The Good The Bad and the Ugly

Kamikaze Rally, Gold Crash and Currency Wars

The evils of this deluge of paper money are not to be removed until our citizens are generally and radically instructed in their cause and consequences, and silence by their authority the interested clamors and sophistry of speculating, shaving, and banking institutions. Till then we must be content to return, quo ad hoc, to the savage state, to recur to barter in the exchange of our property, for want of a stable, common measure of value, that now in use being less fixed than the beads and wampum of the Indian, and to deliver up our citizens, their property and their labor, passive victims to the swindling tricks of bankers and mountebankers.

–Thomas Jefferson, in a letter to John Adams, 21 March  1819

In a growing, healthy, productive economy, you're probably better off owning shares in enterprises that create value. But you would have to be retarded to say that US stocks (or Japanese stocks for that matter) are rising because corporations are suddenly creating more value. That's not happening. Bad money is driving up shares and good money is going to gold.

Another way of putting it is that the currency war is forcing investors to take a side. You're either with stocks, or against them. Gold doesn't have a yield and neither do most government bonds anymore. Central bankers have eliminated the spread of assets competing with equities. By doing so, they've produced a rally in stocks which they hope will precipitate a recovery in the real economy.

They need the recovery because the only non-catastrophic way to deal with the big public and private debt overhangs is to grow it out of it (with a little inflation salted in). If they can't print their way to a recovery, then the whole model of creating prosperity through money printing is exposed as a giant fraud – which is exactly what it is.

Japan has opened a new front in the 'currency wars'

'Nations have no permanent friends or allies, they only have permanent interests.' 

The US, UK and Switzerland are already enjoined, with Europe likely to take up arms shortly. Nations which constitute around 70% of world output are 'at war', pursuing policies which entail devaluation and currency debasement.

But currency conflicts are merely skirmishes in the broader economic wars between nations. Most developed nations now have adopted a similar set of policies, to deal with problems of low economic growth, unemployment and overhangs of high levels of government and consumer debt.

The US and Japan defend their actions, claiming that they are not seeking to devalue their currencies but only trying to boost their domestic economy. 

In a recent speech, Federal Reserve Chairman Ben S. Bernanke refused to countenance that the US was involved in 'beggar-thy-neighbor' policies, arguing that America had adopted an 'enrich-thy-neighbor' strategy. He did not elaborate on how this would work, beyond the homily that a strong US economy was good for the world.

Though, ultimately, a policy of devaluation to attain prosperity is flawed, especially when all major nations implement similar policies, especially given increasing American and European disquiet at Japanese actions to weaken the Yen.

In a shift to economic isolationism, all nations want to maximize their share of limited economic growth and shift the burden of financial adjustment onto others. Manipulation of currencies as well as overt and covert trade restrictions, procurement policies favoring national suppliers, preferential financing and industry assistance policies are part of this process.

Central banks are increasingly deploying innovative monetary policies such as zero interest rate policies (ZIRP), quantitative easing (QE) and outright debt monetization to try to engineer economic recovery.

Artificially low interest rates reduce the cost of servicing debt allowing higher levels of borrowings to be sustained in the short run. Low rates and quantitative easing measures help devalue the currency facilitating a transfer of wealth from foreign savers, as the value of a country's securities denominated in the local currency falls in foreign currency terms.

A weaker currency boosts exports, driven by cheaper prices. Stronger export led growth and lower unemployment assists in reducing trade and budget deficits.

The policies have significant costs, including increasing import prices, increasing the cost of servicing foreign currency debt, inflation and increasing government debt levels.

Eventually, when QE programs are discontinued, interest rates may increase, compounding the problems. In extreme cases, the policies can destroy the acceptability of a currency.

The policies also force the cost of economic adjustment onto other often smaller nations, especially emerging countries, via appreciation of their currency, destabilizing capital inflows and inflationary pressures, for example through higher commodity prices.

Given that emerging markets have underpinned tepid global economic growth, this risks truncating any recovery in developed nations.

Since the onset of the global financial crisis governments and central banks have been attempting to bring about economic prosperity by creating money and pushing it out into the global economy. After almost six years however, they have failed to produce a lasting recovery, or indeed anything close.

Policymakers around the world are trying to prevent the “great reset” by re-inflating the global credit bubble. However, by trying to sustain the unsustainable, principally via their policy of QE Infinity, what they have done is create massive distortions in the economy and financial markets, most notably in sovereign bonds

The fact is, this policy of massive money printing is incredibly reckless and our view that this will end badly Central banks have accelerated QE because they think it is essentially a free lunch, but that their actions are creating significant risks in the system.

