Chinese Yuan; A new world reserve currency? , China making its moves.

From the currency war front, we are watching the major assault on the dollar.  We have anticipated this move for several months now and it appears the major push by China has now been launched.  The first signals was China NOT buying all of the US T-Bills at the last few auctions. Then they shifted their paper buying to the Euro bills.   Now according to Graham Sharkey, only a mere twelve days into the New Year (2011) and China has already set the wheels in motion to use their most powerful weapon, the Yuan, in order to combat inflation. This may well be the first decision of many that will result in the Yuan being phased in as the new world reserve currency.

A stronger exchange rate will be the tool that China will use in order to tame their inflationary problems at present. The biggest increases being felt as a result of inflation at this time are; the Chinese housing market, which was most dramatically affected in the southern industrial hub of Guangzhou, where home prices soared by 38 percent in the past year.  Another sector heavily affected was Chinese groceries, with the cost of some foods increasing by 50 percent.

In an attempt to address the loose lending policies being adopted by Chinese banks, China’s government have ordered their banks to increase the amount of money that each bank holds in reserves with a reduction in the availability of lending.  The strengthening Yuan will essentially result in two ways; 1, their imports will become substantially cheaper. 2, their exports will be more expensive.

This is a move that the US have not wanted the Chinese to take as most of the consumer goods that are stocking up US stores are Chinese-made products and the longer the Chinese allowed their currency to be held at a relatively low-level (compared to its purchasing power potential) the longer the shopaholics’ in America could continue to buy their products at a price that they could afford (or a level that they could get credit for).  So, with the world outside China continually devaluing their currencies and China increasing theirs who is going to pick up the export market? And how do they intend to do this?

Before hand, the countries that were importing goods from China were benefiting from a manipulated Yuan price which gave the illusion of cheap imports. But now, that is not an option. The only way that I can see that will enable countries to bridge the export gap will be, further devaluation of their paper currency, which as any respecting economist knows is only an extremely short-term solution (if it can even be called that) and will only result in long-term high inflation for that economy.

This currency policy decision by the Chinese government will help to add to the increasing confidence in the Yuan as a world reserve currency contender to replace the failure that is, the US Dollar.  Aside from the measures taken to combat inflation in China, there have been many other recent events that all point to the strengthening of the Yuan and the growing popularity of the currency.

In the last two weeks, the World Bank issued their very first Yuan bonds; they will release the amount of 500 million Yuan, which is around $70 million in US Dollars. The bank has said that, these actions are an act of confidence in the Renminbi and will give investors around the globe the opportunity to diversify and help the exposure of the Yuan in global markets. The bonds were offered from January 14th, 2010 and will mature after two years in 2013.

In July of last year (2010) China began allowing cross-border exchange with the renminbi, however, there were caps on exactly how much currency was allowed to be exchanged. That was the closest China had come to allowing the renminbi to be a top currency on a global scale, until now.

Now marks the beginning of the renminbi being allowed to be traded in the U.S, China have identified that the global economy has become too reliant on the Dollar and wants to provide an opportunity to move away from that.  China have already implemented strategies that will allow for sustained appreciation for the Yuan against the US Dollar, a prediction in the rate of appreciation was projected at 6% in 2011 by Robert Minikin, who is a currency strategist at Standard Chartered based in Hong Kong.

The reason that there hasn’t been a replacement of the US Dollar as the world reserve currency as of yet is the fact that there was no currency that was ready to take on that mantle, however, given the performance of the Yuan in the last two years, it has shown its power and reliance as a solid currency, not only that, but China have also helped their cause by not relying on a paper, fiat currency but actually using the strengthening Yuan in which to buy up gold and other major assets, something that every single country in the so-called ‘advanced’ world has not done.  All of these factors are now helping to shape the Yuan into tomorrow’s new world reserve currency and once this transformation occurs, it really will spell the end for the down but not yet out, Dollar.

