Has the First Currency Crisis Begun?


It's been a long time since the yen slid so steeply against the US dollar. So long, in fact, that people are beginning to wonder how much further it has to go, and Toby Connor of GoldScents thinks there might be an even bigger problem.

As many of you who have read my work in the past know, I expect the eventual endgame to this whole Keynesian monetary experiment that has been going on ever since World War II to finally terminate in a global currency crisis. I’m starting to wonder if we aren’t seeing the first domino start to topple.

I’m talking about the Japanese yen, of course.

I think everyone just naturally assumes that the yen is dropping in response to Prime Minister Abe’s intent to imitate US policy and print its way out of its troubles. The problem with this strategy is, of course, eventually Japan will break its currency. Japan is in a particularly tenuous situation in that their debt to GDP dwarfs most of the rest of the world. The only hope they have of servicing this debt is for interest rates to stay basically at zero.

Any move by interest rates above this artificially low level and Japan’s debt becomes unserviceable, without resorting to a greater and greater debasement of the currency. Unfortunately that will also result in an acceleration of the collapse of the currency, which would just cause Japanese bonds to be sold even more aggressively—a nasty catch-22 situation.

At this point there is no way out for Japan. The only question is when the endgame will arrive?