Full Blown Currency War is Coming

Steve Kanaval  |

Someone should explain to the People’s Bank of China (PBOC) that you cannot prompt the IMF to add your Fiat Currency to the global currency markets unless you play by the same rules as everyone else. China, however, has always played by their own rules, thumbing their noses at western capital markets. Think about it - they have been the largest buyer of our treasuries for two decades while they pegged their currency to the dollar.

This is the equivalent of gassing up your competitors truck and running along while it rambles down the road and looking in the window. I have never understood why the PBOC has behaved this way, but in the 2015 world of global currency markets and with a middle class that’s 300 million strong - the PBOC is trying to Janet Yellen their economy into a soft landing while taking down every other market with them.

China has been lobbying to be part of the IMF Global Currency group, but they want to be able to peg their currency when they want to, which defeats the purpose of free floating currency. It's kind of stupid to even ask the IMF to be a global currency in these circumstances, and I think what they are doing is creating a diversion so the world doesn't look at how bad the Chinese economy really is. The best way to improve their own economy is to make the others look ill.

The problem with free trading markets is that they seek levels that incorporate the current weakness and there is absolutely zero chance the PBOC can create enough of a diversion because they are pegged to the dollar. The further problem is the collateral damage to currencies like the Vietnamese dong and others will be/is devastating and it will weaken all the East Asian currencies. This is a time to take a look at alternatives to fiat currency in general - which is where the next generation will gravitate to anyway. Investors get tired of governments getting in the way of fair valuations.

I think the PBOC knows they will never free float the Yuan, and I also think they know they are destroying currencies in East Asia. The ultimate goal is to weaken Europe, which is the next shoe to drop.

Eventually it will spread to the US Markets (it has short term) in a larger fashion. I think the full intent is to see if the action taken by PBOC can dictate policy by our Federal Reserve - and the sooner we realize it the better off we will be. If you think we are not in the midst of a currency war, you don't understand fiat currency.

The US equity markets will turn based on what the PBOC does for the rest of 2015 and the market driver changed from corporate profits to watching the Yuan - you heard it here first.

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