are compared to asset-size peer norms, industry standards, and key absolute benchmarks. Combined results form the basis of the Safe & Sound® ratings. When possible, the system also produces a report that provides a detailed explanation of the findings for each rated financial institution.
Safe & Sound® ratings provide a star rating system to evaluate the current financial status of financial institutions. The most desirable rating is five stars; the least desirable is one. Performing institutions will generally receive a rating of three or more stars with the majority of financial institutions falling into the three- to four-star range. The top retail banks, thrifts and best credit unions will have a star rating of three or higher.
Safe & Sound® by Bankrate.com
Every quarter, Weiss Ratings on TheStreet.com monitors the financial strength of 9,000 commercial banks, savings banks, and savings and loans across the nation. Ratings are derived, for the most part, from quarterly financial statements filed with federal regulators. Companies being rated are not granted the right to influence the ratings or stop their publication. Ratings are assigned by analysts based on a complex analysis of hundreds of factors that are synthesized into five indexes: capitalization, asset quality, profitability, liquidity and stability. These indexes are then used to arrive at a letter grade rating. A good rating requires consistency across all indexes. A weak score on any one index can result in a low rating, as insolvency can be caused by any one of a number of factors, such as inadequate capital, poor underwriting practices, operating losses, or the failure of an affiliated company.
Weiss Ratings on TheStreet.com
I decided to test the three bank rating tools out myself. Navigation-wise, all three are similar in that they are very simple to use. Information-wise, it’s a different story. Weiss Ratings on TheStreet.com only provides a letter grade rating for a particular bank. No other information is made available from what I could tell. BauerFinancial’s Bank Star Ratings also takes a minimalist approach, offering only a star rating for an institution when using the free search. However, as I mentioned previously, there are a variety of reports available for those desiring more information, starting at $10. Finally, there’s Safe & Sound® by Bankrate.com. Data-junkies like me will appreciate this rating system. Like BauerFinancial, Bankrate uses a star grade for each bank. However, Bankrate also provides a “Memorandum on findings” and “Financial statement” when possible as well. And the info provided is pretty substantial.
One more thing, perhaps a person is looking for a new bank and wants to find one that is “safe.” Weiss Ratings and Safe & Sound® is set up to do that as well.
All in all, when looking at a bank’s safety rating, if one wants to keep things simple (star rating or letter grade rating), Bank Star Ratings by BauerFinancial and Weiss Ratings on TheStreet.com accomplish this. If one wants to investigate further, Safe & Sound® by Bankrate.com is the best tool for the job. As for me, I’d use all three in looking at how safe my bank is. Obviously, there are no guarantees in life, and these ratings should not be relied upon exclusively in making banking decisions. However, they do offer valuable insights into a bank’s financial health.
(Editor’s note: Links to all three free bank rating systems have been added to the “Resources” page)
Schroeder, Robert. “Problem banks grow in third quarter, says FDIC.” MarketWatch. 23 Nov. 2010. (http://www.marketwatch.com/story/us-problem-banks-grow-to-860-in-third-quarter-2010-11-23). 10 Dec. 2010.
“U.S. bank failures reach 149 for the year.” UPI. 20 Nov. 2010. (http://www.upi.com/Business_News/2010/11/20/US-bank-failures-reach-149-for-the-year/UPI-89981290270591/). 10 Dec. 2010.
Mattingly, Phil. “Bank Failures Through 2014 Will Drain $60 Billion From FDIC, Agency Says.” Bloomberg. 22 June 2010. (http://www.bloomberg.com/news/2010-06-22/bank-failures-through-2014-will-drain-60-billion-from-fdic-agency-says.html). 10 Dec. 2010.
Yesterday, Megan McArdle, The Altantic’s business and economics editor, pondered the persistence of the sovereign debt crises in the QFTW:
This is starting to throw off more echoes of the Great Depression, where you have a sequence of crises, each touched off by the ones that came before, like dominos falling into some diabolic design.
What if all of these crises were really just part of a larger global debt crisis? Martin Weiss, chairman of The Weiss Group (which includes Weiss Research and Weiss Ratings) and author of The Ultimate Depression Survival Guide: Protect Your Savings, Boost Your Income, and Grow Wealthy Even in the Worst of Times wrote in his free investment newsletter Money and Markets yesterday:
Politicians talk about the U.S. debt crisis of 2008 … the Detroit bankruptcy crisis of 2009 … the European sovereign debt crisis of early 2010 … the Greek debt tragedy … the Irish debt mess … the California budget debacle … the U.S. municipal bond collapse … and more.
Then, they talk about the urgent need to make a show of resolve to bail out the world — to stop the “contagion” from spreading from one sector or region to the next.
But these are not separate, isolated disasters. Nor is the contagion of fear the true source of the problem.
Instead, what we are experiencing is one, single, integral debt crisis that never ended.
It is one crisis that has spread from the U.S. to Europe and beyond … morphed from a private-sector banking crisis to a public-sector government debt crisis … grown in scope and power … and begun to drive the large debtor nations on a collision course beyond anyone’s control.
This is a view shared by his fellow “crash prophet” Peter Schiff of Euro Pacific Capital and author of Crash Proof 2.0: How to Profit From the Economic Collapse, who warned in his Schiff Report Video Blog last Friday:
But believe me, the sovereign credit crisis is coming to the U.S. It’s going to be even bigger.
Weiss, Martin D. “New phase of debt crisis! Striking NOW! Despite rescues!” Money and Markets. 29 Nov. 2010. (http://www.moneyandmarkets.com/new-phase-of-debt-crisis-striking-now-despite-rescues-41310). 30 Nov. 2010.
Schiff, Peter. “Dollar rally, sovereign debt, black Friday, Schiff Radio.com.” YouTube.com, 26 Nov. 2010. (http://www.youtube.com/watch?v=kbXPu8RnsqQ). 29 Nov. 2010.
This is starting to throw off more echoes of the Great Depression, where you have a sequence of crises, each touched off by the ones that came before, like dominos falling into some diabolic design. Europe and America thought they’d seen the worst of things by the end of 1930, only to be knocked back down even harder by the contagion of the Creditanstalt crisis. In the US, the crisis ultimately triggered a string of bank failures worse than those sparked by the initial stock market crash, and the worst two years of the Great Depression were 1932-3.
I don’t want to lean too hard on this, as economic commentators (maybe including me) have started seeing Creditanstalt everywhere–in Dubai, in Greece, now in Ireland and maybe Spain. It’s entirely possible that we’ll eventually muddle through without a second major event. But it’s worth remembering that these things take a long time to unfold, and that we are often most vulnerable just when we think we have time for a breather.
-Megan McArdle, business and economics editor for The Altantic, in a post today on their website
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