Tornado Alley (PROG)

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Currency Wars

"We live in a global marketplace, and I know that workers and businesses in Michigan can compete with anyone when the playing field is
level. But we need to decide if America is going to lead a race to the top, or if we’re going to race to the bottom in our standard of living."

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shtsqsh, i understand and feel with you your pain .. i agree, kudos to Debbie Stabenow and others for attempting to ease that pain by managing the inevitable trend to evermore interwoven and complicated globalization as well for the USA as can be (in fact as all good people in all countries will always attempt to do for the majority, the needy and suffering people, among their own) .. also, i'm afraid there is also another inevitability which i had expressed before and was lucky enough to snag just now with an "of the worlds wealth" search ..

Damn .. "Generation Squeeze" .. so many good, decent, hardworking Americans at the total mercy of an internally overly distorted system (as most all places) .. it was inevitable globalization would mean that the people of America (what is it? .. something like 6.5% of the world population with something like 65% of world wealth? .. check, OOPS, about 34% in 2006 just saw) .. anyway, that America would inevitably have to give back some of it's unsustainable share .. that understood, it isn't right (what's that matter? well, it should) that the richest (in money terms) shouldn't pay back more of their own exorbitant, ungratefully possessed, so ungracious share (especially with much of it now earned in the absence of productive work) .. no, no envy at all here .. anyway it's also obvious that what is better for most doesn't matter to so many in our [the] last great (grate) most Christian nation of the world ..
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=84389161 .. in all humility and with the best of intention .. just saying .. :)

This image is in the above link


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By Lucy Meakin | Updated Apr 14, 2015 8:11 AM EDT

Central bankers aren’t usually the ones who fight wars. But the global economy is a dangerous place, full of threats to prosperity. That’s given rise to the idea that there’s a tussle for competitive advantage .. http://www.bloomberg.com/news/articles/2015-02-06/a-stealth-war-with-currencies-as-weapons-silent-killers .. going on, with each country brandishing its currency as a weapon. The standard view assumes policy makers are driving down exchange rates so that goods made by their exporters can be sold cheaper overseas, providing a jump-start to the economy at home. When other nations retaliate, it ignites a currency war .. http://www.economist.com/news/leaders/21571888-world-should-welcome-monetary-assertiveness-japan-and-america-phoney-currency-wars . Central bankers say .. http://www.bloomberg.com/news/articles/2015-02-09/g-20-officials-say-currencies-reflect-economic-trends-not-war .. they’re not trying to pick fights. Rather, they’re cutting interest rates and taking other steps to stimulate growth. That creates spillover, however, as money flees for countries with higher rates, pushing currencies higher and hurting exporters. Whether intentional or not, these unspoken currency wars still create peril — and real winners and losers.

The Situation

The battle erupted again in early 2015, as at least 22 countries .. http://www.bloomberg.com/news/articles/2015-03-02/the-great-global-monetary-easing-of-2015-may-be-done-by-mid-year .. cut interest rates in the first quarter. Nations from Canada to Singapore to China .. http://www.bloombergview.com/articles/2015-02-06/is-china-preparing-for-currency-war- .. unexpectedly eased monetary policy. The European Central Bank began a bond-purchase program known as quantitative easing that helped send the euro to the lowest level against the U.S. dollar in more than a decade. The current conflict has simmered for years as the biggest countries fought their way out of the recession triggered by the 2008 financial crisis, with the U.S. and Japan also using bond-buying plans. As the recovery limped along, policy makers shifted their focus to warding off deflation .. http://www.bloombergview.com/quicktake/deflation , or a drop in prices that can cripple spending and sap growth. Most central banks have a mandate to keep prices stable, so when oil prices .. http://www.opec.org/opec_web/en/data_graphs/40.htm .. collapsed in late 2014 .. http://www.bloombergview.com/quicktake/oil-prices , they were forced to act. Who’s taking the hit? Mainly the U.S. .. http://www.bloombergview.com/quicktake/almighty-dollar , as the dollar strengthened .. http://www.bloomberg.com/news/articles/2015-03-12/how-the-u-s-dollar-made-a-spectacular-turnaround-that-took-everyone-by-surprise .. against almost every other currency, threatening the profits of U.S. exporters. The currency wars also forced Switzerland to surrender .. http://www.bloomberg.com/news/articles/2015-01-15/swiss-franc-surges-to-record-high-against-euro-as-snb-ends-cap .. its three-year-old limit for the franc against the euro in January, jolting foreign-exchange markets.


Source: Bloomberg News

The Background

Brazilian Finance Minister Guido Mantega gave the currency wars their name in 2010 when he denounced .. http://www.bloomberg.com/news/articles/2010-09-27/mantega-says-brazil-to-buy-all-excess-dollars-in-bid-to-curb-real-s-gain .. what he saw as the deliberate pursuit of weaker currencies. His country had been an early casualty in the fight, after lower U.S. rates sent money flowing into emerging markets, making Brazil’s commodity exports more expensive. The big winner .. http://www.bloombergview.com/articles/2014-12-09/the-yen-is-falling .. is Japan, after the yen .. http://www.bloomberg.com/news/articles/2014-12-29/yen-set-for-record-losing-streak-even-as-pace-slows-currencies .. tumbled 28 percent against the dollar in two years, propelling profits for companies like Toyota .. http://www.bloomberg.com/news/articles/2015-02-04/toyota-raises-profit-forecast-as-weak-yen-lifts-earnings-on-suvs . The Great Depression of the 1930s prompted the most famous frenzy .. http://www.bloombergbriefs.com/content/uploads/sites/2/2015/02/economicseurope_currency_wars_supplement.pdf .. of competitive devaluations as countries abandoned the gold standard that had pegged their currencies to the value of the metal. Until its collapse in 1971, the Bretton Woods .. https://www.imf.org/external/about/histend.htm .. system prevented a repeat of such beggar-thy-neighbor strategies by linking the value of many currencies to the dollar. Over the last decade, China .. http://www.bloomberg.com/news/articles/2014-10-15/u-s-says-china-shows-some-willingness-to-let-yuan-rise .. has faced criticism for holding down the value of the yuan, as cheap goods helped transform the country into an exporting powerhouse.

The Argument

With deflation-fearing .. http://www.bloomberg.com/news/articles/2015-01-21/central-banks-step-up-low-inflation-fight-with-canada-rate-cut .. central banks embracing unconventional policies to protect their economies, the race to the bottom has taken on new momentum. The fallout from unilateral moves can rattle .. http://www.bloomberg.com/news/articles/2015-02-06/a-stealth-war-with-currencies-as-weapons-silent-killers .. markets, whipsaw capital flows and fuel volatility .. http://www.bloombergview.com/articles/2015-01-16/no-one-was-supposed-to-lose-this-much-money-on-swiss-francs . More countries have tried to manage exchange rates though pegs .. http://www.bloombergview.com/quicktake/currency-pegs .. to another currency. There are calls for clearer communication and a more united stance .. http://www.bloombergview.com/articles/2015-01-29/swiss-singapore-central-banks-show-need-for-coordination .. from the world’s central bankers, since currency fluctuations create uncertainty and can cramp investment .. http://www.bloomberg.com/news/articles/2015-02-06/a-stealth-war-with-currencies-as-weapons-silent-killers . The G-20 group of countries has pledged .. http://www.bloomberg.com/news/articles/2015-02-10/lew-warns-g-20-against-currency-devaluation-as-u-s-dollar-soars .. not to target exchange rates for competitive purposes, though it stopped short of criticizing any nation for doing so. All the while, U.S. exporters are feeling the pain, putting the recovery of the world’s largest economy at risk .. http://www.bloombergview.com/articles/2015-02-06/america-is-ready-for-currency-wars . There’s a debate about how long the world’s economies can fight, and how they might make peace in the currency wars.
The Reference Shelf

A Bloomberg Brief newsletter .. http://www.bloombergbriefs.com/content/uploads/sites/2/2015/02/economicseurope_currency_wars_supplement.pdf .. explored the roots of the currency wars.

“Currency Wars: The Making of the Next Global Crisis,” a book .. http://www.ft.com/cms/s/2/d761be04-0a3a-11e1-92b5-00144feabdc0.html .. by Jim Rickards .. http://www.jamesrickardsproject.com/ .

Nouriel Roubini, an economist at the New York University Stern School of Business, explains the conflict in this article .. http://www.project-syndicate.org/commentary/world-government-reliance-monetary-policy-by-nouriel-roubini-2014-12 .

A research paper .. http://www.iie.com/publications/papers/gagnon201301.pdf .. on currency manipulation from Joseph Gagnon, a former official at the U.S. Federal Reserve and the U.S. Treasury.

QuickTakes on the U.S. dollar .. http://www.bloombergview.com/quicktake/almighty-dollar .. and currency pegs .. http://www.bloombergview.com/quicktake/currency-pegs .

First Published Feb. 10, 2015

To contact the writer of this QuickTake:

Lucy Meakin in London at [e-mail]

To contact the editor responsible for this QuickTake:

Leah Harrison Singer at [e-mail]

http://www.bloombergview.com/quicktake/currency-wars