Thursday, 13 August 2015

DK Matai: Why Blame China? Cascading Chain Reaction: Currencies & Commodities.

  DK Matai has published his very interesting take on China Yuan devaluation. As you know, I do expect the far reaching consequences of such move and that it is an another step in "The Art of War for Resources". 

"The Art Of Currency War" And Putin's Gambit By China - The End Of "FREE Trade": Death By TTIP. 

DK Matai:

"1. For as long as we are playing a blame game, it is difficult to see the wood for the trees.

2. China is responding to the global currency play rather than initiating anything of its own accord by way of its recent devaluation of the yuan.

3. When we look at the situation from China's perspective, they have been disciplined in pegging the yuan to the dollar for many years.

4. For as long as the American dollar was weak in the aftermath of the trillions of dollars of QE unleashed by the US Fed, China was able to remain part of that dollar peg despite the global financial crisis.

5. Bank of Japan's excessive QE followed by the tragic handling of the Euro-Greek debt situation and the printing of trillions of euros by the ECB to save the single currency have together placed China in a corner.

6. China is focussed on rejigging its future growth strategy towards the emerging markets and within the supply of infrastructure and exports it competes head on with Germany and Japan.  

7. As the American Federal Reserve moots the possibility of raising interest rates, and the dollar continues to strengthen, China is left with no option other than to unpeg the yuan from the dollar and free float it downwards so that its exporters can compete with the Far Eastern exporters as well as the behemoths of Germany and Japan.

8. In parallel, the trigger of the stock market crash in China reveals the systemic weaknesses within the Chinese financial pyramid including excessive debt; a construction boom in which there has been massive mis-allocation of resources; a rapidly slowing down economy; a colossal commodities overhang; a centralised command and control system; and a statistical reporting mechanism that is just as trustworthy as Gosplan was during the regime of the USSR.

9. Malaysia, Indonesia, Philippines, Thailand and other Far Eastern economies are demonstrating a massive decline in the value of their currencies as if we were in the middle of a replay of the late 1990s Asia Financial Crisis that ultimately led to the blow out of Long Term Capital Management (LTCM).
10. We are facing a prisoner's dilemma situation at the level of nation states.  Countries are now doing what drives their own best interests while making the overall system less sustainable.

11. All the global financial systems at a sovereign level and inter-state level are shaky at present and what underpins them is fiat currency and debt which is essentially paper based. The systemic risk, which the present cascading currency and commodities chaos exposes, boils down to the following: one of these days a small event within a chain reaction will cause a nuclear sized large explosive event within the global financial system and we will be back in 1929, 1974 or 2008. Take your pick.

This time we could also end up with a brand new signature pattern where almost everything goes down and falls to pieces simultaneously because everything is interlinked within the globally networked world."

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