trade deficits

Peter Schiff Predicts Resumption Of Dollar Decline, Gold Rally This Week

It’s been a while, but Euro Pacific Capital CEO Peter Schiff added a new entry to The Schiff Report YouTube vlog on Saturday. Schiff, who correctly-called the housing bust and economic crisis last decade, talked about a number of subjects, including his belief that the Federal Reserve has no intention of raising rates in March, “a lot” of dollar selling is coming, and the gold rally will resume. From the video:

The reason the Fed didn’t give a clue that it might be raising rates in March, is because it has no intention of doing so…

I think the trade deficits are going up. I think the budget deficits are going up. Certainly to the extent that we get some tax cuts. We continue to get more government spending. If we get more government spending under Trump on the military, on the border, on infrastructure. Rising trade deficits. Rising budget deficits. Rising inflation. All of this is going to be a big negative for the dollar. And of course, everybody was so loaded up long the dollar, I think the people who own the dollar- there’s a lot of dollar selling that’s coming. And I think the dollar bulls are going to end up losing a lot of money…

Since the beginning of this year the Dow is barely up more than 1 percent. You can contrast that to the price of gold which is up 6 percent so far this year. Look at gold stocks. Gold stocks are up 17 percent as a group so far in 2017. 17 percent. Everybody’s talking about the Dow. No one’s talking about gold stocks. In fact, gold stocks were the number one performing sector last year, by far. Wasn’t even close. And they’re already by far the number one performing sector this year. But nobody really wants to talk about it…

I think we’re going to see a resumption of the dollar decline and gold rally next week…


“Rising Unemployment Is Just The Excuse The Fed’s Been Waiting For”
YouTube Video

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page. A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is 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 contained herein.)

Schiff’s latest book…

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Jim Rogers Predicts Crude Oil, Russian Ruble Comeback But Warns On U.S. Dollar

On Tuesday, The Economic Times (India) released an interview of well-known investor, author, and financial commentator Jim Rogers on its website. Discussing weakness in the crude oil market in light of the recent nuclear “deal” with Iran, the former investing partner of George Soros said:

Not here to stay, but certainly when you have a big collapse in anything, it hits a bottom, then there is a big rebound. We call it in America a dead-cat bounce. Then you have a test, a second test to the low.

This is going to lead to the second test to the low. There is always a reason for the second test and now we are having it, but is oil going to stay down forever? No. Remember that known reserves around the world are in decline, except for fracking. This is good news for people who consume, bad news for people who produce. But it is not the end of the story…

(Editor’s note: Bold added for emphasis)

Rogers thinks the Russian ruble, a currency he’s been bullish about for some time now, will benefit from a crude oil comeback. Sputnik, the international news service owned and operated by the Russian government, referenced a recent interview of the Singapore-based investor on Gazeta.ru. From the news outlet Tuesday:

Concerning the current rouble situation Rogers said, “Russia has low debt, unlike Greece, as well as convertible currency, which is quite unique for the new markets. So fundamentally its position can be called normal. It is being pressured by lower oil prices, but as soon as the black gold finds the stable point the situation will improve for the rouble.”

(Editor’s note: Bold added for emphasis)

Sputnik added:

He also mentioned the dollar saying that the US currency is in a terrible situation as the US national debt and trade deficit are huge.

“If we simply write out on paper the facts that lie behind the ruble and the dollar, without naming the currency, then everyone will want to buy rubles and no one will buy dollars. But as soon as you name them then, of course, people buy dollars.”

He added that he hopes he will be smart enough to get rid of dollars before the collapse happens. “Everything seems perfect, until one day it ceases to be so. It was the same with Britain, France, Spain and Greece. Often stocks manage to go up for a few years before hitting bankruptcy.”

(Editor’s note: Bold added for emphasis)

Last I heard, Rogers still owned greenbacks. I blogged back on November 11, 2014:

Despite the above warning, Rogers shared with Reuters back on October 23 that he still owned the U.S. dollar. He explained:

I have no confidence in the long-term strength of the U.S. dollar. I only own it because I expect all this turmoil to happen. And in times of turmoil, people flee to the safe-haven of the U.S. dollar. It’s not a safe-haven, but they think it’s a safe-haven, so people will own it. That’s why I own it.

