The United States risks importing uncontrolled inflation through its deliberate efforts to weaken the dollar. ‘Currency wars’ expert James Rickards says such scenario ultimately threatens the global monetary system. US dollar weakening threatens runaway inflation - Rickards (PDF 184.5 KB) James Rickards, author of ‘Currency Wars: The Making of the Next Global Crisis’, told the RBS Macro Conference in London that the world was witnessing the early blows of a battle that could last for years but which no one would win. He said the US Federal Reserve, Bank of England and Bank of Japan had implicitly agreed to simultaneously weaken their currencies by turning on the printing presses and so gain an advantage over emerging market rivals. “In the 1930s, countries devalued sequentially, like thirsty soldiers passing around the canteen. Today the US, Japan and the UK are saying ‘let’s all ease together, lets not fight currency wars among ourselves but fight them with the rest of the world’”. Despite intense focus on the weak yen this year, Rickards said Washington was actually giving Tokyo a “pass to trash its currency” because of its geopolitical importance to Washington and also Tokyo’s willingness to soak up growing supplies of US Treasuries that China was now buying in smaller quantities. Rickards said the whole aim of the currency wars was not as many believed a competitive devaluation to boost export sales, but a tactic to induce consumer spending by increasing inflation through pricier imports. If inflation climbs above nominal interest rates then consumers are incentivised to borrow rather than save as real interest rates become negative. The ‘stick’ to encourage spending is then an ‘inflation shock’ of higher-than-expected price rises that create almost a panic buying mentality. Such a tactic would backfire disastrously, Rickards said. “The Fed thinks monetary policy is a thermostat to be dialled up or down. That idea is deeply flawed,” he said, likening it instead to a nuclear reactor that was unstable and which could not be reversed if it went into melt down. The Federal Reserve, he said, was prioritising its unemployment-fighting mandate and would allow inflation to rise upwards of 4 per cent. But its efforts to then rein in rising prices would fail and inflation would start to spin out of control on the back of growing consumer confidence and faster spending patterns. A similar process over the 1970s ended with US inflation rising to 15 per cent by 1980. “I don’t think it will take 10 years this time,” said Rickards. “It could take as little as two or three years and end up with inflation around 9 per cent.” In contrast to the situation 33 years ago however, the sheer complexity of the global monetary system this time meant it would be far more difficult to control the causes of inflation. The consequences would be dire. “The risk of a generalised collapse of confidence in paper money around the world is very high. Trade wars, social unrest, shooting wars, they are all possibilities”. Leveraged to the hilt, the Federal Reserve would then have insufficient firepower to act effectively. The eventual crisis would lead to the end of the dollar standard, Rickards said. “The next time this happens the Fed will not be able to bail out the world. Their balance sheet will go from USD800 billion to USD3 trillion now and to 5 trillion by the end of next year. If this crisis hits in a couple of years, what’s the Fed going to do? Take the balance sheet to USD10 trillion? At that point the only clean balance sheet in the world is the IMF’s. “In an acute financial panic, the IMF will re-liquefy the world with SDRs (special drawing rights) so they will be the world’s central bank and SDRs will be the global currency”. http://insight.rbs.com/articles/us-...urce=outbrain&utm_campaign=rbs&utm_medium=cpc http://insight.rbs.com/content/dam/insight-hub/Documents/pdfs/us-dollar-weakening.pdf
I agree with almost all your quoted points, especially part above. It is same idea I have posted as: "The Fed has a QE-tiger by the tail and does not know how to let is loose, without causing economic disaster." More than 7 years ago, I predicted this "inflation would start to spin out of control" but called it a "run on the dollar" as all try to get out of the rapidly falling in value dollar (I. e. rising uncontrolled inflation) "On or before Halloween 2014." While I agree (and have posted) that the IMF's SDRs may become a more important "reserve currency" than the dollar, I think it will be of less importance than Chinese gold backed bonds, that pay higher interest than US bonds do as richer China can afford that. More on this aspect here: http://www.sciforums.com/showthread.php?134352-Gold-Bubble-goes-POP&p=3119534&viewfull=1#post3119534 OR here: http://www.sciforums.com/showthread...amp-comments&p=3105910&viewfull=1#post3105910 and many much older posts harder to find now. Please Register or Log in to view the hidden image! * The Fed fears depression and so it trying to make greater inflation as when dollar weakens faster than interest rates people want to buy now, not later when prices are higher, and as the true interest rate is negative, they will even borrow to buy if they are too cash broke to buy without a loan - perhaps by taking out a second mortgage on their home if they own one. "Inflation Genies" when first let out of their bottle do work wonders for a sluggish economy, but grow ever stronger and more damaging. They are impossible to put back in their bottle.
http://abcnews.go.com/Business/story?id=7168919&page=1 "China is calling for a global currency to replace the dominant dollar, showing a growing assertiveness on revamping the world economy ahead of next week's London summit on the financial crisis. The surprise proposal by Beijing's central bank governor reflects unease about its vast holdings of U.S. government bonds and adds to Chinese pressure to overhaul a global financial system dominated by the dollar and Western governments. Both the United States and the European Union brushed off the idea. The world economic crisis shows the "inherent vulnerabilities and systemic risks in the existing international monetary system," Gov. Zhou Xiaochuan said in an essay released Monday by the bank. He recommended creating a currency made up of a basket of global currencies and controlled by the International Monetary Fund and said it would help "to achieve the objective of safeguarding global economic and financial stability." Zhou did not mention the dollar by name. But in an unusual step, the essay was published in both Chinese and English, making clear it was meant for a foreign audience. China has long been uneasy about relying on the dollar for the bulk of its trade and to store foreign reserves. Premier Wen Jiabao publicly appealed to Washington this month to avoid any response to the crisis that might weaken the dollar and the value of Beijing's estimated $1 trillion in Treasuries and other U.S. government debt."
Thanks for link and quote of start of the two pages. On 2nd page, this is important: "Overdue reforms should give proper representation to and increase the say of the emerging and developing economies," Yi Xianrong, a researcher with the Institute of Economics and Finances at the Chinese Academy of Social Sciences, a government think-tank, wrote in the government newspaper China Daily. "Proper representation and a bigger voice for the developing countries are the need of the hour. For instance, being the world's third-largest economy and the largest foreign reserves holder, China should get its due place in the monetary body."
This is laughable for several reasons. But does anyone think China is or anyone else has a better international monetary system? The short answer is no. Two, for all the claptrap and obtuseness, there is no US inflation to speak of (1.5%). And folks of this persuasion tend to be pretty ignorant of the US monetary system. While they may know about the Fed's ability to expand the money supply they are completely clueless with respect to the ability of the Fed to shrink the US monetary supply.
As the Fed "has a tiger by the tail." letting go in mid 2014, makes my predicted run on the dollar by Halloween 2014, more likely.
Inflation is increasing all over the world, also in America. So, It is badly effected at the currency. US dollar is too weaking with the effect of increasing inflation.
Except for the fact that in the US inflation is not increasing. Please Register or Log in to view the hidden image!
Democratic gold: India & China each have several times more gold than the US does. How much more China has is not well known as most of it is hidden (often buried in the ground) not displayed at weddings and festival as jewelry of wealthy ladies. India, however has at least three times more. Thus if and when China does show the world why* just the government is buying 1200+ tons in 2013 alone, they will be the world's richest countries. * To back RMB bonds with gold for central banks & IMF and almost over night making the RMB the world's preferred reserve currency so China, no longer the USA, gets to pay for imports with printed paper.
