One currency falling into another can bring down one brokerage house. Once you have this and all currencies falling against gold, you have the fall of every brokerage house. But instead of brokerage houses, bring it up a step and you have the failure of all central banks. Hey, guys, RaF here from the endgame investor. I got Mario Ineco Monaco 64. It’s me, Mario, with me today, and I want to discuss with him the failure of central banks to control currency exchange rates, because Mario has personal experience with this. With the failure of the bank of England to control the pound exchange rate, with the dollar and other currencies in 1992, September 1992, I think it was.

So Mario was involved in bond trading, in the bond trading industry, finance, basically, in London. He had just moved to London and he what happened that day firsthand? The point being that central banks can and do fail. They cannot control everything. And maybe we’ll go into the situation with the bank of Japan, which is also going to fail. They’re not all powerful. And what Mario thinks, is it going to be better? Is it going to be worse than the failure of the bank of England? What were the practical effects? Did it hurt people’s wallets? Were Londoners freaking out? Was the UK freaking out in general, or did just pass and life went on? What was going on? So, Mario, how are you doing today and what’s going on in your life these days? Well, I’m doing well, and, no, not much different.

I’ve already posted my video this morning and hopefully I’ll play a bit of golf, but that’s about it. And yeah, it was an interesting period. Event. In 1992, I just moved to London. I was offered a job to work at Cantor Fitzgerald, which is now BGC on, on a bond. They do loads of bonds, but they have different desks. I was doing more government bonds, cash market, not futures. And I had arrived on the Sunday prior to the September bank holiday that we have here in the UK every, every year beginning of September. And I started working.

And, and I remember also when I negotiated this job, the exchange rate of the pound to the swiss franc was two francs 80. So thats how I based my salary on from my previous job in Switzerland, was the exchange rate. And then three weeks later, this crisis kicked off. I mean, im aware of why it happened back then, but at the time I wasnt really. I just thought it was a crazy day and all the other dealing rooms were going crazy as well. The currency moved sharply lower. And I remember the bank of England raising rates from 10% to 15 to try to defend the currency.

And then I think they stabilized things, and then at the end of the day, they cut it back to ten. And at the time, the bank of England was not, as they say, independent. It was only in 1997 that Gordon Brown gave independence to the bank of England. So what does that mean? They weren’t independent? And what does it mean to raise rates by 500 basis points for a few hours? What did that even accomplish? What does that even do? Well, I think they’re trying to limit the pound dropping so quickly. So if you raise rates by 5%, they thought that they would attract, force people who held other currencies to sell them and to buy pounds.

And I think it kind of worked. That’s why they cut it back to ten. Or at the same time, they just didn’t know what they were doing, and they thought, maybe we should cut it back, because it’s going to be worse if we raise rates by 5%. So let’s back up here. What was going on? What was the bank of England trying to preserve, specifically? Was it a specific exchange with another currency? And why? And what was this, and why did it break? And where is George Soros involved in here? Yeah, well, at the time, and just before going to that, I just wanted to say, yeah, at the time, the bank of England worked together with the finance ministry or the chancellor, so the chancellor could decide to cut or raise rates.

The bank of England wasn’t independent like now, the chancellor doesn’t get involved with the bank of England. That’s why I said they weren’t independent yet. But it was before the euro. And we had something called the european exchange rate mechanism, which basically pegged currencies to the Deutsche mark. And they gave each currency a band to fluctuate around the Deutsche mark. It could either be 2.5% up or down, or 5% up or down. And the reason they’re doing that is that they were trying to prepare Europe for a single currency, the european exchange rate mechanism. And the UK economy was in a recession at the time, in 1992, and one of the reasons it was in a recession was that it had to keep.

It was keeping rates too high, because the pound was testing the bends that it had. So on that day, the pound basically broke below that bend against the Deutsche mark, and that’s why the pound collapsed. And I think George Soros, with other traders, they were involved, they could see this coming, and they put huge short bets on the pound, just like people put huge short bets on gold paper bets. They leverage themselves and it worked for Soros. I don’t know if he made a billion dollars, that’s what they say he made, but that was the main reason, because the UK was trying to stay within this european exchange rate mechanism that was going to lead to the.

