World Currency Watch: FOREX Market, FOREX Trading BLOG

Escape from America

As you’re probably well aware already, the last decade has seen an alarming trend in which the U.S. government has slowly but surely snatched up the freedoms of its citizens.

Passport restrictions…investment restrictions…a full-scale war on financial centers…

With all these newfound wealth restrictions, is it really any wonder that hard-working Americans are clamoring to get outside the U.S. and take their assets abroad?

In fact, as I write this, nearly 300 of your fellow readers are in Los Cabos for The Sovereign Society’s third annual Offshore Advantage Academy to learn how to do just that. All these attendees are scribbling notes about second passports, global investing, tax management, asset strategies and the like.

I applaud their efforts. There’s never been a better time to absorb information on how to move and invest abroad.

But today, I want to talk to those of you who may be concerned about the state of affairs here in the U.S., but perhaps aren’t ready to make the leap to banking or investing outside the United States.

If so, you can still take your assets outside the United States, to capitalize on the stronger markets abroad. It’s as easy as investing outside the U.S. dollar.

Sounds Too Simple Right?

Let me explain…

For the moment, the U.S. government has at global monopoly on the world’s cash, by holding the world’s reserve currency. That means Uncle Sam can use the dollar to pay for any number of economic initiatives. That includes social security, Medicare, healthcare reform, any number of wars, trillion-dollar bailouts, etc.

All these initiatives cost money. And for the most part, the U.S. government can simply print more dollars to pay for those initiatives. The unfortunate byproduct of this system is it tends to depreciate the U.S. dollar.

(That’s why the dollar has lost more than 21% of its purchasing power since the year 2000 by the way.)

But any investment in a foreign currency not only takes your wealth outside the U.S. dollar, it also gives you the chance to capitalize on those stronger, better-performing nations worldwide.

It’s similar to taking your cash abroad…only you can do so from the comfort of your home…

5 Ways to Move Your Cash Offshore Now

Here are my top five ways to escape America with your cash…

1. Buy Gold on Any Dips: Yes, I’m well aware that gold hit another all-time high today. But the harsh truth is gold is the least manipulated “currency” on earth. It’s also one of the best long-term stores of value you’ll find. So if you want to take your cash “offshore,” I would start with buying the “international currency” gold on any dips.

2. Buy Foreign Stocks: Again, easy way out of the dollar. Any investment in a foreign stock is technically also an investment in the local currency, so you have the opportunity to profit twice – off stock appreciation and any currency appreciation against the U.S. dollar. Also, most major U.S. stock brokersstockbrokers handle foreign stocks on at least the London exchange.

3. Invest in Foreign Bonds: Most people don’t consider foreign bonds, but it’s a relatively easy way to buy foreign currencies. Just like buying Treasuries, a foreign sovereign bond is backed by a foreign government. You’re actually buying a foreign government’s debt, so they have an obligation to pay you back at a specific yield (should you hold your bond to maturity). However, keep in mind you only want to buy foreign bonds when the country is looking to hold rates steady, so avoid the countries that are hiking rates right now (ex: Australia, Norway, New Zealand soon).

4. Diversify into Several Currencies at Once with a CD: Just like dollar CDs, foreign currency CDs allow you to buy and hold foreign currencies over the long haul. Most foreign currency CDs are 3-month commitments, but then you can rollover the CD for as long as you want. On top of that, a foreign currency CD generally pays higher interest and gives you tax advantages.

5. Buy 25 Different Currencies, Through Your Stock Account: It doesn’t get much easier. Pick a foreign currency you’re interested in, and buy the ETF right on the NYSE through your regular stock account. Right now, there are over 25 ETFs to choose from (including several that invest in a couple currencies at once).

Again, there are countless ways to take your cash abroad. But the easiest way to start is to trade up your dollars for stronger foreign currencies.

Good Currency Investing,
Kat Von Rohr, Editor
FX University Daily

P.S. Interested in hearing what’s happening at the Offshore Advantage Seminar this week? My friends at The Sovereign Society are now offering the Audio files, PowerPoint slides, and more insider information from the seminar for FREE. Click here for the details…

Central Bank Roundup II

Where Rates Stand As of Today

Back in July, I gave you my central bank round-up for the year.

