Currency Crashes Coming… (and not just the Euro, folks)

As Cypress gets in line for an EU bailout, the BRICS nations are also crashing – Bloomberg reports that “For the first time in 13 years, the real, ruble and rupee are weakening the most among developing-nation currencies, while the yuan has depreciated more than in any other period since its 1994 devaluation.”  and, “When the global economy and capital flow slow down, it’s going to expose a lot of problems in these countries and make people stop and ask questions. A run on the currency could be particularly ugly.”

How much of a loss, you ask?  They also stated that, “Currencies from Brazil, Russia and India will probably decline at least 15 percent further by year-end”

Brazil’s Real lost 12 percent this quarter through June 22, the biggest drop among the 31 most-actively traded currencies tracked by Bloomberg. The 11.5 percent depreciation in the ruble and 10 percent drop in the rupee were almost twice the retreat in the euro. China’s yuan, which was kept unchanged during the global financial crisis in 2008 and 2009, fell 1.2 percent since March after the government widened the amount the currency is allowed to fluctuate each day.

I think we will see the Big Bang of Currency Collapses in the September timeframe, most likely starting with the Euro, and we will feel it here heavily. The alleged “decoupling” of the American economy is nothing but a huge, malicious lie!
My three main reasons for saying this are: JP Morgan, Bank of America, and CitiGroup. They are all very exposed to what happens in Europe and the rest of the world, because of illiquid investments they hold there; they are all under-capitalized, and have too much “leverage” [leverage is the polite term for debt-to-asset ratio, i.e. “how many dollars you owe for every dollar that you have”] – plainly stated, these huge banks are just like many American citizens; they owe way more than they are actually worth, and most of their net worth is tied up in things that they can’t easily sell. This establishes the danger of run-away collapse because once one bank  begins to sell off, they will all have to do it, and will be caught in a vicious cycle of realizing losses and having to sell to cover, until there is nothing left – their creditors will demand that they do all this, just to get what they can out.
Also, there are huge market risks which are beyond the banks’ control due to globalization of the market.  As an example: because the European assets which these American banks hold are valued in Euros, the assets themselves have “market-to-market” risk outside of the condition of the banks – In other words, every little tic of the market where the dollar goes up against the Euro, causes the value of their assets to go down, and their debt to asset ratio thus gets worse.
This is doubly dangerous – because the more people lose confidence in the various international markets [and so sell those foreign-denominated assets to get out], the more the Dollar gains against the various foreign currencies, the more leveraged these banks become due to market-to-market risk, and other actions beyond their control. But to try to sell these foreign-denominated assets now means that they would have to realize huge [multi-billion dollar] losses, which would also make the dollar rise against the rest of their foreign assets [defeating the purpose of the sale in the first place] and the act of selling would flood the market where they transact the sales, essentially setting off the time bomb which would kill them.
So these banks have painted themselves into a corner – either they continue to quietly hold these collapsing assets and hope for the best, or dump them, and be perceived as the cause of the chain reaction that may well bring it all down. It’s a lose/lose/lose proposition for these banks, and they know it – thus the sour mix of paralysis and lies from all the talking heads… right now there is no “good solution”, and I doubt that will change any time soon.
Because of all this, when things start to happen, and debts start being called in, the problem will conflagrate and spread rapidly – when the debt-calls start, and banks have no choice left but to sell, everything will come down at once. This is where the term “fire sale” comes from [sell it before it burns to nothing, essentially] – when a bank has to raise money to pay obligations so the can stay in business, they WILL sell assets at a major loss to do it – but that drags down the greater market, because they are selling at “best offer, cash ‘n’ carry” prices, and that hurts every one else who owns stock in that asset. So the bank takes a huge loss on the asset, and sours the market itself all in one action. Multiply by a few thousand of these actions in a short period of time, and the whole market tanks!

The fire is already burning – google the name “NatWest”, it is a British bank that has been “closed” for the last five days because of a “technical glitch” – I believe that glitch was that they were having an insolvent moment, and needed to hold all the deposits they had to get through it. RBS has also been having “technical difficulties” which may or may not be related.

All of the big international banks could fail in  a period of 3 to 10 bad market days. I am not talking about 1 failing – I mean that if the right chain of events happens [which is not at all far fetched in today’s environment], they will ALL get sucked into this scenario at once… within 2 weeks of the start of such an event, every major bank would be either crashed [shut down, bankrupt, not able to pay depositors or other obligations], or frozen [voluntarily closed, refusing to go bankrupt by holding all assets it wants to, such as depositors’ funds, i.e. refusing withdrawals]. Either way, no one will be able to draw their money out at that point – it will be gone.

In the end, every depositor, whether individual or business, will be in the same boat: no money available, and no banking system by which to transact business, anyway. In short, the end game is that the banks have created a scenario where the most likely condition is that the banks themselves will cease to exist — i.e a “Total Reset”.  This concept of a total reset is being hinted at in many places, but no one in the main stream is coming right out with the truth of this possibility, for whatever reason.

I have written about all of this economic and market risk, and its probable consequences before, here and here, but it is well worth an update, as things are moving rapidly now towards an inevitable destination…

Warmest regards,

~Those who discard Liberty, do so at their own peril!

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