Everything was going well until...
Everything was going well until interest rates in Japan began to rise for the first time in more than two decades. Rickards says: "This is the engine of global economic growth. It has been fueling the US economy and the world economy for over 30 years. What could go wrong? What could go wrong fastest is for Japanese interest rates to rise. ... The Bank of Japan says it is going to keep raising interest rates. They aren't going to the moon, but a 3% rate for the yen (and Japanese interest rates) is like going to the moon when it was 0% for 20 years. So, now, the yen carry trade is reversing... The original borrower borrows dollars to repay the yen-denominated loan, exchanges the dollars for yen, and repays the loan. What happens, though, if you cannot borrow dollars? What happens if the bank tells you, 'sorry, there is no money for you'? ...
So what do you do if you want to exit the yen carry trade? You have to sell assets. So you either stay there and earn far less money or even lose money, or you dump assets to raise dollars and repay the yen loan. Both scenarios are bad for markets. If you have to sell assets, guess what happens? Their price drops and other people are forced to sell assets too. Before you know it, panic sets in and everyone is running for the exit. This is not about a few investment banks on Wall Street or a few hedge funds; it involves the entire world trying to unwind the leveraged exchange rate mechanism that has driven the global economy for 30 years. This is the financial equivalent of all-out nuclear war."
Japan is the largest holder
Rickards continues by explaining: "Japan is the largest holder of US Treasuries. They were selling US bonds to acquire dollars in order to buy yen and support the yen value. What happens when you sell Treasuries? US interest rates go up. Do you think the Trump administration or the Treasury Secretary want US interest rates to rise? ... Treasury Secretary Bessent called Japan and said: 'Hold on to your US Treasuries. We will give you all the dollars you need through a swap line with the Federal Reserve.' So what we are doing is the US using dollars from the Fed to support the yen, meaning the Japanese do not need to raise interest rates. In this way, the carry trade does not reverse, and the markets do not collapse... It is extremely dangerous... You are trying to defend an exchange rate that probably cannot be defended, and it is simply a matter of time before it collapses."
Gold market
Back in 2016, long before central banks began buying gold at a frantic pace, Rickards urged people to buy gold in his best-selling book "The New Case for Gold". At that time, gold prices were just over $1,300 per ounce. With its price today reaching approximately $4,300 per ounce, it appears that this was excellent investment advice. We have not reached anywhere near the peak of gold, and Rickards predicts: "I think it is going to soar to $10,000 per ounce. We have already passed our correction...
Now we are heading upward again and this is going to happen very fast." Regarding the midterm elections in November and Trump's efforts to curb election fraud by Democrats, Rickards says: "Things are going to get tough. It is already underway. You can see what's coming. Look at ActBlue. It turned out to be a massive scam, taking money from abroad, which is illegal campaign financing. They were raising billions of dollars, but doing so entirely illegally; they are under investigation and their board of directors has resigned and fled. If you shut down ActBlue and the Southern Poverty Law Center—which is what the Trump administration has done—then that is billions of dollars Democrats can no longer access. In the midterms, Republicans will spend $500 million and deploy an army of 500 lawyers across the country, not waiting until after the election to stop fraud." The Trump administrationwill also stop fraud related to mail-in ballots through the US Postal Service... The US Postal Service is going to 'save the day' by tracking every mail shipment and mail-in vote."
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