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Devaluation Rx

Discussion in 'The Kruse Longevity Center' started by Jack Kruse, Mar 1, 2021.

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  1. Jack Kruse

    Jack Kruse Administrator

    1. You must have something that inflates as fiat deflates.
    2. There will be a time where a transition occurs between devalued fiat and the new CBDC causes renormalization.

    A devaluation means there is a fall in the value of a currency. The main effects are:

    • Exports are cheaper to foreign customers
    • Imports more expensive for
    • In the short-term, a devaluation tends to cause inflation, higher growth, and increased demand for exports.
    Exports cheaper = A devaluation of the exchange rate will make exports more competitive and appear cheaper to foreigners. This will increase demand for exports. Also, after a devaluation, your home country's assets become more attractive; for example, a devaluation in your countrys' fiat can make property in your home country appear cheaper to foreigners.

    Imports more expensive. A devaluation means imports, such as petrol, food and raw materials will become more expensive. This will reduce the demand for imports. It may also encourage exogenous tourists to take a holiday in your country, rather than elsewhere – which now appears more expensive.

    Increased aggregate demand (AD). A devaluation could cause higher economic growth. Part of AD is (X-M) therefore higher exports and lower imports should increase AD (assuming demand is relatively elastic). In normal circumstances, higher AD is likely to cause higher real GDP and inflation.

    Inflation is likely to occur following a devaluation because:

    • Imports are more expensive – causing cost-push inflation.
    • AD is increasing causing demand-pull inflation
    • With exports becoming cheaper, manufacturers may have less incentive to cut costs and become more efficient. Therefore over time, costs may increase.
    • If your country is in debt during the devaluation HYPERINFLATION IS THE MOST LIKELY RESULT = WEIMAR 1923

    A devaluation can improve the current account. With exports more competitive and imports more expensive, we should see higher exports and lower imports, which will reduce the current account deficit.

    Wages. A devaluation in fiat makes your country less attractive for foreign workers. This may explain why the USA, is opening its borders to illegal aliens. The perception is we are generous to them when the reality is Congress and the Federal Reserve know a devaluation will trap them here to do the work we need to be done with cheap labor being paid monopoly money. Post devaluation firms may have to push up wages to keep foreign labor. Similarly, it becomes more attractive for US workers to get a job outside the US. This is why remaining small and hypermobile into a devaluation is wise. It is also why you should have few anchors locking you down. Becoming a nomad capitalist is wise post devaluation

    Falling real wages. In a period of stagnant wage growth, devaluation can cause a fall in real wages. This is because devaluation causes inflation, but if the inflation rate is higher than wage increases, then real wages will fall. Remember inflation is the one tax that captures everyone including the wealthy that cannot escape it.
    Richard Watson, GavinH and JanSz like this.
  2. Jack Kruse

    Jack Kruse Administrator

    Evaluation of a devaluation
    The effect of a devaluation depends on:

    The elasticity of demand for exports and imports. If demand is price inelastic, then a fall in the price of exports will lead to only a small rise in quantity. Therefore, the value of exports may actually fall.
    • The impact of a devaluation may take time to influence the economy. In the short term, demand may be inelastic, but over time demand may become more price elastic and have a bigger effect.
    • State of the global economy. If the global economy is in recession, then a devaluation may be insufficient to boost export demand. If growth is strong, then there will be a greater increase in demand. However, in a boom, a devaluation is likely to exacerbate inflation. This is a huge risk in 2021 and few people are thinking this way.
    • Inflation. The effect on inflation will depend on other factors such as: Spare capacity in the economy. E.g. in a recession, a devaluation is unlikely to cause inflation. I believe this is why COVID was created by the government/Fed. To push our brisk economy into a recession before devaluation so as not to ignite hyperinflation, I think they are planning. This is what I call the "Palm Sunday" effect. Get the public ready for the devaluation in as soft a fashion as possible to not ignite a revolution in people who are going to lose a lot more than they could imagine if they do not have some BTC. The next question one must entertain is can corporations pass increased import costs onto consumers? Right now I do not believe they can because of the lockdowns and unemployment. Companies may reduce their profit margins, at least in the short run to lower the impact of devaluation. This has not been true with any of the FAANG corporations Import prices are not the only determinant of inflation. Other factors affecting inflation such as wage increases may be important. Commodity prices at the outset of a devaluation will be a big tell. The price action of gold will also be a tell. If it declines at the outset of a devaluation one should expect a rapid severe effect of devaluation. Gradually.........then a sudden fall.
    • It depends on why the currency is being devalued. If it is due to a loss of competitiveness, then a devaluation can help to restore competitiveness and economic growth. If the devaluation is aiming to meet a certain exchange rate target, it may be inappropriate for the economy. If it is done to create a new financial world, the results might be deadly.

    Buying imports before a devaluation is not wise. Parts you might need will cost thousands more than you think. Plan wisely. If you are on social security or welfare, having the asset is likely to inflate in an economic reset might save your life.
  3. Jack Kruse

    Jack Kruse Administrator

    Why do governments devalue taxpayer value?