Now what I expect to happen is, the dollar will go up stronger and stronger over the next year or two, at which point- some point- I’ll have to sell it. I have no idea what I’ll do with my money then because the world has got this terrible, terrible unsound foundation in all assets.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; 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)

Sources:

“Crude prices may sink on more Iran oil, but will rebound as known reserves are declining: Jim Rogers.” The Economic Times. 14 July 2015. (http://economictimes.indiatimes.com/opinion/interviews/crude-prices-may-sink-on-more-iran-oil-but-will-rebound-as-known-reserves-are-declining-jim-rogers/articleshow/48066869.cms). 17 July 2015.

“US ‘Shot Itself in the Foot’ by Pushing Russia Toward China – Jim Rogers” Sputnik. 14 July 2015. (http://sputniknews.com/business/20150714/1024625814.html). 17 July 2015.

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China Says U.S. Risks Trade War, Continued

Yesterday I talked about how China is warning the United States that it’s risking a trade war by putting pressure on the PRC to allow its currency, the renminbi or yuan, to appreciate. I discussed the claims of scholars who believe that a revaluation of the Chinese currency won’t do much to help the U.S. bring back jobs or address the massive trade imbalance. But this morning, I came across an opposing point of view in Fred Bergsten, director of the Washington-based Peterson Institute for International Economics. From a Reuters piece that appeared on CNBC.com:

“The Chinese will scream, but the only times they’ve let their currency rise is when they’re under pressure from the outside, so we should go ahead and do it,” said Fred Bergsten, director of the Washington-based Peterson Institute for International Economics and a long-time critic of China’s currency policy.

Bergsten is among the most vocal proponents of increasing the pressure on China, arguing that an undervalued yuan gives it an unfair trade advantage which harms the U.S. economy.

He estimates that a 20 percent rise in the yuan would reduce the U.S. current account deficit by $50 billion to $100 billion. A more extreme move, say 40 percent, would translate into as much as a $200 billion reduction.

About half of that would come from increased exports, mostly to China but also to other countries where China is now the dominant trade player. The other half would come from reduced imports from China.

The United States gains about 6,000 jobs for every $1 billion improvement in the trade balance, so $100 billion would work out to 600,000 jobs, he said. That is more than the anemic U.S. economy has generated in the past six months combined, and would be enough to shave about four-tenths of a point off the 9.1 percent jobless rate.

China acknowledges that a gradual yuan appreciation may be in its best interest, but it has only allowed the currency to rise by about 6.5 percent since June 2010. I’m not sure Beijing will agree to something as significant as a one-off, 20 percent rise in the renminbi. Especially if their perception is that the United States is telling the PRC what to do. If the Currency Exchange Rate Oversight Reform Act of 2011 legislation picks up steam, I won’t be surprised to hear talk along the lines of diversifying out of the dollar or Treasuries coming out of China.

Source:

“What a Stronger Chinese Yuan Means for the US?” Reuters. 5 Oct. 2011. (http://www.cnbc.com/id/44782569). 5 Oct. 2011.

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Wednesday, October 5th, 2011 Asia, Bonds, Currencies, Deficits, Employment, Trade, War No Comments

China Says U.S. Risks Trade War

China is warning the United States that it’s risking a trade war. The U.S. Senate voted 79-17 last night to open a week of debate on the Currency Exchange Rate Oversight Reform Act of 2011, to put pressure on China to allow its currency, the renminbi or yuan, to appreciate. U.S. lawmakers claim an undervalued Chinese currency has cost America jobs and has created a massive trade imbalance between the two nations. Reuters’ David Stanway and Aileen Wang wrote this morning:

An angry China warned Washington on Tuesday that passage of a bill aimed at forcing Beijing to let its currency rise could lead to a trade war between the world’s top two economies.

China’s central bank and the ministries of commerce and foreign affairs accused Washington of “politicising” currency issues and putting the global economy at risk after U.S. senators voted on Monday to start a week of debate on the bill.

The response suggested China sees a greater risk from the proposed bill than it has in the past when U.S. lawmakers attempted to put forward similar legislation to speed up the pace of appreciation in the yuan, or renminbi.

Beijing made similar remarks last year after the House of Representatives passed a currency bill that later failed to make any further progress in Congress.