QE has caused a distorted recovery in which financiers are doing well while the man in the street continues to suffer. The world needs growth that isn’t related to monetary policy. We need “innovation, not currency depreciation”, especially if we’re going to confront entitlement obligations that are “utterly unpayable”. The ultimate question for a fiat money regime is at what point does confidence in money disappear?

Focusing on Japan (the world’s most indebted country), we note that the BoJ is engaging in a far bigger programme of QE than the Fed, since it’s doing about 70% of what the Fed is doing in an economy around one third the size. Japan Shinzo Abe is adding a ponzi scheme to a ponzi scheme… the beginning of the end has begun.
More on Abenomics and Is Abenomics Going to Put Japan Back on the Map?

Those that have studied the writings of Austrian economists understand the common sense notion that printing money does not create real wealth or prosperity. If it did then Argentina and Zimbabwe would be G8 nations. Indeed, it was the creation of unprecedented amounts of money and credit that led to the 2008 bust, and we are seeing more and more signs that monetary policy is creating a new credit bubble just like the one that culminated in the collapse of investment bank Lehman Brothers in September 2008.

Risky lending practices have returned to Wall Street, with banks now packaging up new forms of collateralized debt obligations (CDOs), known as collateralized loan obligations (CLOs). Margin debt at the NYSE has also risen dramatically in recent months and is now only slightly below the level it reached in 2007, and the junk bond market is also at record levels.

As mentioned previously, we live in a world where all currencies are fiat  and every fiat currency since the time of the Romans has ended in devaluation and eventual collapse. Indeed, there have been 34 hyperinflations in the last 100 years – most of which took place in the 20th century with fiat currencies – and it’s not only the currency that collapsed but also the economy that created it.

Currency Wars Summary

Ultimately all these efforts to maintain our broken monetary system will manifest in a currency crisis, however identifying the precise trigger or predicting when it will happen is extremely difficult.

When will it end?

The most likely trigger still looks to be the bursting of the bubble in government bonds, but as Jeremy Siegel, professor of finance at the University of Pennsylvania’s Wharton School, pointed out in a recently Bloomberg interview, “I think bonds have been in a bubble for a couple of years. “If you’d have asked be a couple of years ago if they would still be at 170 (the yield on a 10-year US Treasury) I’d have said no, but one thing we know is that bubbles last a lot longer than any of us can imagine.”
SEE our comments on investlogic website 

When asked what the trigger might be for a bursting of the bond bubble he simply said, an improvement in the US economy and a reduction in bond purchases by the Fed. Right now however there is no sign of this and the appetite among investors for sovereign debt is huge. In fact, due to the fact that central banks are crowding out other buyers, there may soon be shortages.

In the short-term then, this tightness of supply is helping to drive bond prices higher and yields lower. Twelve months ago, for example, Greek 10-year bonds were yielding 27.58%, today that are yielding just 9.45%, and Portugal’s 10-year debt was yielding 11.42%, whereas it’s now down to 5.43%. 

Actions to weaken currencies risk economic retaliation. Affected nations could intervene in currency markets, try to fix its exchange rate (as Switzerland has done against the Euro), lower interest rates, undertake competitive QE programs, implement capital controls or shift objectives to targeting nominal growth or unemployment (as the US has done).

But currency wars are not conflicts between equals. In the currency wars, major economies have larger armies.

Smaller countries and their taxpayers simply do not have the ability to bear such costs of defending themselves in the currency wars.

In the worst case, large economies, like the US and Europe, have the economic size and scale to retreat into near closed economies, surviving and retooling its economy behind explicit or implicit trade barriers.

This option is unavailable to nations requiring access to external markets for its products and foreign capital.

Actions to try to set a nation's currency have significant direct costs. Indirect costs include risk of inflation, domestic asset bubbles and other distortions.

In 2012, the Swiss National Bank (SNB) was forced to build record foreign exchange reserves to maintain the Euro at Swiss Franc 1.20 in an effort to shield Switzerland from an economic downturn, driven in part by an appreciating currency.

Its reserves of over Swiss Franc 427 billion ($453 billion) are over 75% of Switzerland's annual gross domestic product. The SNB purchased Swiss Franc 188 billion francs ($199 billion) in foreign currencies in 2012, more than ten times the Swiss Franc 17.8 billion ($18.9 billion) it spent in 2011. The SNB's intervention resulted in losses totaling Swiss Franc 27 billion in 2010.

To expect nations not to use fiscal and monetary policy to manipulate currencies is disingenuous. British statesman Lord Palmerston noted, 'Nations have no permanent friends or allies, they only have permanent interests.' Circumstances now dictate the use of every available policy tool to serve individual national interests.

Gold Slam

The Unavoidable Consequence of the Currency War

This Gold Slam Is a Massive Wealth Transfer from People's Pocket to the Banks

We are entering a new chapter in the unfolding of our economic emergency, one in which the risks to capital are greater than ever. And the rules are increasingly being re-written to the disadvantage of us individuals. 

Bernanke is blowing new bubbles, and as we have seen in the past, it is in the early inflation phases of new bubbles that gold struggles. Equity investors are getting sucked in again, and the gold bugs may have to wait until they get spat out again and the Fed’s cavalry again rides to their rescue, that gold comes back.

In any case I remain certain of one thing:

This will end badly.

The one advantage we have is that history is very clear on how these periods of economic malfeasance end. Let's exploit that as best we're able.

Obviously, early this Monday a 'lot more short term downside' was indeed in store. It is of course impossible to tell at the moment how much lower gold might go before it finds a durable low, but there are a few target areas one can consider at this point. For instance, the $1,300 level roughly coincides with the 50% retracement of the 2008-2011 rally, as well as the 38% retracement of the entire bull market from 2000-2011. So this is an area that could provide support. 

A more painful possibility is of course that gold could replicate its 1975-1976 mid cycle correction, in which case the lateral support at $1,040 might come into play at some point down the road. We simply don't know at this point, we only mention these levels as something one needs to keep in mind.

What is Really the Problem?

In recent days a number of reasons have been forwarded as to what triggered the rout in gold, some of which sound quite reasonable, while others are just obviously hokum. We are referring to fundamentals here, not technical conditions – obviously, breaking important support levels always triggers technical selling, as stops are taken out. Recall that over the past two years many analysts have made a big deal about central bank buying of gold. This never made any sense to us. How can 400 or 500 tons of net central bank buying in a whole year have any appreciable influence on a market the total supply of which is approximately 170,000 to 175,000 tons and that trades between 2,000 and 3,000 tons every day worldwide?

All one can really say about central bank buying is that it is very likely a contrary indicator, as central bankers as a rule are the worst traders in the world. After all, they were all selling hand over fist while gold declined from $400 to its low at $250 in the late 1990s and then kept selling hand over fist while it rallied from $250 to $1,000. Their decision to start buying at prices ranging from $1,500 and higher must therefore be regarded as suspicious and QED, it certainly wasn't a bullish omen at all.

Cyprus-ation

However, considering the timing of the recent crash and the news backdrop surrounding it, it seems actually quite likely that concerns about central bank holdings were what provided the psychological trigger for the sell-off. As a number of observers have argued, the news that Cyprus will probably have to sell its measly 10 tons of gold reserves sparked visions of Italy, Portugal or Spain having to do the same eventually. Not that it makes a lot of sense worrying about that either: in reality, the gold would likely be used as collateral for loans, or be transferred to other official holders (probably Asian ones) without ever hitting the market as such.

Moreover, try to imagine a situation where e.g. Italy's economic situation becomes so dire that is is forced to think about selling its gold. We believe that if it were to come to that point, the euro project would finally be rendered asunder. European nation states would then return to issuing their own fiat currencies again and would likely begin to inflate all out in the misguided belief that this flight forward might actually help them. It is either that, or the ECB will give up all pretense of being responsible and begin to inflate all out rather than risk the euro project's doom. However, all of this is probably in a still fairly distant future anyway, so it cannot really be the main reason behind the rout in gold – the Cyprus story and the deliberations flowing from it merely provided a trigger.

Bitcoin

Also, as far-out as that may sound, Jim Rogers may actually have a point when he says that the crash in Bitcoins could have had a psychological effect on the gold market as well. After all, if one state-less alternative currency is crashing, then it seems only logical that the other state-less alternative currency should do the same. And Bitcoin has certainly crashed, although we would regard that simply as part of its growing pains. Unless government manage to crack down on it somehow, Bitcoin isn't going to go away and its finite supply almost guarantees that it will continue to gain in value over the long term. 