I told you which bankers were still cutting rates, which were holding steady and my first picks for who would raise rates first, including Australia, New Zealand and the Eurozone.

At the time I showed you a chart from www.tradingeconomics.com and mentioned that most countries were saddled with 0% rates. Here’s what that same graph looks like today…

Again, Australia and New Zealand Are Still
the Only Majors With Yield

Looking at the graph above, it’s no wonder that Australia was the first to hike rates and offer better yields for us Forex traders first.

But even more interesting is where inflation stands today. When I wrote to you a few months ago, Australia had the highest inflation at 2.5%, and rightly so. But now, with the Reserve Bank of Australia hiking rates, New Zealand’s inflation has leapt ahead of its big brother to the West…

New Zealand Pulls Ahead in the Race Back to Inflation

In my mind, this means that New Zealand will be the next country to hike, now that Australia and Norway have already stepped up to raise interest rates.

In short, my views haven’t changed…but inflation has. Keep an eye on the inflation rates and you’ll have an idea of which country will hike next.

Happy Trading!
Sean Hyman, aka Professor FX

What I Learned from a 20-Minute Conversation that Could Save Your Portfolio

A couple weeks back, I sat down with my own personal banker. He works for one of the largest banks of the world. But I wasn’t there to open a new checking account or refinance my mortgage.

I was there to get a little inside intel on this so-called “recovery” we have heard so much about in the news lately.

So we started talking. Over the course of our conversation, he admitted that 41 loans have crossed his desk since the beginning of the year. That’s 41 individuals, possible business owners, and families seeking a loan.

Of those 41 loans, he has only approved ONE this year.

To me, this was a harsh reminder that the credit market is still more frozen than we would all like to believe. But it’s possible this is just one isolated incident right? (Maybe my banker just has higher lending standards than most.)

Just to confirm that, I asked my banker if he was the only one rejecting loans, or if this was what happening all over? He confirmed that it was exactly what he was seeing throughout the company.

Furthermore, that’s exactly what’s happening at most banks right now. That means this “recovery” they keep talking about is nothing more than filler on the news.

After all, EVEN if consumers want to spend…they can’t get their hands on the funds that they need for big-ticket items. That means consumers’ hands are tied. They are at the banks’ mercy.

I will give the banks a bit of a break for a second though. Frankly, it’s not really the banks’ fault. You can’t really blame them for tightening their belts in this economy. In fact, if you dig deep enough, you’ll see this all goes back to the government pulling on the economy’s strings.

Who’s Really to Blame for this Lack of Recovery in the U.S.

Remember when the government wanted to “protect the consumer” by running stress tests on all the banks? Well, these banks had to beef up their reserves to pass those tests. Otherwise, the government could take them over or shut them down altogether.

Since they had to hoard the reserves to protect the consumer, it’s made it to where they also can’t LEND to the consumer either. What’s even worse is that this problem has been magnified.

For instance, since banks can lend out roughly 10 times more than they have in reserves….if they have to save back a mere $100,000 …that’s ONE MILLION DOLLARS that they can’t lend out to consumers!

So imagine all of the MILLIONS of dollars banks now have to hold back in extra reserves. You’ll quickly see why they seem tight-fisted with BILLIONS of dollars in loans.

And as I mentioned, tight-fisted banks mean consumers who can’t spend. If consumers can’t spend, our consumer-driven economy will be in trouble for a while still.

It’s not just the bankers who think so. There are key sectors of traders who are shorting right now because they see a pull back coming. In fact, there has been a mass wave of insider selling recently in a few key sectors.

That only means one thing: Certain stocks are poised to correct…big time. When they do, a handful of currencies will rise, and one in particular will drop significantly. But more on that tomorrow…

What the Banker’s Outlook Means

So what does all of this mean? Well in the last 17 years, I’ve come to trust what the inside guys are saying, rather than what the government wants us to believe.

