Notes From Underground: Making Sense Of the Treasury’s Guide to Currency Manipulation

While attempting to enjoy Pittsburgh (and hopefully a Cubs game), the markets buzzing about the U.S. Treasury’s report about the “Trade facilitation and trade Enforcement Act of 2015.” In a Bloomberg News article published late Friday afternoon, “U.S. Places China, Japan, Germany on New FX Monitoring List,” it seems that the Treasury and Jack Lew are raising the threat of retaliation against nations that meet the Congressional crafted criterion of currency manipulation. These include: 1. Significant bilateral trade surplus with U.S.; 2. Material current-account surplus; and 3. Engaged in persistent one-sided FX intervention. The issue of “one-sided intervention” is defined as only weakening a currency by conducting repetitive net purchases of FX amounting to more than 2% of its GDP.”

There were no violators of the three elements but of course China, Japan, South Korea and Germany were cited as violating all but the one-sided criteria though they were warned against any aggressive intervention or policies thought to be of similar effect. The Bloomberg article noted that the “U.S. says Germany has adequate policy space to provide additional support to demand.”

The advice to Germany is very problematic because the U.S. is directly intervening into German domestic politics by pushing on the Merkel government to initiate robust fiscal stimulus. This is a case of the U.S. acting as a global hegemon and trying to craft economic policy for the entire world. The German current account and trade balances are robust because the German export sector has been able to take advantage of a weak euro related to the economic problems of so many of its comrade states within the EU.

The German people receive an economic advantage in trade but are severely punished by ultra-low interest rates as a tool to relieve the stress of interest payments on Greece, Spain, Italy, Portugal and France. If Germany is to act on its own because of the incongruities built into the EU system why would President Obama be pushing the British people to join such a flawed financial and political system? The world would be better with a strong Deutsch mark but currently that is not an option. If German economic strength pushes the EURO HIGHER the economies of Spain, Italy and France will be negatively affected.

The U.S Treasury cannot single out Germany without citing the entire EU. More importantly, IN MY OPINION THE TREASURY RELEASE RAISES THE WARNING THAT THE U.S. HAS REALIZED THAT GLOBALIZATION WILL PLAY A HEIGHTENED ROLE IN THIS YEAR’S PRESIDENTIAL ELECTION. IT APPEARS THAT THERE IS AN EFFORT TO WEAKEN THE DOLLAR TO ASSUAGE THE VOICES OF PROTECTIONISM. If so, then the FED will not be raising rates, which is why President Obama invited Fed Chair Yellen to meet at the White House, to raise concern at the highest level about the “currency manipulation” of the U.S. trading partners.

If so, LOOK FOR YIELD CURVES TO STEEPEN AS THE FED DELAYS ANY RATE RISE REGARDLESS OF ECONOMIC DATA and of course this theory provides a boost to gold. Readers of Notes From Underground know that my argument for the last four months to own gold was because of the central banks losing control of monetary policy and thus gold being the best haven and store of value. These trades will be volatile and play out over time but it seems markets agree that central banks are not all that they portend to be. The world craves a global massive fiscal stimulus but politics seem to momentarily prevent it. The U.S. is not the hegemony it used to be so market volatility is sure to increase as other nations dare to cross the U.S. Treasury’s red lines. Be vigilant and patient as the macro-world unfolds in response to the U.S. authority.

Tags: , , , , , , , , , , ,

17 Responses to “Notes From Underground: Making Sense Of the Treasury’s Guide to Currency Manipulation”

  1. Kevin G. Waspi Says:

    Congratulation Yra!
    Once again you’ve read the entrails of “independent” organizations correctly! If Jack Lew’s lecturing on currency manipulation is not enough, roll out The President to deliver a lecture on “how to play nice” in this global growth slow-down. Summon Janet to the back room and discuss the “macroprudential tools” available, and land squarely on the bully pulpit (sorry, moral suasion). The wonder of WHY Britain is holding a referendum becomes clearer by the moment. If Brits vote to leave, watch the referendum fever spread to the Burghers of Bavaria (as you have again correctly advised us).

  2. Michael Weiser Says:


    Hope you are well

    Excellent post. Couch it in terms of “concern over currency manipulation” or “quelling trade protectionism,” the real topic of Obama’s meeting with Yellen was: do nothing that enhances the chances that Donald Trump will be elected President. The kind of volatility we experienced in January could do just that. Brainerd, Powell, Yellen, Dudley, Evans are all people Obama has put in place, one way or another, and are aligned in their commitment to move cautiously on rates. The odds of a rate hike before November 8 are – in the parlance of NIRP – less than zero.

    Michael Weiser

    • yra Says:

      Mike–great to hear from you and hope all is well with the family and little scottie—ha .See your buddy may make it to the SCOTUS—and I believe you are right on target.The rise of Trump and Bernie has scared many out of their complacency .The anger on main street has shaken off the dust that lingers inside the beltway

  3. Frank C. Says:

    Given the underhand softball lobs Janet has been tossing the markets, I hope you get to see Jake Arrieta bring his heat tomorrow in Pittsburgh.

    Jake and central bankers appear to have something in common.
    Both are addicted to different types of growth hormones.

    • yra Says:

      Frank c–no hormones for arrietta—he works diligently on his core thru pilates and give him credit for it—

  4. asherz Says:

    The Cubs last being world champions 108 years ago predates the creation of the Federal Reserve by 5 years in a time when the financial elites kept their grubby fingers out of the markets.
    With a good chance that the Windy City finally ending this period of drought this year, will we also return to that Age of Innocence as the disastrous policies of the Central Bankers is revealed to be as empty of substance as a pitched ball by Arrieta appears to the unfortunate batter as he again fails to connect successfully and makes another out?
    Competitive devaluations, NIRPs and stagflation wil have precious metals sell at multiples of today’s levels.

  5. Richard H Papp Says:

    For those who have not noticed Glenn Stevens of the Res. Bank of Aussie Land lowered the cash rate 25 basis points today.

  6. david cooper Says:

    Yra perhaps another way to play central bank inaction would be to buy gold? I think we make new highs

  7. Chicken Says:

    Like a bomb went off….

  8. Bonnie from Beaver Falls Says:

    Welcome to Pittsburgh, Yra!

  9. ShockedToFindGambling Says:

    Yra- Good analysis, which I agree with, but tough to buy the yield curve with the 2 year at 75 BPs, in an up bond market.

    I’m short Euro…………weak world economy is very bearish Euro IMO (big picture).

    In case they do a Paris Accord, Part Deux…..have an O’Hare flight booked to Argentina.

    • Yra Says:

      shocked—enlighten us as to which paris Accord—are you referring to the Louvre accord of 1987??

      • ShockedToFindGambling Says:

        Yra- I meant the Plaza Accord 1985, to devalue the dollar.

      • yra Says:

        Shocked–i know some are referencing that but I have to think more about.My initial thoughts is a NO totally different and the Dollar is not overvalued in any way shape or form

      • yra Says:


  10. Frank C. Says:


    This is from Kenneth Rogoff who wrote the book “this time it is different” which analyzed historic world wide debt defaults.

    • yra Says:

      Frank C–I just read it and if he would go to gold backed bonds it would resolve the issue especially on a 20% backing or less

Leave a Reply

%d bloggers like this: