Debasement war?

[loosecannon]

Like the article said and I concur:

"So we have an early 1930s world where surplus states are hoarding money, instead of recycling it. A solution of sorts in the Great Depression was for each deficit country to devalue, breaking out of the trap (then enforced by the Gold Standard). This turned the deflation tables on the surplus powers – France and the US from 1929-1931 – forcing them to reflate as well (the US in 1933) or collapse (France in 1936). Contrary to myth, beggar-thy-neighbour policy was the global cure."

after I started this thread and began to think about it I began to warm up to the idea that a debasement war might be far more of a solution than a problem.

To address the unparalleled imbalance that is globalization.

When you think about it a nation states world that embraces full trade is running the same risks as an EU that shares a currency and economic liberalization while maintaining regional states.

Very little real difference between the macro world under globalization and the micro world of Europe under the EU.

But of the two the EU seems to have more advantages built in.

 

[loosecannon]

Trashing Currencies

It’s hard to see how any of this can come to any good end, isn’t it? Either the competitive devaluations end up being a zero sum game or the economy best able to stand the negative consequences emerges a winner while the rest suffer devastating setbacks. Of course, it might also be one of those wars in which the living envy the dead. Bernanke and his cohorts are playing a dangerous game with money creation. It could easily get out of hand, and that little bit of inflation he and others crave might well grow beyond their carefully orchestrated targets.

What started out as a mostly American and European financial crisis may well be setting in place a chain of events which pull in the rest of the World’s developed and developing economies. The Western economies have reached some practical limits both financially and politically to their ability to engage in further fiscal stimulus. Thus hamstrung, the game now morphs into one which seeks to achieve economic revival at the expense of competitor countries via currency devaluation masquerading as sophisticated central bank stimulus schemes. It’s just the next chapter not a new crisis.

Lots of people profess incredulity over the rise in the price of gold. What they should probably be confounded about is the willingness of investors to continue to invest in equities and bonds

Trashing Currencies

 

[loosecannon]

No politician ever uttered more honest words than Guido Mantega, Brazil’s finance minister, when he argued central banks were engaged in an “international currency war.”

Every country is trying to export its way out of trouble. And the chosen road to net exports is–largely–through devaluation.

Both the U.S. and the U.K. have used quantitative easing to that end. Japan has launched direct intervention, with similar moves either done or promised by Colombia, Thailand, Singapore, South Korea and Taiwan. Others, notably China, have stuck to the simple expedient of a currency peg.

Mantega’s comments were in response to the Brazilian real’s relentless appreciation against the dollar, leaving it, according to Goldman Sachs estimates, the most overvalued currency in the world.

Surely, a direct response by Brazil can’t be too far away.

How Currency Wars End - The Source - WSJ

....But some savers will resist. Like China.

China will try to keep its dollar peg in place, which will keep its exports flowing and maintain the value of its hoarded reserves.

The only response the U.S. will be able to make, before it is entirely sucked dry by what it increasingly sees as a parasitic state, will be to launch a trade war. Tariffs and embargoes are a near certainty. U.S. consumers will be hurt, but not as much as Chinese producers.

The financial crisis was never going to end neatly. It could finish very messily indeed.

 

[william the wie]

There are a lot of legal and accounting problems simmering beneath the surface in Asia and Latin America so the results could exceed badly on the nasty side.

 

[loosecannon]

it could get ugly, I still think Congress will fold.

 

[loosecannon]

House slaps China on currency policy, deepening trade dispute

The House of Representatives voted Wednesday to punish China for policies that unfairly favor its exports at the expense of the United States and other countries, the latest volley in what is developing as a global battle over jobs and commerce.

The vote, ahead of congressional elections in which economic issues will figure prominently, reflects growing international anxiety over China's policies - and particularly the management of its currency. By keeping the value of the renminbi artificially low against the dollar, China makes its goods cheaper on world markets, encouraging consumers to buy and underpricing competitors from other countries.

...

Brazilian Finance Minister Guido Mantega said this week that a quiet "currency war" is underway. With capital and investment pouring into the faster-growing Asian and Latin American economies, that is increasing demand for local currencies such as the Brazilian real and making them relatively more expensive. Money is also flooding into China, and if Beijing does not allow the value of the renminbi to rise, other countries might feel they have to keep their currencies cheap as well - or risk losing ground to Chinese manufacturers.


Countries such as Colombia and Peru have also been battling to stem the appreciation of their currencies, by selling off their local money and buying dollars. South Korea and Taiwan have been increasing their holdings of foreign reserves, one signal of an undervalued local currency. And officials in Brazil - whose currency has jumped more than 30 percent against the dollar in the past year and a half - have said they might need to become more aggressive.

The House vote was overwhelming - 348 to 79 - and bipartisan. The rhetoric was sharp as members of Congress slammed the "clique of gangsters" at the head of the Chinese government and argued that the United States was already fighting a trade war with the world's most populous nation. Joint trade between the two countries amounts to nearly $300 billion a year, but it is lopsided: The U.S. trade deficit with China was in excess of $200 billion last year.

washingtonpost.com

I imagine that the election figures sharply into the harsh rhetoric. Each party trying to out shout the other. But this also sounds like a sales pitch.....

 

[loosecannon]

China snubs US on boosting yuan's value

Beijing

China’s central bank thumbed its nose Thursday at legislation that the US House of Representatives had passed on Wednesday in a bid to force China to strengthen the value of its currency.

The bank fixed the RMB’s value at a weaker rate than it had been before.

China snubs US on boosting yuan's value - CSMonitor.com

 

[william the wie]

This is so ungood.

 

[loosecannon]

China is not gonna budge.

We need to stop fucking around and collect a coalition of states willing to act multilaterally to force China to depeg.

If it was me I would ship nuclear warheads by the hundreds to Taiwan if that is what it took to let them know we are serious.

Maybe move 4 carrier groups into their waterways. Permanently.

The peg must end whether China likes it or not.

 

[Charles_Main]

China is not gonna budge.

We need to stop fucking around and collect a coalition of states willing to act multilaterally to force China to depeg.

If it was me I would ship nuclear warheads by the hundreds to Taiwan if that is what it took to let them know we are serious.

Maybe move 4 carrier groups into their waterways. Permanently.

The peg must end whether China likes it or not.

Not likely under our current leadership

 

[Toro]

This is so ungood.

I agree.

 

[loosecannon]

This is so ungood.

I agree.

so what should we do?

 

[loosecannon]

Geithner stokes world pressure on China over currency

IOW a coordinated multinational debasement effort aimed at breaking the yuan/dollar peg

The Obama administration is trying to escalate international pressure on China to change how it manages its currency, casting a global focus on what U.S. officials say has become a major risk to the economic recovery.

Calling the currency issue the "central existential challenge" facing the world economy, Treasury Secretary Timothy F. Geithner acknowledged that the administration's effort to settle the one-on-one spat through quiet diplomacy had failed and marked a new phase in the struggle with Chinese officials.

China's policy of keeping the renminbi cheap on world markets "sets off a dangerous dynamic" that encourages other countries to follow suit and risks touching off a destructive, tit-for-tat competition for jobs and trade, Geithner said in remarks at the Brookings Institution.

"It's unfair to countries that were already running more flexible regimes and let their currencies appreciate," he said.

In seeking to muster a broader coalition, Geithner issued an ultimatum to the International Monetary Fund: take a more aggressive stand on China's currency or potentially lose U.S. backing for a series of efforts pending at the agency.

The IMF is debating changes in how it is governed to give greater influence to developing nations in Asia and elsewhere, but Geithner said these steps should be tied to these countries, in particular China, allowing their currencies to more closely adhere to free-market levels.

"That's the deal on the table," Geithner said in his comments, delivered on the eve of the IMF's annual meeting.

His remarks come as concerns grow that China's currency management may prompt other countries to keep their currencies cheap so their exports remain relatively affordable. The Brazilian finance minister, for one, warned last month of a developing "currency war."

This may be a first ray of hope, let's hope the US is serious. And that change follows suit

washingtonpost.com

 

[william the wie]

Dream on

 

[loosecannon]

I think it is do or die, Willie. If a unified western world can't make China budge then we might as well surrender. We are whipped.

We need to stand up and act like a superpower or the world is gonna recognize that we are impotent.

 

[loosecannon]

(Reuters) - Emerging powers won a battle on Saturday for heightened IMF scrutiny of rich countries' economic policies as world financial leaders sought to defuse mounting tensions over currencies.

The International Monetary Fund's 187 member countries gave voice to long-running frustrations of emerging economies, which say the Fund has traditionally not been tough enough on its biggest shareholders, led by the United States.

Now, with the United States and Europe in the doldrums, and emerging economies providing the major growth engine for the world, the tables appear to be turning.

"Stronger and even-handed surveillance to uncover vulnerabilities in large advanced economies is a priority," the IMF's steering committee said in a communique.

The statement reflected the arguments of developing countries that weak finances and sluggish growth in the United States are a fundamental cause of imbalances in the global economy, with U.S. policies fueling the dollar weakness that is causing strains for many emerging market currencies.

This view was driven home by Chinese Central Bank Governor Zhou Xiaochuan on Saturday and won broader support.

"The IMF is no longer the institution designed to look after the developing countries solely," said Thailand's finance minister, Korn Chatikavanij. "Its role needs to be more broad-based, and it needs to realize that mistakes in the larger economies have global impact."

The United States, in contrast, has pointed its finger at China, saying its huge current account surplus and undervalued yuan currency are partly to blame for the imbalances that have caused the dollar to fall and raised concerns about a "currency war."

NO DEAL ON CURRENCIES

The finance leaders struck no deal on currencies but their IMF communique sought to defuse these escalating tensions by acknowledging both sides' points of view. Not only did it underline the need for scrutiny of rich countries, it added language sought by Washington for the IMF to speak with greater "candor" in advising countries on economic policy, potentially giving the Fund more clout when dealing with China's yuan.

But it laid out no concrete actions for addressing the problems of unbalanced global growth that underlies the mounting stress in foreign exchange markets.

U.S. Treasury Secretary Timothy Geithner said there is a direct link between planned reforms at the IMF designed to give emerging powers a greater voice and foreign exchange rate policies, and said if emerging markets want more influence they must release their grip on tightly managed currencies.

China is now a co superpower

IMF told to toughen scrutiny of rich powers | Reuters

 

[william the wie]

Until it blows up China is riding high but it will blow up in the coming decade and I am on record as saying it will start blowing up in, I believe the record will show, 11.5 months or less. My big worry on that claim is that the start of the blow-up will be dated prior to my post. While it could take longer China is pounding its chest as if the leadership is afraid of a blow up this month.

 

[loosecannon]

they are afraid. The term they use is riding the tail of a Tiger.

 

[editec]

The USD was in de basement the moment that we woke up to the overpriced real estate and valuation of stocks and bonds.

 

[william the wie]

China blows up with fair regularity about every 60 years with I believe three dynasties that lasted 200 years or more so it is due. Also the last time a major economy grew at China's current rate for any length of time was Russia 1890-1914 with Japan doing nearly as well 1960-90. The leadership is riding a tiger.