While a strong case can be made that the Chinese currency is indeed undervalued, a number of analysts believe the Democratic-led legislation was being introduced to divert blame for the floundering economy away from Washington D.C., and to increase the odds lawmakers from the Rust Belt and other areas where manufacturing is depressed will get re-elected in 2012. And certain scholars point out that a revaluation of the Chinese currency won’t do much to help the U.S. bring back jobs or address its trade deficit and the trade imbalance. From the University of Pennsylvania’s China Knowledge@Wharton website back on March 31, 2010:

China has pegged its currency to the U.S. dollar since 1994. After 2002, its trade surplus burgeoned, causing a huge global current account surplus. Meanwhile, as China’s major trading partner, the United States suffered from a growing current account deficit. Many U.S. legislators attributed their nation’s deficit to the Chinese government’s currency manipulation to keep the renminbi artificially low. Ever since, a reminbi revaluation has been the center of the trade dispute between China and the United States.

Today, “legislators are trying to make constituents believe that the joblessness [in the U.S.] is caused by the trade deficit, and the trade deficit is the result of China manipulating its currency,” says Charles Freeman of the Center for Strategic and International Studies, a Washington, D.C.-based public policy research institute, and a former assistant U.S. trade representative for China affairs. “However, I see no correlation between joblessness and the trade deficit, as well as the trade deficit and the undervalued renminbi.”

He also says it is unlikely that increasing the value of the renminbi vis-à-vis the dollar will reduce the trade imbalance between the two countries. “If you look at the average cost of consumer goods in China and the equivalent wholesale costs of manufacturing goods here in the United States, you would see that the margin between the two is too high,” he notes. “The labor costs are so high in the United States that it would be difficult for the U.S. to regain competitiveness solely through forcing the renminbi to appreciate by another 20%.” In fact, he doubts whether any increase in the value of renminbi will move the production back to the U.S. If Chinese exports to the U.S. were to become more expensive, “the United States would shift its demand to other third party developing countries, such as Mexico,” he says.

(Editor’s note: Italics added for emphasis)

Not only would forcing China to revalue its currency might not help on those fronts, but it could actually mean higher prices for U.S. consumers. From the article:

Echoing Freeman’s view is a new article titled, “The RMB: Myths and Tougher-to-Deal-With Realities,” by Pieter Bottelier, a senior adjunct professor of China studies at Johns Hopkins University’s School of Advanced International Studies, and Uri Dadush, director of the international economics program at the Carnegie Endowment for International Peace, a Washington, D.C., think tank. According to Bottelier and Dadush, the immediate effect of a renminbi appreciation would be an increase in prices for U.S. consumers. “A 25% revaluation of the renminbi, which some economists have said is needed, would — if not offset by a reduction in China’s prices — add $75 billion to the U.S. import bill, since the United States imports three times as much from China as it exports there,” they wrote. That rise in costs will most likely be passed on to the consumer. As they see it, a revaluation of the renminbi on its own would do little to redress global imbalances, and could initially lead to a wider U.S.-China trade deficit.

(Editor’s note: Italics added for emphasis)

Something else that needs to be considered is China’s massive holdings of U.S. debt. From Reuters’ Emily Flitter back on September 22:

China’s vast Treasury holdings, which totaled $1.174 trillion in July according to Treasury data, have been a major source of anxiety among policymakers and some Wall Street analysts who thought they gave China too much power over the United States, politically and economically.

China has been known to evoke the specter of massive Treasury selling in political disputes. It could do so again as the currency manipulation issue heats up…

If China were to dump Treasuries, that would not bode well for the greenback. And once again, you’re talking about higher costs for U.S. consumers as many consumer goods are imported. A weaker dollar equals higher prices for imported goods.

From what I’ve read this morning, analysts at Goldman Sachs and elsewhere don’t think this legislation will be passed into law. But if there’s one thing I’ve learned from observing and actually working in Congress, it’s that Washington D.C. can be quite unpredictable. Especially these days when their backs are up against the wall.

Sources:

Stanway, David and Wang, Aileen. “WRAPUP 2-China warns of trade war if U.S. bill passes.” Reuters. 4 Oct. 2011. (http://www.reuters.com/article/2011/10/04/usa-china-idUSL3E7L40IA20111004). 4 Oct. 2011.

“An RMB Revaluation: Could It Reduce Global Trade Imbalances?” China Knowledge@Wharton. 31 Mar. 2010. (http://www.knowledgeatwharton.com.cn/index.cfm?fa=viewArticle&articleID=2200&languageid=1). 4 Oct. 2011.

Flitter, Emily. “Time for China to sell U.S. debt?” Reuters. 22 Sep. 2011. (http://www.reuters.com/article/2011/09/22/us-markets-bonds-outlook-idUSTRE78K6KS20110922). 4 Oct. 2011.

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