Jim Rickards warns of 20% Chinese Yuan devaluation

In July 2014, I saw a sequence of events in a dream, which I interpreted to mean the U.S. dollar would gain value relative to other currencies, causing hardships for many nations (since International trade is conducted in dollars). Then the dollar was suddenly devalued, causing China to become so angry they threatened to declare war.

The first part of the dream came to pass in 2015 as the dollar index soared from 84 at the time of my dream to over 100 by March 2015. It later peaked above 103 in January 2017 before retracing back to the current level at about 94. (Source: marketwatch.com)

Just as I saw in the dream, the strong dollar has caused problems for other nations, especially for China because their currency was pegged to the dollar at a fixed exchange rate, so as the dollar rose in 2015, so did the Chinese yuan, which was harmful to their export driven economy, making their products less competitive in the global market. So in August 2015, they took action, devaluing the yuan, which caused our stock market to drop 11%. Then over the next six months, they devalued it again, resulting in another 11% drop in our stock market in January 2016.

Currency expert Jim Rickards is now warning China could soon devalue the yuan again, which would likely cause our equity markets to drop sharply again. However, the damage could be far more severe this time because he is forecasting USD/CNY would be reset to 7.95, compared to the current price 6.63, which would be a 20% devaluation, much larger than the 3% devaluation in August 2015 when the USD/CNY price moved from 6.20 to 6.40, and much larger than China’s second devaluation by early 2016, which was also about 3% as the price moved from 6.40 to 6.60 (Source: jimrickards.blogspot.com). So, if 3% devaluations resulted in back to back 11% drops in our equity markets, a sudden 20% devaluation could be far more devastating.

Jim Rickards summarized China’s dilemna as follows:

China escaped the impossible trinity in 2015 by devaluing their currency. China escaped the impossible trinity again in 2017 using a hat trick of partially closing the capital account, raising interest rates, and allowing the yuan to appreciate against the dollar thereby breaking the exchange rate peg.

The problem for China is that these solutions are all non-sustainable. China cannot keep the capital account closed without damaging badly needed capital inflows. Who will invest in China if you can’t get your money out?

China also cannot maintain high interest rates because the interest costs will bankrupt insolvent state owned enterprises and lead to an increase in unemployment, which is socially destabilizing.

China cannot maintain a strong yuan because that damages exports, hurts export-related jobs, and causes deflation to be imported through lower import prices. An artificially inflated currency also drains the foreign exchange reserves needed to maintain the peg.

Since the impossible trinity really is impossible in the long-run, and since China’s current solutions are non-sustainable, what can China do to solve its policy trilemma?

The most obvious course, and the one likely to be implemented, is a maxi-devaluation of the yuan to around the 7.95 level or lower.

This would stop capital outflows because those outflows are driven by devaluation fears. Once the devaluation happens, there is no longer any urgency about getting money out of China. In fact, new money should start to flow in to take advantage of much lower local currency prices.

There are early signs that this policy of devaluation is already being put into place. The yuan has dropped sharply in the past month from 6.45 to 6.62. This resembles the stealth devaluation of late 2015, but is somewhat more aggressive.

The geopolitical situation is also ripe for a Chinese devaluation policy. Once the National Party Congress is over in late October, President Xi will have secured his political ambitions and will no longer find it necessary to avoid rocking the boat. (Source: jimrickards.blogspot.com)

Although I did not see any Chinese yuan devaluations in my dream, it would fit the first scene where the dollar was standing strong versus other currencies because a devalued yuan would increase the dollar’s value.

Devaluing the yuan would be a temporary boom for China’s economy as their export prices would become more competitive overnight. It would also attract foreign investors to China since there would be no more fears of a yuan devaluation, but it would be harmful to the U.S., not only damaging our equity markets, but also increasing the cost of our $1.1 trillion debt to China by forcing us to repay them with more valuable dollars (Source: investopedia.com) So if it happens, it would put pressure on the shadow figures controlling the U.S. dollar to retaliate, setting the stage for the next scene in my dream when the dollar was suddenly devalued, which was shown in my dream as a table getting turned over, knocking the U.S. representatives (U.S. dollar) down and pinning them to the floor. That might explain why I saw China’s representatives get very angry. They all stood up and walked out of the assembly hall, threatening to declare war against the United States. They did not actually declare war;  they just made threats saying, “We will declare war!”

Prophetic insights have revealed a big drop in equity markets coming soon, causing SPX to drop back down to about where it was prior to the November 2016 election. However, the cause for the drop is believed to be related to an actual military conflict, not just the threat of war and not a currency war, so I think these are two separate events. If there is another devaluation of the Chinese yuan coming, I think it would be later, possibly sometime next year, not this year.

There are still many unknowns regarding the timing and sequence of events, but when prophetic warnings align with technical warnings, it’s time for investors to beware. It looks like the stage is now being set for some wild swings in currency values in 2018, which would likely cause big losses for equities as investors seek safety in less risky assets, such as precious metals. The magnitude of the coming devaluations is far bigger than what we’ve seen in the past, putting markets in uncharted waters and putting the global economy on track for the rebirth of the phoenix in 2018, a new global currency, as predicted on the front cover of the 1988 Economist magazine.

This is not a recommendation for investing.

Author: James Bailey

James Bailey is a blogger, business owner, husband and father of two grown children. In 1982, he surrendered his life to the Lord Jesus Christ. In 2012, he founded Z3news.com to broadcast the message of salvation by reporting end time news before it happens.

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