Oh, It’s Just a Currency War…

By David Stockman  |  July 2, 2019

It’s hard to notice these things these days, but the Donald has laid out yet another marker fraught with economic horrors.

When he held up Mario Draghi’s latest assault on monetary sanity as a template for his own Jerome Powell to follow, the Tweeter-in-Chief added Currency War to his Trade War. And to his Border War, for that matter, and that’s to say nothing of the march to Open War with Iran.

Currency War Is Fuel To The Fire 

It sounds better in the original Latin: oeconomia horribilis. And it’ll only be these such comforts as “Peak Trump” goes the way all bubbles do, this one maybe worst of all.

Whether intended or not – and with this guy it’s fair to question whether there are any but unintended consequences – he’s added a whole lot of new fuel to a burgeoning global fire.

He’s put the Federal Reserve and every central bank in the world on the political hot seat, open to cries for lower and lower and lower interest rates and easier and easier and easier money. And he won’t relent anytime soon.

Lower interest rates and easy money line chart

I’ve said from the beginning that Donald J. Trump’s most important mission is to disrupt Bubble Finance and the whole fetid ecosystem it supports.

His informal declaration of a race to the currency bottom – “competitive devaluation” – could metastasize in the same destructive ways as his Trade War.

It’ll be horrible – Wall Street will crash; Main Street will suffer. But, this time, it may all prove too much for Imperial Washington.

The “Independent” Status Quo

What’s at stake is a status quo – a statist quo, if you will – in place since Alan Greenspan launched the era of monetary central planning in 1987.

That’s when – in the aftermath of Black Monday – an unelected camarilla of academics and apparatchiks established rule of the global financial roost.

Their legitimacy, to this day, is grounded on an illusion of “independence.”

No way, say the hoi polloi, would they use influence gained through, say, elected office, to impede the empirical functioning of our central bank, the “lender of last resort,” the moderating influence on “animal spirits,” the bag man for “too big to fail”…

They use the word “independence” as a weapon.

What’s on now will appear to be, at the Draghi-Powell level, a measured – even gentlemanly – debate among experts in the field.

It’s really just another race to the bottom, intermediated and disguised by a panoply of excuses dressed up in Keynesian prose.

The monetary presses will run at ever-faster rates, now on the insidious theory of “lowflation.”

It’s going to accelerate and crash because it’s been joined by the most unhinged, ill-educated bully boy ever to attain high office in the postwar world.

The Currency Manipulator Game

In a world of endlessly reciprocating monetary easing among the major central banks, it’s easy to make a case about the other guy being a “currency manipulator.” You simply choose your own starting point.

Consider the euro (EUR). In March 2015, the global economy was swooning because the Red Ponzi had yanked back it credit impulse. And the EUR reached a low of USD1.05.

It was USD1.11 when the Tweeter-in-Chief weighed in on the European Central Bank’s most recent moves. It wasn’t an outrageous cheapening at all.

Then again, if you start in May 2014, at the top of the previous mini-boom, the EUR had reached USD1.40. It was off 21% from there. And it was down by 31% from its all-time high of USD1.60 in April 2008.

Doesn’t matter. The Donald is going to see what he wants to see, on these charts and/or any other.

Of course, in the modern world of monetary central planning, all you really have is a process of syncopated rising and falling foreign-exchange rates. It’s a matter of who’s easing earlier, faster, and more credibly at any moment in time.

Donald J. Trump has minimal regard for facts to begin with. When you’re talking about central bank profligacy and trashing one’s own currency, you’re inviting chaos.

We can only hope the end of Bubble Finance justifies his means.

Protection Plan

Desperate times call for… “common sense” measures.

And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.

We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.

I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”

All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR