Competitive currency devaluations is the name of the game for the next little while. Another notch in ratcheting up the political tensions that now surround the financial dung pile.
Today it is Japan. They intervened, as we all knew they would, to decrease the value of the Yen relative to the US dollar and the Euro.
Japan had asked both the US and the EU to help them. Neither helped and neither will. Because everyone wants their currency to be lowest. And the reason is because with a high value currency you can’t achieve the growth every politician has promised and every banker wants.
Every nation has pinned their hopes of recovery and their economic forecasts of that recovery on one thing – growth. Everyone has the same problem though. No one’s domestic market is growing. In every nation but one, China, consumers aren’t consuming and won’t any time soon.
At first governments were reluctant to believe this. They all insisted that all that was needed was a little confidence building, a little pump priming, a little easy money for the banks to lend out, perhaps a few cash incentives to give people back the taste for consuming their way to happiness. Everyone tried all of the above and all watched as the numbers came back flat or negative. Every incentive merely did what critics said it would do, pulled forward a little demand from the future which then left a hole into which consumption promptly fell.
With domestic demand muted everywhere that leaves only one alternative – export growth. And that requires a low value currency to give your exporters an edge over those who are having to trade in a higher value currency.
At the moment Japan is going for bottom. They have a long way to go. And already Congress is calling their intervention ‘disturbing’ and say they will monitor it ‘closely’.
Up till recently it has been Europe that has done well at the bottom, courtesy of Greece and other debtor nations. We love to chastise them but they have helped no end. But recently worries have receded and the Euro has gained. Not to worry, though, I think Greece and the others will be back on the job fairly soon. It is ironic that Europe’s main weakness has helped them. But don’t get too smug. The same dangers have cost us dearly and could also still blow us all sky high.
America has been the one who has felt most aggrieved at others achieving what they have not. Next week, the focus will move from Japan to China. As Congress starts today debating whether China is a currency manipulator and if so, what America should do about it. I think that discussion could rapidly change into what America is ABLE to do about it. And that might not be a very long discussion. Steps could be taken and it could get quite nasty. But make no mistake, China has the upper hand. It’s just that American politicians are as thick and parochial as ours and so many of them don’t yet know they are no longer the supreme power they so recently were.
Currency wars are where the on-going financial rape and pillage is leading us next.
Hi Golem,
You've probably seen these but just in case, they make interesting reading:
http://www.nytimes.com/2010/09/13/opinion/13krugman.html?_r=1
http://www.project-syndicate.org/commentary/stiglitz124/English
Hi Golem,
You've probably seen these but just in case, they make interesting reading:
Krugman on Yuan
Stiglitz on Trade War
Guess who just learned hyperlinks…
Haven't seen any of your very fine hyperlinked stories yet. But now I will be able to visit them with ease!
Read them both now. Thankyou for posting them.
If ever there was evidnce of how muddled and totally non-scientific economic is, you only need to read these two articles. Both eminent economists. Both expert. And what does it get them and us? NOTHING.
What you have is two theologians who would both claim that non-experts should not meddle in what they don't understand and yet if their own diametrically opposed 'expert' opinions are anything to go by, their expertise affords us absolutely no clarity whatsoever.
Economics is muddled theology in service of a rotten God.