To the euro. And after this crisis, the UK just gave up on that. And I think that sealed the fate of the pound in that it didn’t join the euro. And, yeah, I don’t remember exactly the moves, but yeah, it was shocking for them to raise rates 5% like that in the morning. And then I think things calmed down and they cut it back to. To 10%. So you asked what was happening to the average person on the street. There wasn’t really much effect. I think the country was ready in a recession. Politically, it was really not a good thing.

The chancellor at the time was someone called Norman Lamont. There’s a lot of criticism of him. John Major was the prime minister. And eventually the economy, though, after that, after the fact that the pound dropped so much, it went from one pound was two francs 80 pence. And the reason I remember that well is because I negotiated my salary on the basis of two francs 80 and then it dropped to 240. So I’m going to share a screen here. What was going on at that time in the pound? Right, so it’s over here. This is September 1992.

This is a weekly candles here. So you have a high of two, I think this is the pound to the dollar. So two. Two pounds, sorry, $2 to the pound. And then you had September 20, and then the next month it’s down to about 172 and stabilizes very temporarily around 170 or so. But it keeps going down after that. It didn’t stop until. What date is this? Looks like May or June at 140. Well, that’s 1993. Yeah. So it kept going lower. But I guess one thing that did getting, that’s because the UK announced they’re getting out of the european exchange rate mechanism, the erN.

And basically that allowed the UK to debase the currency. And why do they want to debase the currency? Well, because the UK was in the recession and actually the economy stabilized after that. So, Mario, here’s a 50 year chart. Just zooming out, see if we can see this move. Just zoomed out to see if it can be recognized. And it can, but it’s not one of a kind. I mean, these kinds of moons did happen before in the pound. You know, we have August, September 1992 over here, right here. And then, you know, this, this area right here, this little jerk down.

Right. Then it stabilizes in February, March 1993 and stays around this level for about 78 years. Right. But this is not the biggest move the pound ever made, especially not around the dollar. Maybe around other currencies, I don’t know. But 2008 as well, you know? Absolutely, yeah. 2008 also. Right. That was. That was market forces. And also here from 19, from 1980 to, you know, like, was it two $2.50 mean, wow, that’s five years. But I think that was accord. Yeah, that was when the dollar was really strong against all currencies and then they had the plaza accord and then the pound went back up and all the other currencies as well.

Yeah, these currencies, people think they’re hard currencies, but you do get these sharp moves. We got one two years ago as well, in September. And a lot of these currency events seem to happen in September, which is like the fall equinox, I think in 1931 as well, when England went off the gold standard, it was in September 21 as well. And the pound dropped massively. And prior to 1971 73, the pound was fixed because you had the Bretton woods system and I think it was 1967. They devalued the pound overnight by 14% as well, versus the dollar from 280 to 240.

So it’s happened many times before. And like you said, central banks, they can keep trying to manipulate things, but eventually market forces win. And back in 1992, it was the same thing. Market forces won because they’re trying to keep this artificial rate versus the Deutsche mark because of the european exchange rate mechanism. And I think it was actually a blessing in disguise for the UK because it made sure we’d never joined the euro, because if we hadn’t had that crisis, we probably would have the euro now. Not that the pound is much better than the euro, but I think having your.

If you’re going to have a fiat currency, I think as a country, you might as well have your own. Not have. Yeah. Like any degree of independence is a good thing, whether it’s on a country level, independence versus a huge block of countries like the eurozone. The smaller the unit, the better it is. Which is why the best option is to become your own central bank by being on the gold standard yourself. Right? That’s what we say. Just be on an individual gold standard. Speaking of putting yourself on the gold standard, this interview is brought to you by Miles Franklin.

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I mean, he was just playing the market and he saw it and he did it. But it wasn’t him who broke the bank of England. He was just riding the wave. Preston, the bank wasn’t even broken. They didn’t break it because it’s still around. Yeah, yeah, I know. What I find, what I find pretty ironic is if you were to pick out an arch villain of globalism, then you could say Klaus Schwab, you could pick out Bill Gates or whatever, but George Soros is a name that pops up there as one of the worst. And he here, he fought a central bank.