What to watch now is the so-called “summit meeting between President Obama and Hu Jintao of China this week.  In preparation for that meeting, President Hu Jintao said Sunday the international currency system was “a product of the past,” but it would be a long time before the yuan is accepted as an international currency.

Hu’s comments, which came ahead of a state visit to Washington on Wednesday, reflected the continuing tensions over the dollar’s role as the major reserve currency in the aftermath of the US financial crisis in 2008.

“The current international currency system is the product of the past,” Hu said in written answers to questions posed by The Wall Street Journal and the Washington Post.  Highlighting the dollar’s importance to global trade, Hu implicitly criticized the Federal Reserve’s recent decision to pump 600 billion dollars into the US economy, a move criticized as weakening the dollar at the expense of other countries’ exports.

“The monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the US dollar should be kept at a reasonable and stable level,” Hu said.

China’s own currency, the yuan or renminbi (RMB), is also expected to be a bone of contention in Hu’s talks with Obama, with the United States complaining that it is artificially overvalued to boost Chinese exports.  Asked about the view that appreciation of the yuan would curb inflation in China, Hu suggested that was too simplistic a formula.  “Changes in exchange rate are a result of multiple factors, including the balance of international payment and market supply and demand,” he said.  “In this sense, inflation can hardly be the main factor in determining the exchange rate policy,” he said.

At the same time, Hu signalled no imminent move away from the dollar as a reserve currency, saying it would be a long time before the yuan, or renminbi (RMB), is widely accepted as an international currency.  “China has made important contribution to the world economy in terms of total economic output and trade, and the RMB has played a role in the world economic development,” he said.  “But making the RMB an international currency will be a fairly long process.”

Nevertheless, Hu noted that China has launched pilot programs using the yuan, or renminbi, in settlements of international trade and investment transactions.  “They fit in well with market demand as evidenced by the rapidly expanding scale of these transactions,” he said.

As we have chronicled in this blog, these moves are demonstrating how short the fuse really is on the Dollar remaining the world’s transactional currency.  With the European Central Bank(ECB) denying the crisis of the Euro and the US simply printing more money to cover the mess in the financial markets in the US, it is just a matter of time before China drops the hammer and we will be living in a very new economic paradigm.  Watching the currency transaction markets, it seems it is a lot closer than anyone is admitting publically.

The Holidays Are Not So Rosy in Europe

This is the final update from the currency war front for this year.  For my many readers in Europe, I am sad to say it will not be considered a good year by any stretch.  However, as we have been warning in this series of articles, 2011 looks more like the year the Euro was assassinated.   As we commented in previous articles, the banksters mode of operation now is to break sovereign funds and they are doing a great job at achieving those goals and they are doing it right out in the open in front of us all.  Here’s how it works.  First you force the sovereign to accept severe austerity programs, including raiding pension funds using the IMF and ECB, then you require them to accept “bailout money” and then you use the rating agencies(who you own and control) to downgrade the sovereign’s bonds.  Think I am wrong?  Then read the following with what I just said in mind.

Source: The Economic Collapse

What in the world is happening over in Europe?  Well, it is actually quite simple.  We are witnessing the slow motion collapse of the euro and of the European financial system.  At this point, many analysts are convinced that a full-blown financial implosion in Europe has become inevitable.  Ireland, Spain, Portugal, Italy, France and Belgium are all drowning in an ocean of unsustainable debt.  Meanwhile, Germany and the few other “healthy” members of the EU continue to try to keep all of the balls in the air by bailing everyone out.  But can Germany keep bailing the rest of the EU out indefinitely?  Are the German people going to continue to be willing to hand out gigantic sacks of cash to fix the problems of other EU nations?  The Irish were just bailed out, but their problems are far from over.  There are rumors that Greece will soon need another bailout.  Spain, Portugal, Italy and France have all entered crisis territory.  At the same time, there are a whole host of nations in eastern Europe that are also on the verge of financial collapse.  So is there any hope that a major sovereign debt crisis can be averted at this point?

