The New Zealand Carry Trade Expects Hyperinflation

[Joanne98]

The New Zealand Carry Trade Expects Hyperinflation


As the entire planet writhes and seethes with anger and distress, the US tries to continue sailing onwards, trying to restart the real estate and commercial lending markets. The Fed continues to consolidate power within its halls. We will take a little side visit to New Zealand to visit one of the biggest funnels for the Japanese carry trade to see how they are dealing with this reversal. The Canadian dollar is strengthening because they sell the US lots of oil. Oil is rising in price. Canada, like Japan and China, prefers a weak currency to aid export markets. Understanding how all this international finance operates is important. Even if we seem to lose every battle, the need to learn continues. Perhaps no one will read this until maybe 100 years from now, when a new international credit bubble forms!
First, the discouraging news:


Federal Reserve to gain power under plan – Washington Times

The Federal Reserve, already arguably the most powerful agency in the U.S. government, will get sweeping new authority to regulate any company whose failure could endanger the U.S. economy and markets under the Obama administration’s regulatory overhaul plan. Funny, how newspapers can’t quite tell the truth. The Federal Reserve is NOT an agency in the US government. The final plan due to be released on Wednesday — which originally aimed to streamline and consolidate banking and securities regulation in one or two agencies — now is expected to sidestep most jurisdictional disputes and simply impose across the board standards to be applied by all financial regulators, according to administration and industry sources.


The Federal Reserve’s own webpage makes this perfectly clear: http://www.federalreserve.gov/pf/pdf/pf_1.pdf

The Federal Reserve System is considered to be an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive branch of government. The System is, how- ever, subject to oversight by the U.S. Congress. The Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government; therefore, the description of the System as “independent within the government” is more accurate.

I read lots and lots of Federal Reserve memos and letters written long, long ago. I could run a regular blog, simply commenting on these. The Federal Reserve chiefs do NOT service ANY Presidents. They can and have been quite malicious, often raising interest rates to get a difficult President booted out of office, for example. Any President stupid enough to dispute banking policies with the Fed head should be prepared to have his head handed to him on Salome’s platter.


So it sits, INDEPENDENT of ALL CONTROLS, dead center inside of our supposed democracy. This is utterly unacceptable but then, Congress is corrupt and thus, disinterested in running the Fed properly. Note how hard it has been for Ron Paul’s excellent 1207 bill to simply audit the Fed has fared! It only just this week, limped into Congress! Who plan to rip it to shreds.


Dear Critics … – Forbes.com


Capitalism did not fail; government did. The government perhaps never better lived up to Groucho Marx’s maxim: “Politics is the art of looking for trouble, finding it, misdiagnosing it and then misapplying the wrong remedies.”

Despite this, we expect the economy to rebound from the panic and make up for the loss of growth relatively quickly. This is hard for some people to comprehend because if you listen to the business news or read the popular press, the economy has basically shut down.

But the system never shuts down. It may slow down, but as long as freedom exists, the system remains dynamic. For example, in the past 26 weeks, roughly 16 million people filed initial claims for unemployment insurance. But, as of two weeks ago, there were only 6.816 million people continuing to receive claims. In other words, possibly as many as 9 million people who might still be receiving benefits are not, because they found gainful employment.

Forbes is always nuttier than a squirrel. In this case, the writers don’t mention that many people fall off of the unemployment rolls because they ran out of time and have no help, now! This collapse is a combination of eliminating most if not all FDR banking and finance laws coupled with creating the Derivatives Beast and of course, free trade, which Forbes supports. The government just bailed out nearly everyone at the top and hopes this will trickle down to the lower levels.


Since we continue free trade and the Derivatives Beast is very, very much alive and waiting with eager anticipation for hyperinflation to fire up, I don’t see things being fixed. They are broken and getting more and more broken. Just because everyone wants us to be ’strong’ won’t make the fatal bleeding in the US economy stop.


Carney May Buy Bonds as Dollar Hits Canada Economy (Update1) – Bloomberg.com


A 16 percent gain for the Canadian dollar since March 9 is threatening to undermine the country’s already battered exporters. This raises the likelihood that Carney will follow the Federal Reserve, Bank of England and Swiss National Bank in pursuing so-called quantitative easing, said Nicholas Rowe, an economist at Carleton University in Ottawa.

“Every increase in the currency, other things equal like the price of oil, does increase the chances” of Carney purchasing assets with new money, said Rowe, a member of the Shadow Monetary Policy Committee at the C.D. Howe Institute, an independent research group.

Asset purchases would serve a dual purpose for the central bank: They would help cut borrowing costs for businesses and households, and weaken the currency by making short-term Canadian-dollar investments less attractive.



This is the main story: all our trade partners actively want a strong dollar so they can flood us with exports. The US government and the Federal Reserve both work very hard to enable this! Once upon a time, the US would force allies to strengthen their currencies. This was how the Bretton Woods II and Plaza Accords operated, for example. This is why the US dropped our gold peg in 1971, too! The US used to argue hard and long about trade imbalances.


Now, no one is representing the US! Our ‘negotiators’ are all best buddies of the trade rivals! And go to secret meetings where they all hobnob and rejoice in their lovely New World Order. And I see no one in the Obama administration fighting for the US in this arena. The GOP refuses, too. The only Presidential candidates who are anti-free trade get no press or are mocked over absolutely everything, no matter how tiny, so the populace looks at them as if they are clowns.


Moving on, Bloomberg has a top story today about an obscure hedge fund from New Zealand. They had huge profits this year! Whoopee. So I feel it is time to discuss New Zealand and the Japanese carry trade. The hedge funds there were a primary source of a great deal of global excess easy credit sloshing over everything on earth:


36 South Starts Hyperinflation Bet After Black Swan (Update1) – Bloomberg.com


36 South Investment Managers Ltd., whose Black Swan Fund gained 234 percent in 2008, is raising money for a new hedge fund, betting that government efforts to pump money into economies could result in hyperinflation.

The Excelsior Fund targets returns that will be five times the average annual rate of inflation of the Group of Five economies — France, Germany, Japan, the U.K. and the U.S. — should the rate exceed 5 percent, Jerry Haworth, co-founder of the firm, said yesterday. Raising $100 million for the fund would be a “good” amount, he said.

“There is a sharply increased risk of greater than 5 percent inflation starting from now,” Haworth said in a telephone interview from London. “We are in the lag period between when the seeds of inflation are sown and when their off- spring, that is higher prices, are evident for all to see.”

The reason we will get hyperinflation again is due to the differential between, say, a 5% inflation rate and the stubborn Bank of Japan’s ZIRP system. The New Zealanders played this game outrageously for three years and have high, high hopes of it restarting! Before we go back to visit the Bank of Japan on this business, let’s learn more about the New Zealand Absolute Return Association and the 36 South Investment Managers:


From the September 2007 Australian Hedge Fund Forum: The New Zealand Absolute

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