And assuming my banker is right, it means that the stock rally probably doesn’t have much more steam left in it. When it crumbles once again, watch out. There will be plenty of sectors that fall with it.

What does that mean for you? First of all, I wouldn’t be buying U.S. stocks right now. I would be looking to take profits and run.

For all those short-sellers out there, you’re about to have a field day in these markets. You’ll rejoice and prosper as the markets come crashing down once again.

Tomorrow, I’ll give you the inside scoop on the currency that will plummet as stocks drop here in the United States. Talk to you then.

Happy Trading,
Sean Hyman, aka “Professor FX”

Forget “Death By Stereotype”

By Ashish Advani

If you’ve tuned in to pretty much any of the news organizations lately, you’ve heard about how we’re recovering in the United States.

You’ve heard about green shoots. You’ve seen all the newly promising data. You’ve heard a President, Fed Chief and Treasury Secretary trying to convince you about how sturdy the financial ground is.

Indeed, it seems that the world is buying this growth story here in the United States. Right or wrong, that’s what matters at present.

You see, sentiment is a huge driver in the currency markets. How people “feel” about the market actually influences currencies. So, if enough people believe a trend will happen, it tends to happen – at least for a while.

So let’s begin by saying: I’m definitely not fighting the trend here. I’m riding the growth story while it lasts here in the United States.

But I’m keeping my trades on a VERY short leash. I’m also clearing a pathway to the exits just in case reality hits home anytime soon.

The “W” Recovery: Why Reality Hasn’t Sunk In Yet

If I was a speculator, I would be betting on a “W” recovery for the U.S. with a second leg down coming soon. And I tie that to the continuing as well as upcoming crisis in the housing markets.

By the way, my colleague Sean yesterday gave you three currencies to buy for the long-term. I agree with his choices, but like him, I also think there are going to be pullbacks and reversals in the short-term. The next BIG reversal is exactly what I’m talking about here.

Why do I say a reversal is coming? Let’s start with the not so positive data for a moment.

If you believe that we have seen the worst in the housing sector, think again. Remember those pesky adjustable rate mortgages (ARM)? Well, the largest majority of them are up for resets in 2011. Till we are past that hump, no meaningful recovery should be expected. And if we see one, like now, it will most likely not last.

Where I’d Put My Money Instead…

So let’s set the U.S. aside for a moment.

On the other side of the pond, in India the meaningful recovery story just continues to grow. As I have written earlier, the Indian growth story has been tainted by its dominance in the IT and Outsourcing sectors.

Lots of traders have trouble accepting any recovery anywhere else if the U.S. is still suffering. Indeed, many seem to have the “Death by Stereotype” idea. They’re skeptical of any growth story in emerging markets like India because they don’t believe India can grow without the U.S. recovering first.

Let put that idea to rest right now. The internal consumption story in India is well documented. In fact, it’s been India’s saving grace in this global downturn. It has helped India keep its head above the rest of the world as far as growth is concerned, albeit at a lower rate.

Need proof? Just check out some of the data coming out of India…

• The Industrial Production Index (IPI) blasted past what economists expected and grew 7.8% year-over-year in June.
• June IPI growth was the highest since February 2008.
• There were huge increases in the Capital Goods Index (CGI).
• On a yearly basis, the CGI grew by 11.8% year-over-year after three months of contraction.
• Yearly growth in the production of consumer goods was strong at 4% year-over-year with a 15.5% year-over-year increase in consumer durables.

Rain or Shine, This Nation Will Rise

As I have mentioned earlier, India is still heavily dependent on the monsoon (rainy season) for Agriculture, which is an important part of the GDP. And so far, the monsoons have been below average.

However, it seems like the uptick in the industrial activity will likely mitigate the negative impact of poor rains. Several indicators of consumption and investment demand such as the Purchasing Manager’s Index (PMI) and motor vehicle sales have been showing significant upticks for several months now.

No Longer Necessary in India…

All of this economic data in the past few weeks have made me more bullish on India. I am beginning to sense that India’s GDP growth in the next few quarters will blow past the world’s estimate of 6.6% growth for FY 2010.