One would like to think that there is always hope, but each month things just seem to keep getting worse.  Confidence in European government debt continues to plummet.  The yield on 10-year Irish bonds is up to 8.97%.  The yield on 10-year Greek bonds is up to an astounding 12.01%.  The cost of insuring French debt hit a new record high on December 20th.

Bond ratings all over Europe are being slashed or are being threatened with being slashed.  For example, Moody’s Investors Service recently cut Ireland’s bond rating by five levels.  Now there is talk that Spain, Belgium and even France could soon all have their debt significantly downgraded as well. But if the borrowing costs for these troubled nations keep going up, that is just going to add to their financial problems and swell their budget deficits.  In turn, larger budget deficits will cause investors to lose even more confidence.

So how far are we away from a major crisis point? Professor Willem Buiter, the chief economist at Citibank, is warning that quite a few EU nations could financially collapse in the next few months if they are not quickly bailed out….

“The market is not going to wait until March for the EU authorities to get their act together. We could have several sovereign states and banks going under. They are being far too casual.”

Many analysts are even calling for some of these troubled nations to stop using the euro for a while so that they can recover.  In fact, Andrew Bosomworth, the head of portfolio management for Pimco in Europe says that Greece, Ireland and Portugal must all quit the euro at least for a little while if they expect to survive….

“Greece, Ireland and Portugal cannot get back on their feet without either their own currency or large transfer payments.”

Sadly, most Americans don’t realize just how bad the situation in Europe is becoming.  This is truly a historic crisis that is unfolding, just as we predicted it would and just in the manner we predicted it would.

However, since the euro seems at this point to be a “exploit accompli”, the next target is the US Dollar and not necessarily treasury bonds at first.  There are so many state and local governments on the verge of bankruptcy.  This makes the municipal bond market the next “soft” target.  Indeed, a bloodbath in the municipal bond market has already started.

The reason for delay the assault on treasury bonds is the effects that could happen that would careen out of the control of the banksters.  For example, if rates on U.S. government debt eventually hit 8 or 12 percent it will literally be financial Armageddon in this country.  The U.S. government has piled up the biggest mountain of debt in the history of the world, and if we continue piling up debt at the pace that we are, then it will only be a matter of time before the IMF is demanding that we implement our own “austerity measures”.

Many readers recently have commented that I may be over reacting and in fact there are positive things happening in both the economies of the US and Europe.  I do not deny these facts.  However, they are simply dwarfed in scale by these facts.  This blog simply aggregates the facts and from those FACTS draws conclusion as to what might happen next.  I do not gain any pleasure or profit for my efforts, I am simply reporting in detail and opining what may happen next.  I really don’t like what I see happening next.  I believe we may be very close to sound the alarm for general quarters, if you get my drift.

See you next year.

The Insanity on the Currency Warfront

As I have chronicled the global financial meltdown, I have been amazed at the number of economists, traders, and politicians that seem to be in complete denial of the facts of the current crisis and at each step either they have reacted in exactly the opposite manner required to respond to the crisis, or they have failed to act at all for self-centered political reasons.  Some examples include banks sitting on huge cash reserves instead of stimulating the economy, the US CONgress adding $1.3 trillion in new debt with tax cuts, central banks everywhere printing money willy-nilly without regard to the consequences. But most of all, we, as citizens and the main participants in the economy merrily skipping down the road without a care in the world.  That is until you are homeless and hungry, then the feelings are anger and despair.

Then the other day, I had a conversation with an old friend who was a forensic psychologist for one of the US Government alphabet agencies.  He is retired now, but his job was a “profiler”.  He would investigate crimes and other “stuff” to help the agents understand the make-up of the criminal or spy and maybe predict “next” moves.  When I lamented about those around me who I love and respect being in complete denial as to the grave nature of the current economic situation, he explained that this is a very natural response to extreme crisis and distress.  It is called Normalcy Bias.

