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Tag: currency investing

Most Everything You’ve Heard about China’s Currency is Dead Wrong (and that Means Money for Us) – Money Morning

Nearly everything you’ve heard about China’s currency, the yuan, is dead wrong. It’s not undervalued and it’s not undercutting the U.S. dollar as the financial press and politicians like to point out. I’ll show you why.

You likely heard that China recently reported it had grown just 7.5 percent in the second quarter of 2013, the lowest level in over three years.

What you likely don’t know is, more than half of that growth came from wasteful infrastructure and property investments, such as this: http://www.ibtimes.com/worlds-largest-building-new-century-global-center-opens-chengdu-china-1330585.

China uses government investments as the main channel to pump money into its economy. The resulting monetary growth makes the Fed’s quantitative easing seem like child’s play.

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Is Japan About to Fire the First Shots in a 1930s Style Currency War? – Keith Fitz-Gerald, Money Morning

Chances are you’ve heard about the so-called “race to the bottom” in which various industrialized nations are gradually allowing their currencies to depreciate in an attempt to maintain competitive parity.

Forget about it…the real risk right now is an all-out 1930s-style currency war. I know it’s not front-page news yet, but I have a sneaking suspicion it will be shortly.

It’s going to blindside Washington and most of Europe, where central bankers, politicians, and more than a few economists fail to recognize that events from nearly 100 years ago are now primed to repeat themselves.

Worse, it will devastate an entire class of investors who have put their faith in the current economic dogma of endless bailouts and money printing.

Ironically, this currency war won’t start because of international problems. Instead, it will be touched off in earnest because of domestic concerns– only they aren’t ours. My guess is Japan fires the first shots.

Here’s why:

  1. Japan’s newly elected Prime Minister, Shinzo Abe, is calling for unlimited stimulus and more aggressive financial intervention in an effort to boost Japan’s flagging economic situation and eviscerated domestic economy.
  2. The Bank of Japan has doubled its inflation target to 2% while also promising to buy unlimited assets using a page from Bernanke’s playbook. Bear in mind that Japan’s combined private, corporate and public debt is already nearly 500% of GDP, which is much larger than the 250% that’s commonly bandied about in the media.
  3. Japan has one of the strongest fiat currencies on the planet, which means it has the most to gain and everything to lose if somebody beats them to the punch. An expensive yen holds back Japan’s exports by making them more expensive in global markets, while the debt I just mentioned hobbles future economic development by robbing the private sector of capital it needs for an actual recovery.

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