The Currency Wars Have Officially Begun
Over the last month I’ve been warning that the world was going to soon enter World War III.
The difference between this World War and the last two is that this one will be financial in nature – rather than bullets and bombs, it’s going to be fought with central banks and currencies.
In its simplest rendering, World War III will consist of central banks implementing aggressive monetary policies in an attempt to:
- Devalue their currencies against their trading partners in order to gain a competitive advantage.
- To directly finance government spending via large scale Quantitative Easing (QE) programs that buy government debt, thereby allowing governments to spend like drunken sailors (the so-called “Helicopter Money” concept we talked about two weeks ago).
The big question has been: when will World War III start?
Well, the first official shot was fired yesterday.
The European Central Bank Unleashes Monetary Napalm on the U.S. and China
After promising a major move for the better part of a month, yesterday the European Central Bank (ECB) announced that it would:
- Cut interest rates even further into the negative (they’re now negative 0.5%).
- Introduce a new open-ended QE program of €20 billion per month.
- Lower the interest rate the ECB charges EU banks that wish to borrow from the ECB as a means of life support.
In one single meeting, the ECB introduced not one but THREE major easing programs.
Not only did the ECB cut rates, but it also introduced an “open-ended” QE program, meaning that this program could run forever (there is no target end date) while also giving EU banks access to cheaper credit.
Put simply, this was a “nuclear bomb” of central bank policy. And it will be hitting the U.S. and China hardest – Europe’s two largest trading partners.
The ECB’s verbal intervention promising these moves, as well as the moves themselves, had a massive effect on its currency.
Below you’ll find a chart of two currency pairs:
- The Euro against the U.S. dollar: Blue line
- The Euro against the Chinese yuan: Orange line
These lines falling indicate that the euro has been collapsing against the U.S. dollar and the Chinese yuan over the last three-four weeks.
The question now is how China and the U.S. will retaliate.
A Crisis Bigger Than 2008
Neither country has a choice. With every major nation saturated in debt, none of them can afford to have a strong currency. Reason being, the stronger your currency, the more “expensive” it is to service your debts.
Big Picture: World War III just began. And before the smoke clears, we’re going to see a crisis even bigger than 2008.
The last crisis involved banks going bust. This time around, we’re going to see entire COUNTRIES implode.
The process won’t happen overnight. The last crisis took 18 months to unfold and it involved real estate, an asset class that is not nearly as systemically important as sovereign debt.
But if I had to use a template for where we are now, what the ECB did yesterday tells me we’re in the equivalent of “late 2007” for the next crisis.
And really, that’s the exciting part…
With the right strategies, a crisis can mean generating LITERAL FORTUNES.
I knew this was coming, which is why I’ve spent over six months developing a proprietary trading system to profit from the next currency wars.
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