In short, when humans are faced with natural disasters or a man-made crisis that overwhelms them, they simply slip into complete denial.  Logic and intelligence functions stop.  He pointed out some startling examples.  Consider this.  In Germany in 1937 there were nearly 550,000 Jews.  Long established the Jewish German community was rift with businessmen, intelligentsia, professional people who were just beginning to enjoy a good life again after recovering from World War One.

As Hitler rose to power with his hate mongering and obsession with the Jewish community, it became very apparent that the Jewish community was facing more and more injustices.  Property seizures, business taxed at 100%, lose of civil rights, street beatings by the Brown Shirts, still they did not understand the danger they were in and believed being rational and calm would weather them through the storm.  Only about 100,000 Jews fled in time.  We know the tragic end to that story.

However, things are heating up on the currency warfront.  This week saw many assaults on the US Dollar.  Let me stop here and talk some basics.  Currently the US policy and the FED policy simply has been to print more money.  The US enjoys a unique position when it comes to currency because the US dollar is the world’s transactional currency.  For example, if Germany wishes to buy oil, it must first convert Euros to Dollars to purchase the oil.

However, keeping the dollar as the global transactional currency only lasts as long in the faith of the value of the dollar remains in the rest of the world.  The US actions of the last week, both at the FED and CONgress have gone a long way to weaken that faith.  What is happening is both countries and companies are choosing to use other methods to transact business.

So we are beginning to see news items like this. In spite of its infancy, interest in the offshore renminbi market is growing quickly. Caterpillar, the US-based maker of earth-moving equipment, launched a Rmb1bn ($150m) bond issue last month, making it the second multinational to tap the market, following an August issue by McDonald’s, the fast-food chain.

What makes these bond issues important is that the offshore renminbi market is much more than just a new avenue for debt financing – it is one of the core components in a plan to internationalize the Chinese currency. The process will be a slow one, with more baby steps than giant leaps, and it is by no means assured that the renminbi – also known as the yuan – will forge a decisive international role. But it is one that could have a huge long-term impact on trade, the global financial system and even international politics.

If the plan works, the renminbi could become the main currency for doing business in Asia, the world’s most economically dynamic region, and in the long run it could become a significant part of the reserves of the world’s central banks. Indeed, some Chinese officials have already called for the renminbi to be included in the International Monetary Fund’s basket The timing is also full of portents. The renminbi is starting to go global just as the future of the euro and the dollar is looking increasingly uncertain. Eventually the shift could have an impact on the ability of the US to borrow overseas in its own currency. In China, some have taken to calling their currency the hongbi, or “redback”, to rival America’s greenback – a moniker that gives a flavour of the geopolitical undercurrents.

“We may be on the verge of a financial revolution of truly epic proportions,” says Qu Hongbin, China economist at HSBC, one of the banks pushing the renminbi to its corporate clients. “The world economy is, slowly but surely, moving from greenbacks to redbacks.”of main currencies.

So even though the Fed has flooded the credit markets with cash, spreads haven’t budged because banks don’t know who is still solvent and who is not. This uncertainty, says Ms. Schwartz, is “the basic problem in the credit market. Lending freezes up when lenders are uncertain that would-be borrowers have the resources to repay them. So to assume that the whole problem is inadequate liquidity bypasses the real issue.”

Today, the banks have a problem on the asset side of their ledgers — “all these exotic securities that the market does not know how to value.” “Why are they ‘toxic’?” Ms. Schwartz asks. “They’re toxic because you cannot sell them, you don’t know what they’re worth, your balance sheet is not credible and the whole market freezes up. We don’t know whom to lend to because we don’t know who is sound. So if you could get rid of them, that would be an improvement.”

And economics professor and former Secretary of Labor Robert Reich wrote in 2008:

The underlying problem isn’t a liquidity problem. As I’ve noted elsewhere, the problem is that lenders and investors don’t trust they’ll get their money back because no one trusts that the numbers that purport to value securities are anything but wishful thinking. The trouble, in a nutshell, is that the financial entrepreneurship of recent years — the derivatives, credit default swaps, collateralized debt instruments, and so on — has undermined all notion of true value.