    To Boost Exports
    To Shrink Trade Deficits
    To Reduce Sovereign Debt Burdens

    Take for example a government that has to pay $1 million each month in interest payments on its outstanding debts. But if that same $1 million of notional payments becomes less valuable, it will be easier to cover that interest. In our example, if the domestic currency is devalued to half of its initial value, the $1 million debt payment will only be worth $500,000 now.

    Again, this tactic should be used with caution. As most countries around the globe have some debt outstanding in one form or another, a race to the bottom currency war could be initiated. This tactic will also fail if the country in question holds a large number of foreign bonds since it will make those interest payments relatively more costly.

    Bonds and their market, the yield curve that defines them is where one should look for the early signs of a country getting ready to devalue your wealth.
  4. Jack Kruse

    Jack Kruse Administrator

    How do you diagnose a devaluation?

    How bad the lie was..............

    How do you know governments lie to taxpayers?

    $1.9 Trillion should have given every American man, woman, and child just under $6000.

    You’re only getting $1400.

    Who’s getting the other $4600?

    And why isn’t it you?

    You've been lied to again. BTC is the vax for gov't lying.
  5. Jack Kruse

    Jack Kruse Administrator

    Bitcoin can erase the digital dust created by medical algorithms for the health care profiteers who constructed them to steal from us. We become immune to fiat destruction by adopting Bitcoin inoculation.
    Sean Waters, GavinH, DebraGM and 3 others like this.
  6. Jack Kruse

    Jack Kruse Administrator

  7. Jack Kruse

    Jack Kruse Administrator

    Roughly 30% of ALL of the debt accumulated by the United States of America since 1776 was incurred in the last 12 months. This is NOT sustainable.
  8. Jack Kruse

    Jack Kruse Administrator

    Everything banks think they know about risk is wrong

    The pandemic proved banks need to rethink their methods and start using real-time data to avoid lending mistakes in turbulent times.

    In the context of commercial lending, forward-looking data, such as projections of revenues, provide an additional means of understanding future risks.
    Risk models are also less useful when a situation is changing as rapidly as it is now due to the pandemic.

    Take, as an example, two contrasting restaurants. Under lockdown, a fine-dining restaurant is unlikely to experience any business, whereas a pizza delivery chain may see an increase in trade as people stay at home. When lockdown eases, however, and restaurants are allowed to reopen (but with strict social-distancing and cleaning measures in place), the situation then is quite different. The formerly empty fine-dining restaurant, which had always spaced customers far apart with a lengthier turnaround service, is now experiencing a surge in reservations as many diners look to make their first meal out in months “special”. Meanwhile, the pizza chain may see demand for deliveries shrink slightly as people rush to enjoy the outdoors and take advantage of their freedom. This is also in a context where we are seeing unprecedented government support of the economy.

    A situation like this is so dynamic and ever-evolving that banks need to be able to rerun scenarios on loans on a regular basis, using new, real-time data as they receive it.

    Lending models will also need to provide an understanding of the portfolio at the granular-loan level, taking into account the individuality of each business and how metrics such as their cash flow may be affected by the crisis. A luxury boutique that specializes in made-to-measure gowns is likely to see its revenues obliterated as few customers would have an occasion to wear one of its creations. E-commerce businesses that specialize in yoga wear, by contrast, may see a substantial increase as customers practice more yoga at home and order more online.
    As a result of this crisis, banks are having to change the way they lend to businesses. They will need to use forward-looking as well as backward-looking data, rerun analysis on an ongoing basis, rather than annually, and take a granular, loan-by-loan approach. The best banks will expand on these practices that have emerged because of Covid-19 in 2021 and beyond.
  9. Jack Kruse

    Jack Kruse Administrator

    Give a rich man $1000, he returns with $100000. Give a poor man $1000, he returns with an iPhone 13.
  10. Jack Kruse

    Jack Kruse Administrator

    “$20 in 1971 is equivalent in purchasing power to about $135.46 today, an increase of $115.46 over 50 years…today’s prices are 6.77 times higher than average prices since 1971.” Hedge yourself against inflation. Ditch the dollar for Bitcoin.

    1971 was 50 years ago. If you had put 1,000,000 in Bitcoin 5 yrs ago when it was at 723.00 a Bitcoin today you'd have 85,700,000. You would not have had to wait 50 years. Just 8 months in 2016 would have turned your million into 7 million. That is how BTC shrinks time and provides you freedom.
    GavinH, JanSz and caroline like this.
  11. Jack Kruse

    Jack Kruse Administrator

  12. Jack Kruse

    Jack Kruse Administrator

    When you are investing in macroeconomic trends things can take a long time to play out. That’s why you need a good narrative, to shape the way you think about a bet without being distracted by all the noise.

    When it comes to Bitcoin we’ve had a solid narrative for years.
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