New Currency War starting?

In slightly more than four months, the new Japanese government has driven the value of the Yen down (vs. dollar, which is continuing its slower valued decline) by ~24% ! (From 76 to now 94 Yen required to buy a dollar.) This is good for Toyota etc. as when they sell 100,000 dollars worth of cars they get 9.4 million Yen to pay their workers with, etc. not only 7.6 million Yen as four months ago.

This export advantage will be short lived as other countries join in the currency war. I.e. to keep Americans from buying more, now cheaper in dollars Toyotas, instead of Fords, etc. dollar devaluation rate will be accelerated.

The main long term effect of currency war is that the value of everyone´s currency decreases - hurting workers who´s salaries are not increasing fast enough to hold their purchasing power and especially the retired living on their savings, etc. In most of the western world (but not in Asia, and especially not in China where real purchasing power of salaries is growing by at least 10% annually as there is a labor shortage) too many workers are competing for too few jobs and purchasing power of salaries is dropping by at least 1% per year for last five years.

If a country, like Brazil, does not join in the currency war game, it suffers inflation and loss of local jobs. I.e. as its currency increases in value wrt to the dollar, its population uses their stronger currency to import more (buy less from local manufactures). The local manufactures are doubly hurt if previously they exported part of their production. (The flip side of weaker currency aids exports.) Also as the population becomes richer (even with no salary increase) they buy more and more of expensive items. This increased demand make for inflation as it can happen faster than manufactures can expand production to supply the increased demand.

US has been the leader of a mild currency war for more than a decade: For example, less than 10 years ago Brazil was a major global exporter of shoes (a natural as Brazil has the world´s largest herd of cattle so leather was cheap) but now all the labor intensive shoe factories are closed. - Many jobs lost. One example of what is called "deindustrialization." Even without the US started currency war, Brazil´s destiny was to become an economic colony of Asia, especially China. I.e. be a supplier of low value added raw materials, grains and energy and an importer of high value added goods from Asia, but the US has speeded this transition. It was Brazil´s still serving finance minister who coined the term "currency war" to describe the damage the US was doing to Brazil (and some others with its policy of steadily decreasing the value of the dollar*)

Japan has fired the first large retaliation bullet in the coming currency war that will leave everyone poorer.

*Unfortunately that policy MUST continue as it is the only way to pay off the US´s growing debts - i.e. print more dollars and lessen the value of each already existing. Some 60% of Americans already know / believe they are growing less wealthy in real terms and their children expect to be the first American generation to be worse off financially than their parents were.

 

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If you think no one will increase the rate of their currency devaluation, I have a bridge in Brooklyn I´ll sell you cheap.

 

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Perhaps I should have posted the following in the "Jokes & Funny Stories" thread? - No, its much too sad to go there. Depression, here we come!

But, governments can, will, and are, devaluating their currencies (and saying it is for domestic economic stimulation. etc.):

I.e. A rose by another name is still a rose! Or, in more modern terms: "A pig wearing lip stick is still a pig."

Ben Bernanke says exactly the same thing, every chance he gets: "QEs etc. are not done for competitive export advantage but to help US recover."

 

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More of same:

As shown in the OP, Japan has driven the value of the Yen down 24% in last four months! But please don´t call that a "currency war," even though Toyota, etc. are laughing all the way to the bank. When world went off the gold standard, most countries sought a competitive advantage for exports by devaluating their currency - that directly lead to the great depression of the 1930s. Will we never learn?

Still more:

Corporation, Governments, most People sell the future for a little joy today. - Sad, but how US got 16 Trillion in debt. (Give me now. Send bill to my kids.)

 

video here: http://www.moneyshow.com/video/VideoNetwork/100/9094/Will-a-Weak-Pound-Fuel-the-War/
Points out that G-20 etc. looks at Japan´s intentional rapid devaluation as ok since they have been decades in stagnation - badly need domestic stmulation, even if main side effect / means is rapid devaluation of the Yen BUT now that England is doing that, this may well be the start of the mutually destructive currency wars.

 

For years I have explained this and noted that it was Brazil´s finance minister who invented the term "currency war."

 

I think the growing currency war will end with gold again having a major role. I have many posts predicting that China will internalize the use of the RMB by issuing gold backed (for central banks only) REM bonds (and then, like US now, get to pay for many of its imports with printed paper). I´m not entirely alone in these views, but here is slightly different POV about how it happens that gold and the RMB become important in reserves:

In general, this source link (a 43 page study/ report) is worth at least a quick skim. Author (and OMFIF it seems) and I think the petrodollar system is dying. The question is: What replaces it?
OMFIF = Official Monetary and Financial Institutions Forum "OMFIF believes that the role of gold in the international monetary system will be further enhanced in the coming 10 years as a result of basic uncertainties over the dollar and the euro." And here is the start of the three conclusions of the study/report:

1. The world is headed towards the uncharted waters of a durable multi-currency reserve system, where the dollar will share its pivotal role with a range of other currencies, including the renminbi. ...