What everyone here is cryptically referring to is the credit derivatives and credit swap facilities which no one knows the value of when conducting a transaction.  Indeed only nine major banks control this $1 quadrillion market.  No I didn’t make a mistake, I said $1 quadrillion! We were just getting our heads around what a trillion really meant.  Here is the fundamental problem with this situation. $1 quadrillion represents about 20 times the Global GDP!  This is pure insanity.  There is no other way to describe what is going on right now.

Economists focus on the whole notion of incentives. People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.

Wall Street insider and New York Times columnist Andrew Ross Sorkin writes:

“They will pick on minor misdemeanors by individual market participants,” said David Einhorn, the hedge fund manager who was among the Cassandras before the financial crisis. To Mr. Einhorn, the government is “not willing to take on significant misbehavior by sizable” firms. “But since there have been almost no big prosecutions, there’s very little evidence that it has stopped bad actors from behaving badly.”

Indeed, polls show that people no longer trust our economic “leaders”. See this and this. A psychologist wrote an essay published by the Wharton School of Business arguing that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable.

Government regulators know this – or at least pay lip service to it – as well. For example, as the Director of the Securities and Exchange Commission’s enforcement division told Congress:

Recovery from the fallout of the financial crisis requires important efforts on various fronts, and vigorous enforcement is an essential component, as aggressive and even-handed enforcement will meet the public’s fair expectation that those whose violations of the law caused severe loss and hardship will be held accountable. And vigorous law enforcement efforts will help vindicate the principles that are fundamental to the fair and proper functioning of our markets: that no one should have an unjust advantage in our markets; that investors have a right to disclosure that complies with the federal securities laws; and that there is a level playing field for all investors.

If people don’t trust their government to enforce the law, government will become more and more impotent in addressing our economic problems. If government leaders take action, the market will not necessarily respond as expected. When government leaders make optimistic statements about the economy, people will no longer believe them.

Then also on the warfront, China and Russia announced they will trade in their own currencies.  In addition, the IMF recently released a report suggesting that given the weakness of the Euro and the Dollar, we should be moving toward a global central bank and a single global currency, which they are calling the Bancor. Several banks no longer are accepting deposits in dollars.

What does this really mean and why should you care about it.  I have one word for you, hyperinflation.  The world is currently pushing back on US policies and are demanding that either the US deal effectively with the deficit or devalue the dollar.  When the pressure gets strong enough, and I believe that could be as soon as the next three months, the US will acquiesce and devalue the dollar by as much as 40%.

This will happen suddenly and overnight!  You will wake up to $8 gas, $5 bread, a 4000 point dip in the Dow and events will rapidly cascade from there to riots in the streets of the US just as we have riots now in Ireland, Greece, Italy, France, and Britain.  The war is reaching fever pitch.  Pay close attention now because bunker time may not be far off.

Further Updates from the Currency War Front

Well, folks, it’s official – mark November 22, 2010 in your calendars.  With yesterday’s $8.3 billion POMO monetization, the Fed’s official holdings of US Treasury securities now amount to $891.3 billion, which is higher than the second largest holder of US debt: China, which as of September 30 held $884 billion, and Japan, with $864 billion.  The Fed is now buying about $30 billion per week, or about $120 billion per month, for the foreseeable future and beyond, it would mean that China would need to buy a comparable amount to be in the standing. It won’t. In other words, the Ponzi operation is now complete, and the Fed’s monetization of US debt has made it not only the largest holder of such debt, but made external funding checks and balances in the guise of indirect auction bidding, irrelevant. China is now not the one having the most to lose on a DV01 basis on that day when the inevitable surge in interest rates finally happens. That honor is now strictly reserved for America’s taxpayers.

In addition, Tuesday China and Russia sent a loud message to the FED.

Source: Asia One – Su Qiang and Li Xiaokun

St. Petersburg, Russia – China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.  Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.

“About trade settlement, we have decided to use our own currencies,” Putin said at a joint news conference with Wen in St. Petersburg.