Let us not forget, Bitcoin already crashed once in 2011, falling from more than $47 to slightly above $2. Its imminent demise was darkly prophesied at the time by the same people who are at it again today – all or most of whom are committed statists, we might add,  this is to say, the usual suspects. They moaned and griped when it went up, alleging that its apparent soundness made it a 'bad currency' and now they moan and gripe even more loudly as it is going down. However, it isn't going to go away and we are willing to bet that in ten years time, its exchange value will be far higher than today's. We will explain this stance in some more detail in an upcoming post.

Bitcoin crashes as well 

So what is actually the problem, what important fundamental development may have upset the gold market?

We believe it actually does have to do with Cyprus, in an indirect way. When analyzing gold, one must never lose sight of the fact that it is a monetary metal, and investment demand for it can therefore be described as monetary demand. A such it competes with other currencies, most of which can be created in unlimited quantities by central banks with the push of a button.

However, what happened in Cyprus was a timely reminder that the fiduciary media created by fractionally reserved banks are ephemeral indeed and can  be sent to money heaven at any time if the authorities so decide. 

Deflationary potential ?

At the same time, it has come to our attention that bank credit expansion is slowing down lately, respectively even going into reverse in many regions of the world, in spite of heavy monetary pumping by various central banks.

In short, what the gold market may really be worried about is the deflationary potential of all these events. It is quite conceivable to us that another major deflation scare is just around the corner; after all, Europe's wobbly banks haven't magically become solvent overnight – they are merely temporarily reliquefied by the ECB's LTROs. Consider for instance the weakest of Germany's big banks, Commerzbank. Its CEO Martin Blessing is quite adamant that dispensing haircuts to depositors is the way forward. He is also, as Der Spiegel points out, an incorrigible optimist and bad market timer:

“SPIEGEL: Mr. Blessing, you have recently again used a good portion of your annual salary to purchase Commerzbank shares. What are you — a gambler or an incorrigible optimist?

Blessing: Neither. I'm a long-term investor and a staunch supporter of Commerzbank. In this combination, I feel very good about my investment.

SPIEGEL: Despite the fact that you once purchased shares at a price of €30 ($39) and the shares are now worth €1.17 ($1.53)?

Blessing: I have purchased Commerzbank shares on a regular basis and have never sold any — and I won't do so, either, as long as I'm active. Of course Commerzbank shares have been hit hard by the financial and sovereign debt crisis over the last few years. But that is true of all shares, particularly shares in banks.

SPIEGEL: Not many have fallen from 30 to just one euro in value. How far would the price have to rise for you to recoup your losses?

Blessing: The current price would have to roughly triple.

SPIEGEL: Taxpayers — who will still have nearly a 20 percent stake in the Commerzbank even after the planned capital increase — aren't doing any better. How do you intend to triple the price?”

[…]

“Blessing: In late 2012, these business activities — public-sector financing, shipping financing and commercial real estate financing — still made up €151 billion. By 2016, we intend to reduce this to slightly more than €90 billion. Currently, these reductions are going faster than planned.”

(emphasis added)

The important point is of course the last sentence – where Blessing explains how he plans to triple the share price to recoup his losses. Namely, by shrinking the bank's credit exposure.

Commerzbank share price with time line, via Der Spiegel.

Commerzbank may be an extreme case, but roughly similar deliberations are informing the banking business across Europe – definitely no-one is seriously considering growing their loan book. Besides, there is very little credit demand anyway. This is inherently deflationary. 

However, letting the deposits of depositors in insolvent banks go up in smoke is even more so, even if it is the right thing to do (it is definitely more just than simply stealing money from tax payers to prop these failed banks up). As an aside, a budding plan to simply cancel all € 500 banknotes under the pretext of 'hitting organized crime' may produce a big profit for the ECB, but it would be intensely deflationary as well.

Naturally, there is every reason to doubt that the authorities will allow a system-wide deflation to happen if push really came to shove and the entire € 3.5 trillion in fiduciary media issued by commercial banks in the euro area were in serious danger of evaporating. This is even more true in the case of the US banking system and the roughly $7.8 trillion in fiduciary media outstanding there. However, we do think that a deflation scare has a high probability of occurring within the next year or two and that the decision to allow depositor haircuts to happen is imparting a certain impetus to this.

In short, gold's recent crash is probably an expression of growing market fears that a hitherto unexpected deflation scare may be on its way as a result of the decisions that have been taken regarding the status of big depositors following the Cyprus 'rescue'.

