Will The BRICS Cause A Currency Regime Change?

August 29, 2023

* light volume dollar buying yesterday & overnight

* yen begins its slide to 1990 levels?

Good Day… And a Tom Terrific Tuesday to you! Well, my beloved Cardinals are now 20 games under .500… I don’t recall the last time that has happened…  All that talk early in the season when they weren’t winning games they should have won, that it was “too early in the year” to matter… But, Like I’ve always contended, the games you win in April are games you don’t have to win in September…. And when you don’t “have to win” a game the wins come easier… But my Cardinals haven’t won in April, May, June, July and now especailly, August… UGH!  It would be be easier on me,  if I took my wife’s view on all this… It’s just a game…  The Guess Who greets me this morning with their 60’s mega hit: These Eyes… 
Well, after gaining 1 index point in the BBDXY overnight on Sunday to Monday morning, the dollar didn’t move the rest of the day, a little back and forth, but ended the day in the same clothes it wore that morning… Here we are once again, with the dollar bugs having bought dollars like they were going out of style on Friday, but then there’s no follow through on Monday… There’s something to be said about moving too far, too fast…  What? Did the dollar bugs rethink their “buy the dollar on the fed rate hikes” thinking? Maybe some of them read the Pfennig yesterday, and came to the conclusion that if the Fed raises rates further, then they are doing so because inflation has remained high or gone higher…. There’s no net gain there…   I doubt that’s what had them sitting on their hands yesterday, but maybe, just maybe because you never know!  (Joachin Andujar) 
Gold ended the day up $ 4.80 at $1,920.60… And Silver lost 2 pennies on the day to end at $24.30…  If we could ever have a period of time without interference, I think we would see Gold gain, especially given the buying that’s going on in physical Gold by Central Banks around the world… I would think that given the judge’s ruling last week, that the two JPMorgan metals traders would go to jail for their manipulation of Gold prices, that those that do the dirty deeds for the government, would be a little scared that they might end up in Jail too… 
The price of Oil flipped back to $80 yesterday, the same-o, same-o, for this asset went on yesterday, and why not? That’s been the trading pattern for the last couple of weeks… 
In the overnight markets last night…. There was a little dollar buying overnight, with the BBDXY gaining 2 index points to start the day today at 1,242… Gold is down $2 to start the day today, and Silver is down 9-cemts…  No Big shakes here, these are levels that can easily be turned around… I can’t believe that Gold & Silver have been caught up in the usual August dog days of summer trading this year… I really thought that they would skip the usual slowdown because of all of the saber rattling, debt explosion, inflation soaring going on… But I was wrong… There! I said it… Mark this day down in your logbooks or diaries, because this is something I rarely am, and if I am, I certainly don’t admit it! HA! 
The price of Oil remained above $80 overnight, so no slippage there… And the 10-year’s yield was 4.22% this morning to start the day… I think the yield on the 10-year Treasury is just biding its time, waiting for the next wave of bonds being issued… With a Budget Deficit right now at $1.6 Trillion, and going higher before ending at the end of Sept. (The U.S.’s fiscal year) There’s a lot more debt coming that will have to financed folks… So, now is not the time to be locking in a rate, and thinking that you got in at the top!  At least that’s my 2-cents this morning on bonds… 

I saw this on Reuters yesterday, and it about says it all… ” Record levels of government debt, geopolitical tensions that threaten to split the global trading system, and the likely persistence of weak productivity gains may saddle the world with a slow-growth future that stunts development in some countries even before it starts.”

Nice to see someone else share my opinion, eh? 

And regarding the Budget Deficit this year, through 10 months, it has reached $1.6 Trillion… Chances are, that we could very easily reach a $2 Trillion Budget Deficit this year…  Here’s Bloomberg.com on that: “The upshot is that the nonpartisan Congressional Budget Office expects the deficit to expand to roughly 6% of gross domestic product this year—and to stay in that ballpark for the next 10 years. For context, in the six decades or so between the aftermath of World War II and the 2008 crash, the shortfall never reached that level.

What’s changed is that fiscal policy is being used as a tool to prolong expansions and keep the economy humming, according to Doug Holtz-Eakin, a former CBO director who now heads the American Action Forum, a Republican-leaning think tank. “During the 1980s and 1990s there was more of a focus on the long-term picture and making sure our fiscal house is in order,” he says. “And they let the Fed take responsibility for the business cycle.”

Chuck again… And all that debt has to be financed, folks… We finance our debt by selling Treasury bonds and Bills…  For those that don’t know… T-Bills are 1-year and in… T-Notes are 2-years to 10-years, and T-Bonds are anything longer…   Now that we have that house cleaning out of the way, we can move on here… So, here’s the problem with continuing to add to our already $32 Trillion in debt…  Interest Rates are going higher on the bonds, 1. because of the Fed rate hikes, and 2. because there’s little interest in buying low yielding bonds, so yields need to go higher to attract buyers…  Well, that’s what we call a never-ending loop…   Because the interest cost for the bonds that we have issued to finance our debt has been rising, and will soon become a major portion of our yearly budget deficit… Which will only mean that we have to issue more bonds!  

A never-ending loop… until that is that the whole shootin’ match collapses…  Sure, this could go on for a few more years, or… it could end tomorrow… that’s when I ask the question… Got Gold? 

