14.7 C
London
Tuesday, October 3, 2023
HomeA Country Can't Save Both Its Currency And Its Bonds
Array

A Country Can’t Save Both Its Currency And Its Bonds

Date:

Related stories

Over 200 Cases Of Suicidal Thoughts After Taking Weight Loss Drugs: New Analysis

Over 200 Cases Of Suicidal Thoughts After Taking Weight Loss Drugs: New Analysis Authored by George Citroner via The Epoch Times (emphasis ours), As Ozempic, Wegovy, and Mounjaro soar in popularity, the drugs are facing increasing scrutin...

Pentagon Warns “Months Left” In Arms Supply For Ukraine As Biden To Reassure Allies In Phone Call

Pentagon Warns "Months Left" In Arms Supply For Ukraine As Biden To Reassure Allies In Phone Call President Joe Biden is planning to hold phone calls with allies possibly as early as Tuesday, with an aim of reassuring them his administrati...

Researchers Find World’s Oldest Time Capsule From 1726 In Bulb Of Church Spire – Here’s What’s Inside

Researchers Find World's Oldest Time Capsule From 1726 In Bulb Of Church Spire - Here's What's Inside Authored by Michael Wing via The Epoch Times (emphasis ours), Almost 300 years ago, someone implanted what now might be the world's olde...

EU Will Stretch From Lisbon To Luhansk – German FM Declares From Ukraine’s Capital

EU Will Stretch From Lisbon To Luhansk - German FM Declares From Ukraine's Capital On Monday German Foreign Minister Annalena Baerbock issued an ultra-provocative statement which Moscow is sure to take as "fighting words". What's more is t...

Putin Orders First-Ever Nationwide Nuclear Drill, Prepares Bomb-Test At Arctic Circle

Putin Orders First-Ever Nationwide Nuclear Drill, Prepares Bomb-Test At Arctic Circle Via Remix News, Russia will hold its first nationwide drill simulating widespread nuclear strikes on the country, daily Magyar Hírlap writes. The one...
A Country Can't Save Both Its Currency And Its Bonds

Authored by Bruce Wilds via Advancing Time blog,

I have adopted the position that when a central bank allows its government to overspend and abuse its currency, something has to give. You could say this is one of the unwritten laws of fiat currencies. Time and time again history has proven this to be true and it is the reason many people claim gold is the only true form of money that cannot be corrupted. In a world where everything seems subject to manipulation, this claim about gold is still up for debate. 

The overspending by governments coupled with inflation has really started to affect the perceived value of currencies in relation to other currencies. As these relationships break the losers are the people holding the de-valuated currency. Of course, many factors feed into how we value a currency but the crux of this article is not about whether a currency is over or undervalued but rather what a country must do to defend its value if it comes under attack.

Brent Johnson of Santiago Capital is credited with coining the term the "Dollar Milkshake Theory." It explains how our debt-based monetary system can cause the US Dollar to rise despite the increasing liquidity injections around the world. Whether this was a "grand master plan" or a situation that just developed over time, it is something that may bode well for the dollar. Johnson recently took part in a discussion that included subjects such as the future price of oil, housing, and the probability of a huge global huge recession. 

About 28 minutes into the discussion which came out in both video and transcript form here:

Johnson conveys what many of us see as a truth that haunts fiat currencies. This is rooted in the fact that when the value of a currency falls, a country and its central bank cannot save both its currency and its bonds. In his "slightly edited" words;

"The problem is you cannot, and this is for every country, the US included, again, there’s a progression in how it’ll go, but you cannot save both the bond market and the currency market because they work at cross purposes. Whatever you do to save the bond market hurts the currency. Whatever you do to save the currency hurts the bond market. And every central bank in history has promised they won’t sacrifice the currency, and every central bank in history has ultimately sacrificed the currency.

And the reason they always choose the currency over the bond or the reason they always choose to sacrifice the currency over the bond market is for two reasons. One, the currency affects the citizens more than the government, and the bond market affects the government more than citizens. So they’re going to bail themselves out before they bail the citizens out. And the second thing is if the bond market blows up and the banking system blows up, there is no longer a distribution system for the government to raise money.

So they can’t let the bond market blow up because then they can’t get money anymore. And then if they can’t get money, they can’t operate. So this is a very long way of saying that I understand why the market moved the way it did. I think maybe in the short term it makes sense, but in the medium to long term, it doesn’t make any sense to me at all. Again, kind of watch what they do, not what they say."

He later added "The problem, as we’ve kind of figured out and found out that it’s very hard to just get four for four or 5% inflation. It goes from 2% to 12% pretty quickly. They don’t have as much control as they think they do, right? And the problem with four or 5% inflation, you can kind of get away with it because it’s annoying and it is frustrating, but it’s not totally ruining your life. But with 8, 9, 10, 12, 15, 80% inflation, that starts to ruin the pledge life, as you mentioned. And that’s when they start to push back from a political perspective. And that’s what central banks and governments don’t want. They don’t want the populace revolting" 

When you think about the true motivators driving this "system," it is logical the government and central banks would throw the populace under the bus. This is about their survival. As to the question of equal pain, those in power justify taking raises to offset the impact of inflation under the idea we "need them" to steer things forward for the "greater good." 

While Johnson's remarks were aimed at what is most apparent in the actions of Japan, this truth is problematic to all fiat currencies. For more on the Dollar Milkshake Theory see; 

Tyler Durden Wed, 01/11/2023 - 13:25

Subscribe

- Never miss a story with notifications

- Gain full access to our premium content

- Browse free from up to 5 devices at once

Latest stories

LEAVE A REPLY

Please enter your comment!
Please enter your name here