While this may lag its main rival China’s 8%, I expect Indian GDP growth to come in around 7.5%. Not too shabby! That’s my prediction based on the improved investment outlook in infrastructure and capital goods. Both of these are indicators of laying foundations for an extended and long-term growth story from India.

I also expect tightening interest rates to help slow down the economy and avoid bubble like growth situations.

Unlike the Federal Reserve, which has pledged low interest rates for ‘extended’ periods of time, the Indian Reserve Bank is already signaling that the low interest rate days may be over soon. We may see as much as 200-300 basis points increase in Indian core interest rates in the coming six months. And this will be tremendously positive for the Indian Rupee.

Bottom line: As I have been saying for a long time, stay long India (and especially the Indian rupee)!

Yours in FX Profits,
Ashish Advani

A Solution to This Crisis at G-20? Don’t Hold Your Breath

By Chris Gaffney, CFA  

The deteriorating world economy adds to the urgency surrounding tomorrow's G-20   meeting in London. The news media has set expectations unreasonably high for this meeting. In fact, they believe we’ll see an actual solution to the global economic slowdown.  

Unfortunately I don't agree. The main focus of the meetings will be establishing new regulations for the global financial system.

Treasury Secretary Geithner already laid out his design plans over the past few days. His ideas include greater hedge fund regulation and expanding federal regulations for the currently unregulated exotic financial instruments like credit default swaps (CDSs). Tim also wants to impose tougher standards on financial institutions that are “too big to fail” because they’ll cause a risk to the entire financial system.

Leaders from Germany and France don't believe these plans go far enough. In fact, President Sarkozy threatened to walk out of the meetings if the G-20 doesn't put more teeth in the regulations proposed by the U.S. and the U.K.  

But U.S. financial firms still dominate the global system, and the job of regulating these firms falls to Geithner and the United States. So while the rest of G-20 may want to demand tougher regulations, the political landscape in the U.S. won't allow it.

Meanwhile President Obama will join the event’s host, Prime Minister Gordon Brown to try and convince Europe to follow their lead and put together sizable economic stimulus programs to jump-start global growth. The U.S. has taken the lead on deficit spending (no surprise there!) with the administration spending US$12.8 trillion in their stimulus efforts, close to the U.S.’s total GDP for 2008.

But European leaders worry about the inflationary consequences of these huge stimulus projects. They’re hesitant to rack up more debt that their citizens will have to pay. They don't want to risk their economies’ long-term health for a quick path out of the current economic quagmire. Can you blame them?

I know Obama is an excellent orator, but he is going to have to be at his all-time smoothest to convince these other leaders to follow his lead. The U.K. and U.S. economies aren't a picture of health right now.

Not to mention, the quantitative easing measures they are pushing on everyone else are mostly untested. (In other words, who knows if they will work?)

The Dollar Will Likely Remain the World’s Reserve Currency BUT Countries Will Still Dump the Buck Regardless!

While global financial regulation will certainly be a topic addressed during the summit, I can tell you a topic which won't get any traction: a move toward a global currency to replace the dollar.

For all of the press China and Russia have garnered with their proposals the past few days, the U.S. will block any serious attempts to discuss an alternative to the U.S. dollar.

We’ve already seen a lot of the damage to the dollar’s credibility as the world’s reserve currency. And regardless whether an official alternative to the U.S. dollar is found, foreign countries will continue to diversify their reserves out of the dollar.

Data from the IMF released yesterday showed the dollar's share of official foreign exchange reserves fell last year, while the yen and euro gained. The dollar accounted for 64% of the reserves, down slightly from the month prior.

As with financial regulation, each country has its own agenda with regard to its reserves, and the trend away from U.S. dollar will likely continue, no matter what is or is not decided over the next few days in London.

Basically, each leader to the G-20 summit is showing up with their own set of problems, and the U.S. and U.K.'s problems are some of the worst. It’s ludicrous to think these leaders will solve all of these diverse problems in just eight days.

While the meeting will hopefully start us on the path toward global financial reforms, I expect the global markets to be disappointed with the lack G-20 progress.