The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities. The yuan has now started trading against the Russian rouble in the Chinese interbank market, while the renminbi will soon be allowed to trade against the rouble in Russia, Putin said.

“That has forged an important step in bilateral trade and it is a result of the consolidated financial systems of world countries,” he said.

Putin made his remarks after a meeting with Wen. They also officiated at a signing ceremony for 12 documents, including energy cooperation.  The documents covered cooperation on aviation, railroad construction, customs, protecting intellectual property, culture and a joint communique. Details of the documents have yet to be released.

Wen said Beijing is willing to boost cooperation with Moscow in Northeast Asia, Central Asia and the Asia-Pacific region, as well as in major international organizations and on mechanisms in pursuit of a “fair and reasonable new order” in international politics and the economy.

Sun Zhuangzhi, a senior researcher in Central Asian studies at the Chinese Academy of Social Sciences, said the new mode of trade settlement between China and Russia follows a global trend after the financial crisis exposed the faults of a dollar-dominated world financial system.

Pang Zhongying, who specializes in international politics at Renmin University of China, said the proposal is not challenging the dollar, but aimed at avoiding the risks the dollar represents.  Wen arrived in the northern Russian city on Monday evening for a regular meeting between Chinese and Russian heads of government.

In related news on the situation in the EU comes the grim but expected news that the Spanish 3-month bill auction failed.  The debt agency sold only €3.26bn of the €4-5bn that was offered, at average yield of 1.743% vs 0.951% prior. What people must understand is that is nearly double the interest rate.  This debt service is the back breaker to the economy.  Tensions are surely going to start boiling over on the Emerald Isle.  If Greece was a big bomb to the EU and ECB stability, and Ireland was Greece’s big brother, then the Spanish economy is their bigger brother Bubba.  These three countries WILL require further bailouts and quite frankly more than the ECB can handle.  The death of the EU is like watching a shot buffalo go down in a Sam Peckinpah movie.

Finally, back in the US, in addition to the impacts of QE2, the mortgage situation as related to the big banks is far from going away.  To put things in clear perspective, the banks bundled, and sold to investors, junk paper consisting of bundled questionable mortgages.  In most cases, those same banks kept the seconds on those mortgages.  However, now the investors do have recourse.  These bundled packages required the banks to “buy back” any equity that was in default or foreclosure.  The bottom line to this is that the top five banks, between the bad second mortgages and the default clauses on the crap they dumped on investors, are on the hook for nearly $400 Billion, which is more than the equity value of those top five banks.

In view of the fact the currency wars have unquestionably erupted, these elements represent the perfect storm.  As a side, the “fear” index on Wall Street today was the highest recorded since 1987.  These events are moving along the worst case scenario lines.  Watch very carefully.

Update from the Currency War Front

The war has begun that I voiced concern about early last month.  It appears that the first salvos have been fired and the battle lines are being drawn.  I suspect some may raise their eyebrows when I say that this is the most dangerous war the world has ever dealt with in its history.  What is so dangerous about this war?

First, it is a war that very few people understand.  Politicians have no clue and the average person cannot make the connection between this war and their personal lives.  That is until the war swings into full combat mode.  Then they will understand too late.  Let’s just say when you have to take a truck load of money to the grocery store to buy a loaf of bread everyone will understand then.  What we really need now is intervention to prevent this war from escalating.  This is the job for international economic agencies like the International Monetary Fund (IMF), the G20, or the World Bank to step in!

Well…. According to the Telegraph today, it looks like we have had our first opportunity to see these diligent and social responsible agencies in action on the war front.

The IMF policy committee, which has been struggling to agree a consensus on easing currency tensions among key economies including China and the US, said the organisation should instead keep the issue under watch.  Pressure has been piling on China to speed up the pace of economic reform by dropping its policy of using a weak currency and reserve accumulation to boost exports. Finance ministers at the 187-strong lending agency have accused China of imperiling the global recovery by fostering the imbalances that are preventing deficit countries like the US and UK from returning to economic health.