Not literally, but he’s secondarily responsible for the UK not joining the euro and sort of standing up for market forces at this time. You wouldn’t expect that somebody like him would do that. And then from there, he became very powerful because he made whatever a billion dollars in the trade or however much he made, like, it really put him on the map. And from there, he grew into whatever he is now, just some kind of scary octopus monster. Who knows? Yeah. And I mean, I’ve read some stuff by Martin Armstrong, I’m sure you’ve heard of him.

And he says there’s something called the club, and it’s a group of very wealthy individuals that like Warren Buffett, apparently, according to him, I’m not saying this is true, is part of the club. And a lot of times they put these big trades on, you know, they communicate, I don’t know how, with each other. And they get on, on board, you know, people controlling billions. If they say, well, we’re going to go. We’re going to go short the pound, it works. So. And there’s a lot of rumors as well that George Soros was working with some people in the UK that were against joining the euro or being part of Europe to do that, to keep the UK out.

But, yeah, I think it’s also embellished. And they made this story. He made a billion dollars. Yeah. Like you said, it’s a good point. If you look at the chart going back 50 years, the pound has had a lot worse times than that one. But I think the other lesson that I didn’t know at the time, and to be honest, at the time, it was just one of those events that everyone in the office was like. It was really crazy. It’s like a few days ago when everyone was talking about what happened to Trump. It was the same kind of environment, but I didn’t know exactly why at the time.

It was only a few years later that I started studying things that I realized it was because of the. They’re trying to peg the currency and they did that also a few years ago with the euro versus the swiss franc. I don’t know if you remember. Yeah, yeah, I do. In 2015. Yeah, yeah. And the euro, that was a big day, but it didn’t destroy the world or anything. No. The euro dropped 30%. And the problem with those moves, though, is that the effects market has become, well, it has always been a casino, but it’s even worse now because they’ve pushed it to small investors who leverage themselves.

So you have a day like this when currencies move 1020 30% and you can wipe out a brokerage house, you can wipe out many investors. I think that’s the danger of these moves, because the pound, the euro, the swiss franc are not expected to move 1015 20% in one day. Maybe the turkish lira and the lebanese pounds, but not the supposed hard currencies. Right. So two things about this. First of all, if we take what happened here in the UK, and I want to transpose it onto what’s happening in Japan, and from there, just take a very broad look and people talk about the gold futures market as manipulated paper, which it is.

It’s really the same principle here, that if you imagine a gold futures contract as just another currency or a derivative of gold, and they’re trying to use the gold futures contracts as a way to control the value of the base currency, which would be the dollar, which would be the currency on which everything else is based. And from there you have the forex market. Really, when the gold futures market collapses, that’s really the same thing as what happened with the breaking of the bank of England or the exchange rate between the swiss franc and the euro.

You’re going to have what’s going to happen there when the gold futures market really fails through whatever a delivery problem or whatever else it might be. Then what you have is all currencies falling at basically the same rate against gold. And then you have just as one currency falling into another can bring down one brokerage house. Once you have this and all currencies falling against gold, you have the fall of every brokerage house. But instead of brokerage houses, bring it up a step and you have the failure of all central banks. And the question of what happens the day after that in the world is the same thing.

It’s the same question of what happens in the UK the day after September 20, 1992, but on a global scale and much, much more serious. That’s right. And when I started working in Switzerland for a small fund manager, we did everything. We did foreign exchange, bonds, stocks, commodities, and the dealer for the small firm, he had a Reuters terminal at the time, I think Bloomberg was just starting and he kept, he was like he came from UBS as an FX dealer, but he did everything for the firm in terms of calling the brokers and the banks.

And he always kept this page up on Reuters, FX FX, which is the foreign exchange page on Reuters. I still think it’s the same, but. So they had the major foreign exchange pairs versus the dollar on FXFX, and at the bottom they had Xau and XAG and then the ED one and Ed three. And I asked the guy, what’s the Xau XAg? Well, that’s the price of gold and silver. And the ED one was one month euro dollar, and the ED three was three month euro dollar rates, the Libor rates. And so what I’m trying to say is that it’s not just the futures market for gold that will collapse.

The gold and silver are traded as foreign exchange. So you’ve got XaU USD, XAU GBP, and just like the foreign exchange market is highly leveraged and also manipulated, so is the gold market. But I agree with you, there will be one day when gold, gold will go up 2030, 40% in one day versus all the major currencies. And I think like you say the next day all the banks will have failed, not just central banks. And it will be different, though, than what happened to the UK, because it’s the whole system. The UK, I think it didn’t make much difference for the UK.

The economy was still in a recession. It kind of stabilized, and it actually helped the economy because you devalued the currency, you export more, and inflation might have been a little high. But what happens when the whole fiat system goes, like you said, it’s something that we’ve never experienced before. And when it happens, I think the major thing you want is to have physical gold and silver. All the other forms of gold and silver, they’re not going to be, how can I say, the promises that have been made upon them, they’re not going to be fulfilled.

So what you’re saying is that on that screen when the guy was showing you, Ed one, Ed three, xag, xaude, you’re saying that the big forex traders are using gold and silver prices to execute their trades, or they’re tracking it, or they’re treating the gold and silver price as part of their FX strategies. It’s an integral part of it, right? Yeah. Well, they treat gold and silver as a currency. The only difference is that it’s not a national currency and it’s a neutral currency. It’s the money on which currency is based. Yeah, that’s right. And it’s weird, because this dealer, he used to work at UBS, he was a really nice guy.

He taught me a lot. And the other people that worked, because at the time, I started out in the back office and we did games, you know, trading games. And he. And then he said, oh, let’s do the gold silver ratio. He even traded the gold silver ratio. So, yeah, the banks, people think that the banks not involved in gold and silver, but they are, especially the foreign exchange. At the time, I didn’t care much about gold and silver in the early nineties, but now I realize why it was there, because it was, like you said, at the base of the foreign exchange market, gold.

Do the forex traders even understand this conceptually? Do they understand that their trading is based on the price of gold and silver, or is it just mechanically, this is what they do, because it works well. I don’t think that the quote of the gold and silver price meant that their trading was based on gold and silver. I think what they don’t understand is that gold and silver are actually a currency and that they’re important. I’m not sure that fx effects page still exists and they’ve got gold and silver on the page of. But I mean, Bloomberg terminals, if you go Xau USD, it does come up, because I think a lot of people, they make the mistake of thinking that gold and silver are just commodities like oil and wheat, but they’re monetary commodities.

And I think some of the bankers still understand that, and that’s why it’s so important for them to kind of control the price many times. Because if something like that happens, if we have a day when gold and silver go up 20, 30%, it’s probably the end of the fiat currency system. And what comes after that is going to be. We don’t know. But if you don’t have gold and silver, I think you’ll be hurt big time financially. Mike, just to cap this off, let’s move to Japan for a second, because I’ve been following Japan very closely and I don’t know this for sure, but I.

I think I have this feeling that Japan, it’s not at the base of the pyramid like the US dollar, but it’s somewhere close to that. It’s somewhere right under the dollar. And I don’t know exactly what other load bearing pillars that it supports, but I do have a feeling that when the Japanese yen, when something like what happened to the pound in 1992 happens, the Japanese yen, I think we’re going to be in a new world. I don’t think it’s just going to be okay. The pound is down 30, 40% or whatever, and then we keep going in the next day.

I think it’s going to cause some kind of a domino effect within the next few days of that happening. What is the bank of Japan, what would cause it to break and the yen to get. I think it’s at 158 now. And it’s, let’s say 158. If it goes down 30%, it would be. What’s 30% and 158? I don’t know, 190 something. That would be the equivalent of what happened to the pound happening to the yen. And what would cause that for the bank of Japan. And what do you think would happen in the next few days? Yeah, the yen is a lot more important than the pound.

And if you look at the dollar index, I think the weighting of the yen is larger, and I think the euro has the biggest weighting, of course, but I agree with you. And it’s not just the waiting. It’s because the whole global western financial system, they’ve used the yen for liquidity because they’ve been able to borrow yen so cheaply. And you would think, though, if the yen dropped 30% in a day, that would be good for the people who borrowed in yen. But I think it would kill, like you say, be very disruptive. And what could trigger that? I’m not sure.

It could be, let’s say, a natural disaster, like in 1995. I think you had the earthquake and the stock market dropped massively, and barings bank went under because Nick Leeson had made all these bets that his bosses didn’t know. It could be. What else could it be? It could be the JGB yield going higher, spiking in a day. It’s difficult to say, but I think what the bank of Japan has succeeded in doing right now is allow the yen to drop. How can I say? Gradually. Gradually but quickly? Yeah, gradually but quickly. But if we had one day, we went from 158 to 200, the dollar rose from one.

That would be huge. And like you said, it would be much more significant than what happened to the pound in 1992. And even what happened to the pound in 2022? The pound dropped, I think, from 115 to, like, almost one overnight. And this would probably hurt a lot of the japanese financial institutions and it would hurt the whole financial system. It’s difficult to say, but like you said, it would be very disruptive because it would also point to the fact that the fiat currencies are, you know, they’re not really solid. We already know that, Rafi, but I think the rest of the world, when you listen to the radio here in the UK, they do the business update and they say, well, the pound buys $1.28 and that’s all they say.

But if the next day they come and say, well, the pound buys 98 us cents, people are going to go, whoa, what’s happened? So it’s difficult to say exactly what will happen, but it won’t be good for the system. And I’ve spoken about this for years, the yen Kerry trade, the whole world finances itself with yen. And the other thing it might push the bank of Japan to do is to raise rates just like the bank of England did in 1992. And if they raise rates like, let’s say, 1% in one day, it could bring down the whole.

Well, it could hurt treasuries, it could hurt gilts, european government bonds, they could collapse as well, because the bank of Japan has been dragging its feet to allow rates to go up for years. And if they have to raise rates by 1% or even a bit more in one day, yeah, it would be pretty chaotic, I would say. Yeah, I mean, the way I see it, and I don’t know enough about the internals and the mechanics of what is going on and what it exactly means that the world finances itself through yen. But what I do believe and what I know is that history moves in patterns in a chiastic structure, where it starts out with one event and then it ends with the same event, but reverse.

So really, I mean, you could say that the Bretton woods system, out of which our current currency regime has grown. The only difference between the Bretton woods system and what we have now is that the Bretton woods system had a theoretical core of gold to it, whereas now they’ve taken out that core and we still have the same scaffolding. That’s how I see it. And the other difference is that the exchange rates were fixed as well during the Bretton woods. Right. Because if you have a gold core, you can’t have a completely free exchange rate for it.

And we have, like, informal fixing of exchange rates. It’s not. I don’t think there’s a. There’s a hard agreement as to how much you can fluctuate, but they all try to keep within certain ranges, you know, informally. So if the. If the Bretton woods system began with the literal nuclear bombing of Japan twice, I think it’s going to unravel with the financial nuclear bombing of the entire world by Japan. That would be a very poetic way to end it. I just think that’s how history is structured. I think it would also affect other currencies, like the yuan, because China competes with Japan to export.

So you could see disruption not just in the major currencies, but also in the yuan. Yeah. So exactly what’s going to happen in the end game, I don’t know. But I do know that Japan is going to be a big part of it. And when that puzzle piece goes or when that support beam goes, it’s going to be a rough next few months, and it’s going to be, I think, straight to the end game. Yeah. And I think they’ve been, the Americans, they’ve been using Japan to keep the game going. And the Japanese are quite subservient.

And you would be to a country that nuked you twice. I mean, that’s a lot of psychological dependence. Yeah. And they still have the military there as well. The bases. Yeah. All right, well, this was quite an interesting conversation. Thank you for your insights, Mario, today, and I hope to speak with you again soon, maybe on Sunday, the live stream. We’ll see. Sure. Okay. Take care. Okay, bye.
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