In the Worldwide Race to 0%, Do Interest Rates Even Matter Anymore?

By Sean Hyman

We used to have a glut of high interest rates throughout the world. In fact, an industrious, profit-seeking Forex trader could find higher returns than the dollar almost anywhere from the high-yielding euro to the Aussie dollar…from the British pound to even the Mexican peso for a while.

But of course, today it’s a whole other story.

As you know, central banks around the globe are sitting on some of the lowest rates in history. Every month, we hear that yet another central bank has decided to follow the rate-cutting herd and slash off another half or quarter percent. And many countries – including the U.S. – already have effective interest rates of 0%.

So here’s a question: In the race to 0% interest rates – should Forex traders even watch interest rates anymore? Do they still have any bearing on currency investments?

The short answer: Yes, they still do.

The slightly longer answer: Interest rates still matter; just not as far as carry trading is concerned. (Recall carry trading involves using a low-yielding currency to buy a high-yielding one and earn the difference between the two.)

The Key to the Most Influential Forex Trade of the Decade

For years, carry trading was a globalized game of skill where you could “borrow” at near 0% and then reinvest those assets into a higher-yielding currency so you could collect a profit as high as 7% to 8%. It was a fairly foolproof game until the credit crunch stole all the fun.

During these years of milk and honey for the markets, traders chased after the highest yields. So if your currency was high and likely heading higher, then traders dumped money into it…and that just pushed it higher.

Therefore these traders earned not only the spread between the two interest rates but they also made money on the appreciation. The perfect carry trade has a higher-yielding currency that appreciates, while the lower yielding currency depreciates.

However, the credit crunch literally stopped and reversed this process as these carry traders had to do what the market calls “unwind their carry trades.” This means they simply had to pay back their loans (and thus the traders had to close out their positions).

So if you originally sold a low-yielding currency and bought a high-yielding currency, now in order to close that trade out, you had to sell the higher yielding one and buy back the lower yielding currency. By the way, this is where the dollar and yen rallies have come from in this past year.)

These Two Currencies Will Recover First

If there aren’t any major currencies out there now with “whopping yields” as before, then why do interest rates still matter?

In short, they matter because if central banks signal that they are going to stop cutting rates and possibly even consider raising them again, then it eventually starts this carry trading game back up again.

Should this happen, the first major currencies to benefit from it will likely be the New Zealand and Aussie dollars. Why? Because they have the highest yields out there of any industrialized nation. The New Zealand dollar currently has an interest rate of 3% and the Aussie has a rate of 3.25%.

This is about six times more interest than most other major currencies around the world. Even the euro is only at 1.50% right now. Many currencies are at 0.10% to 0.50%. So it will be a while before they are even worth investing in from a carry trade (interest bearing) perspective anyway.

After new up trends are firmly established in stocks and commodities once again, then you should see emerging currencies start to benefit once again as well. (In fact, they have even larger interest rate yields than that of the Aussie and Kiwi dollars put together!)

Best Regards,
Sean

P.S. The thing I love about exotic currencies is they have the tendency to move quickly at the drop of a hat. Exotic currencies have a much lower trading volume, so smaller events have major impacts on these currencies. (That means they can move faster than major currencies and grab larger gains faster.) Don’t believe me? Ask Jack Crooks. He just helped his subscribers grab four triple-digit winners in a row in the exotic currency market…including the last trade that made an impressive 735%. Found out the secret behind his success here.

How Big Government’s “Bait and Switch” Tactics Are On Track to Annihilate Your Savings

(And What YOU can do to stop it)

By Eric Roseman

There’s a war going on outside.

You won’t see it on TV. You’re not going to hear about it in the news. And most people won’t even know they’re fighting in it until it’s entirely too late.

But in the fight against deflation and crisis, the world’s central banks are waging war against responsible investors everywhere…threatening the world’s life savings with inflation-stoking policies and trillions in bailout money.

This isn’t a dream, or some kind of nightmare. It’s something that’s growing more and more apparent every day…just look at the news…

Bernanke Printing Dollars to Buy Treasuries

It’s official.