Addendum: Technical Conditions

As an addendum to our  yesterday website update, we want to show the weekly and daily charts of the HUI – the weekly RSI has now declined to an improbable new all time low of just 17.38, and it seems quite possible that the recent gaps in the chart represent so-called 'exhaustion gaps'.

The HUI, weekly – the gap at the end of the decline may be an exhaustion gap, especially as it coincides with an RSI of just 17.38. Hopefully it isn't a 'measuring gap', see the next chart as to why.

On the daily chart of the HUI we can see both potential 'measuring gaps' as well as the two potential exhaustion gaps in the latter stage of the decline. Note that an RSI-price divergence has formed as well on the daily chart (though not on the weekly chart – there is a remote possibility that the gap on the weekly chart is actually of the 'measuring' variety) – click on chart for better resolution.

Not surprisingly, the XAU-gold ratio has hit a new all time low as well (the BGMI-gold ratio, which has a longer history, remains at its lowest level since the Pearl Harbor market crash of 1941-1942).

XAU/gold hits a new all time low 

Conclusion:

It is not possible to tell where the ultimate low of this move will be. What we know for certain is where various areas of support and resistance are (note in this context that the $1,525-$1,540 area will henceforth be stiff resistance, as it has held almost two years as a support line) and that gold sentiment has morphed from 'intensely bearish' to 'outright panic'.

Above we have speculated as to what the decline in gold may be telegraphing and what the worries underlying its decline may really consist of. Naturally, should authorities allow many more banks to go under and take their deposits with them into oblivion, then the supply of the underlying currencies will begin to shrink. 

This would be genuine deflation and it would be normal for these currencies to gain in value against gold (deflation is not possible in gold). However, we also believe that these and other worries in the context of potential central bank gold sales in the euro area are quite overblown. It should be clear that not a single central bank in the Western world will in the last resort allow deflation to truly take hold. They would probably rather 'go Weimar' on us than allowing that to happen. In fact, a budding deflation scare all but ensures that even more money printing will eventually ensue. Note in this context that ECB governor Benoit Coeure recently already remarked that there is allegedly 'not enough inflation' in the euro area:

“The European Central Bank will monitor euro zone inflation carefully over the next 18 months as it threatens to sink further below the ECB's 2 percent target, Executive Board member Benoit Coeure said on Friday.

Euro zone inflation slipped in March for a third straight month to an annual rate of 1.7 percent, compared to the ECB's goal of close to, but not above, 2 percent.

"We have a rate of inflation which looks set to move away from the ECB's 2 percent target over the next 18 months," Coeure told reporters at a breakfast event, adding that a drop in inflation was as worrying as a rise. "It is still fairly close to the 2 percent target but it is moving below that goal and this is something the board of governors is clearly following as we have a goal of 2 percent," Coeure said.”

There you have it. Not even a mild decline in the CPI inflation rate below the 2% 'target' can occur without triggering the urge to increase the pace of monetary pumping. It seems abundantly clear to us that no genuine deflation will ever be allowed to happen – therefore the market's fears over this possibility seem quite misplaced.

There is only one environment in which it makes sense for Gold to go up, and that is negative real interest rates. The Gold bull throughout 70′s was a result of interest rates lagging inflation. As soon as Volcker raised interest rates above inflation, Gold topped out. The Gold bull since 2003 was a result of the Greenspan Fed turning interest rates negative after the tech bust. By 2008, the housing bubble had burst, turning interest rates positive. 

The reason for the current Gold bull run is probably because of negative rates in China. The reason Gold prices have started coming down is because the china bubble has burst, turning interest rates positive. Since Gold pays no interest, there is no reason for Gold to appreciate in a positive rate environment.

see also :

http://www.financialsense.com/contributors/detlev-schlichter/gold-sell-off-there-is-only-one-question-that-matters

http://www.financialsense.com/contributors/chris-martenson/gold-slam-massive-wealth-transfer-our-pockets-banks

Finance capitalism is fatally flawed

 Illimited, Illicit, Money Creation

Finance capitalism is fatally flawed in theory and in practice. The base imperative of finance capitalism today is infinitely expanding (private) debt—it is the source of its political and economic power. Its ultimate product is that which is before us: a global plutocracy dependent on state capture, power and control to plunder and loot what will become, by necessity, increasingly resistant populations. The post-War ‘moderation’ cited by mainstream economists worked to the extent it did by limiting private debt creation. 

a bigger bank by justine smith

Cyprus and the rest of the European periphery face the complicating factor of having given up their own currencies to belong to the European Currency Union. This likely means the European Union will, in fits and starts and in various configurations, eventually unwind. But the other problem of predatory and extractive global finance capitalism will continue until it is brought down. Mainstream economists will eventually get their incremental reforms as ongoing and new crises erupt. But again, what is the rationale for ‘managing’ an economic system whose fundamental premise is that it works best when it is left unmanaged?