IMF officials argue that if China let its currency appreciate, Chinese imports would become more expensive, potentially sparking demand for US goods. The US is facing crippling levels of unemployment despite returning to growth, which has raised fears of a “jobless recovery” that could trigger political and social unrest.

European Central Bank president Jean-Claude Trichet last night pointedly reminded China of its commitment last June to “engage in exchange rate flexibility”, adding: “There is no need for [emerging economies] to continue to accumulate immense amount of reserve assets.”

Earlier, US Treasury Secretary Timothy Geithner told the committee that the IMF had to speak more forcefully about how countries manage their currencies. He called on the IMF to “increase the candour of its surveillance” and said that “meaningful reform of IMF surveillance is a core challenge of the institution”.

Despite calls for tougher action, the IMF could only pledge to “work towards a more balanced pattern of global growth, recognising the responsibilities of deficit and surplus countries”.

Mr Trichet added that while “we have a consensus on imbalances, the problem is implementation – as always”. China on Friday hit back at calls for it to let the currency rise, saying it rejected such “shock therapy” but is committed to a more “flexible” currency regime.

George Soros, the respected hedge fund manager, also weighed into the debate. Speaking in London, he said a global “currency war” pitting China versus the rest of the world could lead to the collapse of the world economy. Mr Soros said the China had created a “lopsided currency” system and suggested it allow the yuan to appreciate by 10pc a year – far more than the Chinese will contemplate.

The IMF Committee’s chairman Youssef Boutros-Ghali said at the conclusion of talks at the agency’s Washington headquarters that “frictions” did exist. “These are being addressed. We have come to the conclusion that the IMF is the place to deal with these issues,” he said.

IMF managing director Dominique Strauss-Kahn, when asked about the failure to come up with a stronger statement, said that “there is only one obstacle, and that is an agreement of the members”, before adding that the line was a joke. He added that “I don’t believe action can be done in a way other than in a co-operative way.”

Recent IMF figures showed Beijing had currency reserves of $2.447 trillion, the largest in the world and nearly 30pc of the global total.

So maybe bankers will step in and save the day.  Well… maybe not.  Consider this:

The Institute of International Finance, a group that represents 420 of the world’s largest banks and finance houses, has issued yet another call for a one-world global currency, Jerome Corsi’s Red Alert reports.

“A core group of the world’s leading economies need to come together and hammer out an understanding,” Charles Dallara, the Institute of International Finance’s managing director, told the Financial Times.  An IIF policy letter authored by Dallara and dated Oct. 4 made clear that global currency coordination was needed, in the group’s view, to prevent a looming currency war.

“The narrowly focused unilateral and bilateral policy actions seen in recent months – including many proposed and actual measures on trade, currency intervention and monetary policy – have contributed to worsening underlying macroeconomic imbalances,” Dallara wrote. “They have also led to growing protectionist pressures as countries scramble for export markets as a source of growth.”

Dallard encouraged a return to the G-20 commitment to utilize International Monetary Fund special drawing rights to create an international one-world currency alternative to the U.S. dollar as a new standard of foreign-exchange reserves.

Likewise, a July United Nations report called for the replacement of the dollar as the standard for holding foreign-exchange reserves in international trade with a new one-world currency issued by the International Monetary Fund.

The 176-page report, titled “United Nations World Economic and Social Survey 2010,” was issued at a high-level meeting of the U.N. Economic and Social Council and published in its entirety on the U.N. website.

What is obvious is that no agency or governmental body in the world, no matter its size or scope has either the courage or the power to stop the escalation.  The major governments involved, US, EU, China, and India cannot muster the political strength within their respective regions to implement the policies that must be put in place to correct the existing imbalances.

I am certain that if the general public understood that this is a war in which every home, every family on the planet will be victims and causalities of the war, maybe we can rally our weak-kneed and greedy politicians and bankers to implement the policies now to stop this insane war.  You know, a Godfather like discussion.  An offer they can’t refuse.