Bullish: $1.7T Investment Bank Says Full Blown Currency War Next
The threat of full blown, global currency war looms over the world economy. But the opportunity to profit from this macro trend is enormous. Especially now that intransigently deflationary digital securities like bitcoin, Litecoin, and Binance Coin are in play. PIMCO’s (Pacific Investment Management Co.) global economic adviser, Joachim Fels warns that a half decade of currency war is likely to flare up again soon.
Central banks wage currency wars through monetary operations that weaken their currencies. The point is to bolster demand for the country’s exports by making the exchange rate favorable for foreign buyers to purchase your country’s domestically produced goods. Nice of the central banks and sovereign government to decide for all of their country’s businesses that their products are going to be on sale this year!
As a really cool added bonus, the banking industry gets to create more credit out of thin air to lend at a profit to the rest of the economy.
The Looming Global Currency War
Fels writes in an investment note:
“Following a pause since early 2018, the cold currency war that has been waging between the world’s major trading blocs for more than five years has been flaring up again. Moreover, even an escalation to a full-blown currency war with direct intervention by the U.S. and other major governments/central banks to weaken their currencies, while not a near-term probability, can no longer be ruled out.”
PIMCO manages assets for central banks, sovereign wealth funds, companies, foundations, endowments, and individual investors with 2,600 employees operating 17 offices on four continents. Fmr. Fed Chair Ben Bernanke is a senior adviser there, and Alan Greenspan was before him. When their global economic adviser tells you there’s a currency war coming, you listen.
If you have a lot of wealth or even a little savings to protect and grow, you also pay attention to the president’s persistent campaign to weaken the dollar, and the Treasury secretary’s statements like, “Obviously a weaker dollar is good for us as it relates to trade and opportunities.”
Neo-Mercantilism and Deflationary Digital Assets
The neo-mercantilism of the Trump era is an excuse for central banks to siphon more value from savers and consumers, businesses and individuals alike. By “easing” into an expanded balance sheet to lend from, the central banks steal away your monthly budget’s purchasing power and your long-term savings’ growing power. That’s one of the most powerful long-term bullish cases for cryptocurrencies like bitcoin.
And the major central banks aren’t the only ones who will drive investor capital down the path of least inflation right into the distributed ledgers of deflationary digital assets like bitcoin. Fels says, “While I’ve focused on the cold currency war among major central banks in this note, many other central banks are of course also engaged in it.”
He made note of expectations for central bank currency devaluation in South Korea, Indonesia, Chile and South Africa this week.
“Gold Is Money. Everything Else Is Credit.”
Legendary 19th century banker JP Morgan himself self once said, “Gold is money. Everything else is credit.” The emerging cryptocurrency market is turning an inside-out monetary system based on the issuance of credit back into a hard money system based on a store of value. Investors have already taken this escape hatch in droves despite the enormous risks of investing in unregulated securities maintained by technologically nascent platforms. Cryptocurrencies are priced with this long-term macro view in mind. Investors expect mass adoption to happen as quickly as with other disruptive information technologies. Don’t wait for the next round of currency wars, or the next recession, to price these assets at a premium compared to today.
Disclaimer: The author owns a small amount of his savings in Bitcoin and Binance Coin. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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