After months of talking about it, Bernanke finally committed to buying 300 Billion dollars in long-dated Treasury Securities.

What does that bit of obscure information mean for you?

Well…it means that your gold and stock holdings saw a nice jump in price yesterday afternoon, as you can see below.

But before you start counting those profits, there’s something you must understand…

Like a beaten-down boxer landing a punch…or a vastly oversold market hitting a “dead cat bounce,” these short-term profits are the anomaly. And they point out a growing threat to your wealth and well-being…

Namely, inflation…at the hands of central banks like the Fed. Here’s the how and why…

The overwhelming force of credit destruction and asset price deflation in today’s markets is putting very real pressure on the masters of the world’s currencies…and central banks are responding.

Their only option is inflation.

It’s got serious implications for the world’s diligent savers…but they could be facing worse if they simply do nothing. “Inflate or die” is the new mantra.

Their “big guns” when it comes to stoking inflation are the interest rates. And with five of the seven of the world’s major currencies already at or near an effective rate of zero, they’re out of ammo. Where do they turn from here?

Quantitative Easing, of course…like Bernanke’s announcement yesterday.

You see, the market was beginning to sober up from its paradoxical “flight to safety.”

After we got news of countless trillions to be spent on budget, stimulus and bailouts, the market started to get a little antsy…and the price on Treasuries dropped, driving up yields.

But Bernanke’s interest rates are key to the unwinding housing situation, so he gives us yesterday’s announcement…

And yields are smashed. Down .5% in the minutes following the announcement.

Remember…when yields go down, it means that prices have gone up.

And by putting a price floor on long-term Treasuries, he’s driving up an asset that’s already vastly overinflated from the “flight to safety”. So instead of selling fewer Treasuries – which is what the market is saying he should do to bring in his target price – he’s going to print money to drive up prices on the huge amounts of securities that they’re going to sell.

But I think the backlash from all of this is going to be massive and hard-hitting inflation. When the market remembers its appetite for risk, you’ll likely see a rapid change in the balance of investments. And it could be a rude awakening for investors and retirement savers everywhere.

When Will Inflation Arrive?

Many refer to the next few generations…our children and grandchildren …when it comes to the fallout from the trillions spent on bailouts and fiscal stimulus. “…and sticking the next generation with the bill,” is how the saying goes, isn’t it?

Well their timing is way off.

Instead of ten or twenty years as they suggest, we could be seeing a serious wave of inflation as soon as 2-5 years from now…which could leave some of us re-planning retirement.

I don’t think it will be very long between the end of our current crisis and the onset of devastating levels of inflation. A violent blow-off in Treasury buying could set the stage for something worse than the late 1970s, and it would likely arrive fast.

Not that it matters for the individual investor.

On the one hand, you’re looking at paltry Treasury yields in today’s markets. And on the other you have higher yields in the coming years, but they probably wouldn’t exceed inflation by much if any. Treasury investing is too risky to be a real ‘safe haven’ these days.

The Best Solution? Be your own “Central Banker”

You’re going to need meaty returns, higher yields than you’ll find on Treasuries…just to preserve your wealth from oncoming inflation. But you’re not going to find any safety in the stock markets…so where do you turn?

Well I’ve found a way you can lock in yields that are at least 5-10x higher than Treasuries…and they’re guaranteed by contract.

Using funding tools and investments that were limited to the “single-malt scotch crowd” up until just a few years ago, I’ve started to build a portfolio of well-priced, high return investments geared to accelerate your income.

It’s all about cash flow these days, and that’s exactly what I’m going for. And this strategy fits the bill. It’s the perfect way to get paid to wait out this bear market, ward off oncoming inflation, and make some nice gains.

Picking up some of the pieces left behind by the Credit Crunch – just the best pieces – can be an incredible recipe for success in the downturn. Just ask Warren Buffet or a number of other billionaires who’ve made a killing with similar strategies in the past.