Wel, back to the Bank of Japan, and the Japanese yen… And no I’m not bashing it!  This from Bloomberg.com “The yen will weaken to levels last seen more than 30 years ago if the Bank of Japan sticks to its dovish stance, according to forecasters at Goldman Sachs Group Inc.
Over the next six months the yen is projected to reach 155 per dollar — the weakest since June 1990 — according to the bank’s strategists led by Kamakshya Trivedi. They had previously expected the yen to trade to 135.”
Chuck again… Ahhh… So, I see, said the blind man as he spit into the wind… It’s all coming back to me now… Wasn’t Goldman aka Lola one of those that thought the Bank of Japan (BOJ) would begin to hike rates and that yen would rally?  So, i guess now they got their feeling hurt when that didn’t happen (and they didn’t listen to Chuck like they should have) and now they come out lashing away at yen…. Well, you know what I say about what Lola wants…. Lola gets… 
The Russian ruble has been through the gauntlet in recent weeks… The Central Bank had to raise rated 350 Basis Points to make the currency attractive once again, but now that rate hike seems to be wearing thin… It’s either time to hike again, or watch the currency fade back to over 100 with the dollar…  I’m just saying..
The U.S. Data Cupboard yesterday was empty… And today’s cupboard has just the Case/Shiller Home Price Index (HPI) for June, when interest rates were still being hiked in the U.S. so I would expect this index to show more losses in price… Wel’ll also see the stupid Consumer Confidence Index…  This is simply a pulse of what the stock market is doing, not a “real confidence vote”… 
To Recap….  the dollar started yesterday up one index point, and ended the day up one index point… there was some back and forth all day, but when the whistle blew, it was trading in the same clothes it had on in morning when the day started… Chuck talks about Treasury financing this morning…  Lola says that yen is going to fall, and other things to wet your whistle (orange soda) in today’s Pfennig… 
For What It’s Worth…. This article came to me from the good folks at GATA… I also want to thank Ed Steer, for getting me on their list… So… this is Alasdair Macleod, and his take on what the BRICS decided on last week, and it can be found here: Hedging the end of fiat – Research – Goldmoney

Or, here’s your snippet: “It is slowly coming clear that the fiat dollar’s hegemony is drawing to a close. That’s what the BRICS summit in Johannesburg is all about — rats, if you like, deserting the dollar’s ship. With the dollar’s backing being no more than a precarious faith in it, it is bound to be sold down by foreign holders. Being only fiat, it could even become valueless, threatening to take down the other western alliance fiat currencies as well.

How do you protect your paper wealth from this outcome? Some swear by bitcoin and others by gold.
This article looks at what is likely to emerge as a replacement currency system, and concludes that from practical and legal aspects, bitcoin and the entire cryptocurrency industry will fail with fiat, while mankind will return to gold, as it has always done in the past when state control over currency fails.
It is gradually dawning on market participants that the era of fiat currencies is drawing to a close. Monetarists, who first warned us of the inflationary consequences of the expansion of money and credit were also the first to warn us that the slowdown in monetary expansion would lead to recession, and since then we have seen broad money statistics flatline, with bank lending beginning to contract. This is interpreted by macroeconomists as the end of inflation, and the return to lower interest rates to stave off recession.
Unfortunately, this black-and-white interpretation of either inflation or recession but never both has been challenged by bond yields around the world which are rising to new highs. And the charts tell us that they are likely to go considerably higher. Consequently, conviction that inflation of producer and consumer prices will prove to be a temporary phenomenon is infected with doubt.

For those of us steeped in free market economics and with experience of the monetary and economic scene in the 1970s, the possibility of both inflation and recession occurring at the same time is less of a surprise. They called it stagflation, though the Keynesians never managed to reconcile the existence of the two conditions being present at the same time. The error, surely, is in Keynes’s denial of Say’s law, which postulates that we produce to consume. The Keynesian error was to ignore the plain fact that rising unemployment is the consequence of falling production first, so there can never be a general glut of goods in a slump which is the basis of Keynesian assumptions.”

Chuck again… Alasdair goes on to discuss why Gold will become the center of the new currency regime, and not bitcoin in the article… So, goe back, click on the link and read it… 
Market Prices 8/29/2023: American Style: A$ .6423, kiwi .5905, C$ .7341, euro 1.0811, sterling 1.2591, Swiss $1.1300, European Style: rand 18.5374, krone 10.7014, SEK 11.0022, forint 353.46, zloty 4.1344, koruna 22.3546, RUB 95.91, yen 147.00, sing 1.3557, HKD 7.8464, INR 82.70, China 7.2940, peso 16.78, BRL 4.8734, BBDXY 1,244.11, Dollar Index 104.11, Oil $80.72, 10-year 4.22%, Silver $24.21, Platinum $974.00, Palladium $1,242.00, Copper $3.80, and Gold… $1,918.22

That’s it for today… I had forgetten that on Thursday this week, I won’t be writing, as I’ll be heading to the oncologist’s office, which will be good timing because I’m having lots of bleeding problems with my jaw again… UGH!  I take blood thinners so when I begin to bleed, I bleed! I know that my oncologist will want me to stop taking my blood thinners, and my heart doctor will say no way! So, they’ll have to think outside the box!  Tomorrow night is a StL City soccer match night!  Myself and son, Andrew, will be in attendance… I’ll have to watch what I eat and drink since the next morning bright and early I’ll be at the hospital to see my oncologist! Robert Palmer takes us to the finish line today with his song: Sailing Shoes…. I hope you have a Tom Terrific Tuesday today, and please Be Good To Yourself!

Chuck Butler

Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts