Currency war part two starting now.
“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness,”
Brazil is an exporter and has been doing well. Will she feel forced to devalue? If she does, how will she do it? Chances are Brazil will be forced to take action that could well hurt their citizens in order to protect her industries.
Brazil will have to protect against imports which are now cheaper as the currencies they are exported in are devalued. Question is how to do this without being accused of ‘protectionsim’ by the very nations who are bust devaluing their currencies?
Devaluing their currency is the way to get around having to use ‘protectionist’ import tariffs. Plus currency devaluation helps exports which is where its really at for Brazil. But how to devalue? Japan is trying and failing – expensively. Unlike Europe, Brazil doesn’t have a clutch of Anglo Irish Bank alikes that are so toxic that devaluation comes easily.
UPDATE – I wasn’t up on this at time of writing. Brazil has been buying up to 1 billion US dollars each day for the past two weeks. That’s a poke in the eye for the US. Another uppity South American leader on the MIA’s to do list.
Back to the original
And for the Euro more devaluation is on its way when Moody’s cuts Spain’s debt rating again, later this week. CDS costs on Irish and Portuguese debt is rising and fast. Irish cds costs were 4.72% yesterday. Today they are 5.1%. A single day!
If the pace keeps up then we are on course for another Euro-debt pushing and shoving match. The European bail out fund the EFSF (European Financial Stability Fund), the one that just last week ‘was never going to be touched’, was, according to German Financial papers, within a hair’s breadth of being used to rescue Ireland from its death dance with Anglo Irish. So much for stability.
But while we roll around in our own mess we are now beginning to export this hurt to those who had no hand in creating it. Countries like Brazil. Brazil is now in a fix of our making. I think she will be best served by trying to get some coordinated action among her ‘bric’ and her South American allies.
One thing is for sure. As more nations get drawn in to and hurt by the currency wars the more dangerous it gets.