The Coming
Currency Crisis
Is Here!
The Coming
Currency Crisis
Is Here!
by James Dines
The Dines Letter
Our
warnings about the importance of currencies in recent years fell on deaf
ears but, now, suddenly, everybody is an expert. Yet, note that we are again
alone in our next prediction, that Indonesia will soon embark on a dreaded
hyperinflation, which was described in your editor's second book as
the supernova of inflations. And that hyperinflation will spread, even though
all now believe that "there is no inflation."
But
Malaysia will soon burst into the headlines also, if only because their
domestic debit is a whopping 170% of their Gross Domestic Product (GDP),
Asia's highest ratio. Once again, it is risky real-estate loans that are
bringing down the banks (a lesson in risk management that has not really
registered on banks elsewhere) and we predict that their "non-performing"
loans might exceed a staggering 40% next year. Because desperate real-estate
sellers are waiting for an upturn, Malaysia has not yet had its punitive
"market-clearing crash," which should appear somewhere near bottom.
The
crash we predicted for Hong Kong several years ago is already well underway,
with property values perhaps half their highs and sinkingultimately dropping
to one-tenth of their highs would not surprise us. Because its neighbors
are devaluing against the Honk Kong dollar, look for a deepening recession,
soaring unemployment, sky-high interest rates, and a continuing bear market,
all of which should further incentivize Hong Kong's capital to flood into
what they perceive as safetyWall Street. But the real danger is a devaluation
by China, which we believe is inevitable. For example, when Vietnam devalued
its dong by 7% against the U.S. dollar last week, it added to China's becoming
overwhelmed by cheap imports. Chinese businesspeople are being undercut
by Korean products because their currency is way down and earnings in the
form of harder currencies from exports are vital. As Korea and Japan engage
in lockstep competing devaluations, their goods also become increasingly
lethal competition for China. As evidence, Chinese exports grew by around
20% last year, but in the slower first half of this year they only increased
at an annual rate of less than 8%. And China has yet to get serious about
reforming its banking system, which loaned money irresponsibly under communist
control. We estimate that China's banks, with $600 billion in assets, have
approximately half of that in worthless loans, perhaps a staggering 50%
of China's Gross Domestic Product. Now what?
We
have been warning about Japanese banks since 1989, this week's alarms toward
which became "the currency event" that we had warned would occur
in "early August." Now even the Washington Economic Establishment
(WEE) has finally joined us in worrying about Japanese banks. We are grateful
that currencies have become important to the world's press, so that we are
no longer alone in the wilderness, and now maybe TDL can make a contribution
by shedding some light on how to repair the system. It is vital that it
be done soon. because the Asian crisis has already created Mexico's largest
layoffs since 1991. Worse, the Mexican stock market has developed a Downtrend.
With cheap Russian and South Korean steel pouring into Mexico at a price
one-third lower than prices of local producers, it is only a matter of time
before Mass Contagion results in higher interest rates and a crash in the
Mexican currency. Mexican TDLrs are advised to get out of the peso to the
maximum extent possible.
Most
dangerous of all is the Canadian dollar's situation. Our warnings in recent
years that the Canadian dollar was headed lowerplease don't blame the messenger
for the newswill at least make our northern neighbor's exports more competitive
and also assist mining and petroleum sectors. Nonetheless, lessening international
demand for Canada's farm, timber and mining products do not bode well for
Canada, nor for the U.S. dollar, because America is Canada's largest trading
partner.
Editor's Note: See the accompanying article, "A Simple Explanation
of "The Coming Currency Crisis" by James Dines, editor of The
Dines Letter, P.O. Box 22, Belvedere, CA 94920.
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