If you’re jaded with the stock market but you don’t just want to sit in cash…if you’re worried about future inflation or your Treasuries…if you’re forward-looking and you want to hear about a good method for retiring early…or if you just want to see some guaranteed 10-20%+ returns on money that’s arguably safer than it would be in a bank account these days, tune in to my webinar this Friday.

Don’t worry, it’s free, you’ve just got to register here and tune in around noon on Friday (EST) to see it live. This won’t be one of those “watch-while-you-eat” affairs though. I don’t get too many chances to do this, so I like to be pretty comprehensive. No “heavy lifting” but make sure you’ve got a pen and a piece of paper handy. Hope to see you there.

Sincerely,
Eric Roseman
Investment Director, The Sovereign Society

What’s Quantitative Easing Again?

By Chuck Butler, Editor
www.worldcurrencywatch.com

I had a few emails yesterday asking me what "quantitative easing" is. I explained all this all a month or so ago, but I want to explain it again for any new students who are wondering just what the heck I'm talking about...

Quantitative easing is when a central bank creates new money out of 'thin air', and injects it into the banking system. The aim is to increase the deposits in private banks so that, by way of deposit multiplication, they can increase the money supply by increasing debt (lending).

Headline: Quantitative Easing = Growth in Money Supply

'Quantitative' refers to the money supply. 'Easing' refers to reducing the pressure on banks. A central bank can do this by using this new money to buy Treasuries in the open market, or by lending the new money to deposit-taking institutions, or by buying assets from banks in exchange for currency, or any combination of these actions.

These have the effects of reducing interest yields on government bonds, and reducing inter-bank overnight interest rates, and thereby encouraging banks to loan money to higher interest-paying bodies. So there you have it…

If Only Central Bankers Knew Their History…

By Jack Crooks, Currency Analyst
www.worldcurrencywatch.com

Though it is fashion to blame the U.S. for all the ills now flowing into the global economy, I don’t think it’s quite that simple.

Remember the “global savings glut.” In short, it was the massive current account surplus accumulation of the East thanks to the massive consumption of the West. This was buoyed by the Massive “global savings glut” allowing for the creation of rocket science products called derivatives.

And yes, we’ve seen it all before. In fact, only the names at the top of the central banks have changed.

It’s All Been Done Before…

Let’s set the stage and go back a few decades. Those of you, like me, with grey hair now unfortunately growing on your face (guess it beats the alternative) may remember that back in the mid-70’s our major international banks were recycling petrodollars (OPEC stash). This led to the international lending/debt boom that eventually caused the crisis of 1982.

This time not only did we have OPEC recycling its stash through the major financial systems, we added the “global savings glut” to the party. This time around Asia had to recycle its massive current account surpluses generated by the usual way they do — suppress their currencies, and put up barriers for Western goods to flow in freely.

“Of course, if Mr. Westerner wants to build a plant and transfer hundreds of millions of technology for us to take at will — well then, come on in. We will continue to enjoy almost 100% free access to your markets while your own policymakers help us by spouting the mantra of ‘free trade.’ It’s a beautiful thing,” says the proud Easterner as he criticizes the extravagance of the West.

(Guess what Mr. Know-it-all Easterner, that double-digit fall in your exports shows that Mr. Westerner is finally getting some religion and starting to consume less and save more; so lighten up — relax.)

But I digress…

Uncle Sam Wants to Help Pay YOUR Mortgage?

By Chuck Butler, editor
Currency Capitalist
www.worldcurrencywatch.com

I hear the new administration is working on a new plan for mortgages. There are reports suggesting the Obama administration is hammering out a program to subsidize mortgages.

In a major break from existing aid programs, the plan under consideration would seek to help homeowners before they fall into arrears on their loans.

That's nice... You know, years ago, when my beautiful bride and I didn't have two nickels to rub together, we still paid our mortgage no matter what. At no time, EVER, did I think someone, would bail me out!

And I know I'm not unlike the majority of people in this country. So, you have to wonder what happened here? The government is stepping in to "help" you.

I've told you before that Ronald Regan used to say that the scariest thing you can hear is "Hello, I'm from the government, and I'm here to help."