In Europe as well as in the U.S. much of the rising ‘sovereign’ debt behind calls for fiscal austerity derive from governments shifting bank liabilities onto public balance sheets. Three billion euro of Cyprus’ ‘public’ debt reportedly came from its contribution to the ECB’s ‘bailout’ of Greece that in fact went to pay European banks and Western hedge funds for ‘investments’ they had made in Greek government bonds. The U.S. has been more successful than Europe in hiding bank bailout costs that will ultimately wind up on the public’s balance sheet through residual New Deal programs that make good hiding places to stash bogus bank assets. 

Through the banks directly and through the ‘shadow banking system’ private credit has grown exponentially in recent decades and it has circled the globe at increasing speed. The ‘excess savings’ view of global investment hides the role of Wall Street in the creation and distribution of credit.  So banks both create money through credit finance and the financial products to be bought with the money thus created—literally a license to print money. And both the creation of credit and the production and distribution of garbage financial products pay bankers extremely well while coincidentally increasing the risk of economic catastrophe through cash-flow leverage now distributed globally.

Most fundamentally, re-implementing capital controls, the ‘excess savings’ school’s solution to managing capital flows, and re-regulating banks and bankers, the managed neo-liberal solution, both look past the coordination problem fundamental to capitalism. 

The base rationale for capitalism is that individuals and capitalist enterprises acting independently in their own interests produce the best possible aggregate outcomes. The removal of capital controls did precede the spate of economic debacles tied to global finance and so did de-regulation of the banks. However, re-implementation of capital controls and re-regulation of the banks, were they to occur (Dodd – Frank is ineffective), are de facto evidence individuals and enterprises acting in their own interests do not produce good aggregate outcomes. Why then retain the ‘capitalism’ of ‘managed-capitalism’ when its most fundamental premises are contradicted by the fact that social welfare is made to suffer if the social welfare considerations behind the ‘management’ of capitalism aren’t pushed to the fore?

Put another way, what better system could be conceived to loot and plunder the globe than that where bankers get to create credit and also the financial products representing claims on ‘real’ assets that can be bought with it? 

Currently hedge funds in the U.S. are buying bulk houses at pennies on the dollar because private (bank) credit was used to inflate house prices in a credit-fueled boom that went bust. Foreclosed upon home ‘owners’ still owe tens of billions to the banks even though their houses are long gone and the bulk house purchases will be leveraged (using bank credit) to cash the hedge fund investors out and residual value will be sold to shadow banks that have created ‘cash-flow’ economics that depend more on low funding costs and continuing credit expansion than on the values of the underlying houses. And this same dynamic is playing out with ‘state’ assets across peripheral Europe as economies are crashed by bankers (with the help of Central Banks and state actors) and assets are purchased at pennies on the dollar against captive cash flows (think public water and power systems).

But to be clear, this system is also in fair measure just random destruction, not a brilliant conspiracy. As the consolidation of wealth around finance capital demonstrates, there are clear ways for small groups of connected insiders to benefit from economic looting and plunder. But the coordination problem (long understood by capitalist economists before the rise of neo-liberalism) is both fundamental to capitalist production and, to the extent outcomes result from an absence of information rather than planned looting, random within the system itself.

The Asian currency crises of the mid-late 1990s resulted from multiple independent ‘money managers’ deciding at the same time to ‘invest’ in economies with limited capacity to put it to profitable use in capitalist production. The ‘coordination’ issue is that had these money managers known the amount of money they were collectively intending to invest relative to the amount that could be absorbed they could in theory have made the decision to put the money that couldn’t be put to ‘good’ use elsewhere– but they didn’t know.  The result was over-investment, with money dumped into many projects that served no useful role in ‘the economy.’ Once it was understood that over-investment had resulted in (caused) mal-investment the money that remained was quickly removed leaving smoldering carcasses where functioning, if less ‘rich’ in Western terms, indigenous economies had previously existed.