The Yen Warns Of The Crashing Dollar
Written by Hank Brock, CPA, MBA, CLU, ChFC
Wednesday, 30 September 2009
Remember I have told you that the Japanese Yen is the ONE currency that will go inversely to the dollar? Unlike all the other currencies, there are major reasons why the Yen will see appreciation in years ahead, while ALL other currencies will fall. The dollar will fall the furthest of 1st world nations, with only the currencies of 2nd and 3rd world countries, perhaps, collapsing more.
I could explain this in greater detail, but basically it is because of Japan's deflation of the 1990's when it went for over a decade with their central bank at a zero-near zero interest rate, so people around the world borrowed trillions of Yen at zero, and then invested it elsewhere (especially the U.S. Stock Market and U.S. real estate) to make money on the spread between what they borrowed at and what they could earn. Now, with the dollar plummeting against the Yen, those people have to sell their dollar-denominated assets and buy back the Yen to pay off their debts now, because if they wait until later, they will get squeezed on the currency exchange rate when they reconvert to Yen. This puts an escalating cycle of selling pressure on the dollar, and buying pressure on the Yen, driving the Yen up, and the dollar down still further. No such thing has occurred with any other country or currency over the past 2 decades, and so no other currency will appreciate. And because those investments were primarily in the U.S., no other currency will be sold more as those borrowers rush to pay off their Yen denominated debts.
This is just one more of the dominoes I have been referring to for months. I guess there are more than 8-9 other major dominoes yet to fall, because as I listed them the other day, they still have yet to make their impact known to the general markets. There are SO many things intertwined, and as one domino falls, it tips the other, and they all go in the SAME direction for the greatest debtor nation in the world (U.S.): Down!
Let me discuss briefly a number of things that have happened with the Yen in the past couple of months. Of major political significance was the election on August 30th. Japan had one of the most significant party changes in 50 years with the election of Yukio Hatoyama. This election marked a change of the ruling party to the left-of-center Democratic Party of Japan.
As little as a month later, we are seeing the Yen make significant movement against the U.S. Dollar. Last week we saw the U.S. Dollar drop from 91.27 Yen to 89.63 Yen, or by more than 1.81% in just 24 hours.
I need to emphasize a point here. When the value of the U.S. dollar crashes globally, your purchasing power falls locally. We are all intertwined. The decreased dollar raises the cost on all of the imports into the country, and we are a debtor country. This means that prices will rise in all major areas of your life. You will see increases at Wal-Mart, Best Buy, the gas station, and almost everywhere else that we depend on imports.
As the dollar decreases, these countries also begin to pull their money out of our markets. They begin to look for more attractive investments elsewhere. When they pull out the markets, what happens to your investments?
I've found that most people missed the two articles published the week before last that: (a) Warren Buffet has used the most recent market climb to sell-off TENS of Billions worth of stocks, to buy fixed investments and gold/silver, and (b) the comment by a repentant former Fed Chairman Alan Greenspan that he now sees a pending world-wide "economic implosion." As I have been saying for 18 months, the problem is too big for all the world governments to solve. And as Warren Buffet commented a few weeks ago: the worst is still yet ahead of us, the stock market will be up 10 years from now, but for now he sees "very significant" inflation ahead
We have met with many of our clients about how to protect themselves against this, and even profit from it in the months and years ahead. But, there are FAR many more and people that have attended our workshops that we have not met with yet.
Many of them are believing their "money managers" and leaving their dollars in the U.S. stock and real estate markets. They don't understand how those assets, and even CDs, fixed annuities and other dollar assets will be impacted.
Hank Brock is president of Brock and Associates, LLC, a fee-based financial planning firm specializing in retirement, estate, and tax planning. For more information on how to protect yourself in the volatile years ahead, we encourage to your schedule a time to meet with our qualified financial advisors.
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