2. Amid the new interplay of forces impinging on worldwide official investment, gold seems likely to play an important role. In particular, OMFIF believes that the role of gold in the international monetary system will be further enhanced in the coming 10 years ...

3. China will rise as the US wanes, but this rebalancing will occur gradually rather than abruptly and setbacks and perturbations are likely along the way. ...

Note also, many central banks, including Brazil´s, are now selling dollars to buy gold for their reserves. (Probably buying 600 thousand tonnes in 2013! and Germany, officially the 2nd largest owner of gold, wants at least half of its gold now in US returned to Germany.) Also note that China has bi-lateral currency swaps or agreements to avoid use of the dollar already with most Asian nations, including S. Korea, Japan & India plus more that a dozen non-Asian nations, including Brazil and Russia, and several others in S. America plus a few in Africa where the Yuan/RMB is already more important than the dollar. Proof that the petrodollar system is dying as even oil is now sold by some producers for gold or other currencies.

Except for Algeria, China is the largest trader with all the darker countries in map of Africa below now. In Angola, where at least a million Chinese live and work, the Yuan circulates as a local currency and Chinese security forces have local police powers! More than half of all the world´s new hydro-electric /flood control dams are being built in Africa by China. Uncle Sam is sleeping while China steals Africa and it wealth.

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Rickards agrees:

And Asian trade in Yuan is rapidly growing:

I have noted in some prior post that many Asian nations selling to China, prefer to be paid in appreciating Yuan, than depreciating dollars but as China wants to spend dollar, often they must accept dollars.

 

China is ready:

Brazil, less so.

 

Billions of US Dollars are being paid to China for debt and cheaply made goods.
China doesn't need anything from the US, so it uses those Dollars to buy resources from Africa,
and to fund infrastructure which speeds production and delivery.
African countries are quite happy, as they are getting lots of lovely Dollars.
They probably don't spend them in the US either.
Thus the US becomes a kind of World currency, and its hypothetical printing presses cannot churn out enough imaginary money.

I don't believe you would seriously state that investing money in Africa is stealing it.
Perhaps you are trying to stir up a vigorous discussion.
For a newcomer to Capitalism, China is spending its money far more sensibly than America,
which has lost Trillions of Dollars trying to bomb its way to resources.

China is now spending masses of money building a naval flotilla which they will possibly use to protect friendly Governments.
This is its first aircraft carrier which docked at its home port only a few days ago:

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China's first aircraft carrier, the Liaoning, anchores at its homeport in Qingdao, east China's Shandong Province, Feb. 27, 2013. It is the first time for the aircraft carrier to anchor at its homeport, meaning that the naval base for aircraft carrier in Qingdao is operational after four years of construction, according to a People's Liberation Army Navy statement. (Xinhua/Wu Dengfeng)

See http://news.xinhuanet.com/english/china/2013-02/27/c_132194467.htm

The Congo, which has been a country for centuries condemned to perpetual misery and war, is potentially one of the richest countries in the world.
The "Jewel in the Crown" of Africa.
DR Congo is estimated to have $24 trillion (equivalent to the combined Gross Domestic Product of Europe and the United States) worth of untapped deposits of raw mineral ores, including the world’s largest reserves of cobalt and significant quantities of the world’s diamonds, gold and copper.[2][3] The major ores extracted throughout the DRC are:
Cobalt
Diamonds
Gold
Copper
See http://en.wikipedia.org/wiki/Mining_industry_of_the_Democratic_Republic_of_the_Congo

You can see on your map, that despite this, China has barely made any recent investment there.
The level of cruelty and violence in the country is almost incredible, and since Colonial times always has been.
I wouldn't be surprised to see this ship anchored in the Atlantic with other troop ships before many years pass.

 

Ok, there is an unstated assumption included. I.e. the dollars that Africans are getting, will become worth very little when the dollar collapses. I.e. right now the rulers are being paid but will like many others end up with greatly reduced purchasing power. In stead of "stealing" perhaps I should have said: "dupped" into selling much cheaper than they realized.

I have posted some years ago, and still believe, that China´s "blue water fleet" and four new aircraft carriers planned (in addition to the re-furbished one of your photo) are to make those rulers and conuntries that have promissed in paid up front contracts for 20 to 30 years of future deliveries of minerals, etc. do in fact deliver on those contracts.

It is my understanding that China has been building both a port and railroad deep into Congo from that port to the far eastern part of congo, where the copper ore is and will be paid in that ore. I don´t know why the map does not show this (and other Chinese investments in the Congo). I not very skilled at searching - perhaps you can check if this several years old report I read is true.

BTW, if you can stand the self promotion in first 1/3 and their pitch for joining them in last 20% of the video, it does have long list of facts (all ture AFAIK) about what China has bought with dollars it is wanting to dump, watch: http://finance.uncommonwisdomdaily.com/reports/GRH/GO/?ccode=UWD1272&em= I just let the audio paly in the background and occasionally open to see the data on the screen. Note my email address was immediately after the final = of the link and has been removed - replace it with yours, should work if the link as given doe not, but even without any Email address the link as given works for me.

 

Billy, that is nonsense.
You can't call a country dishonest because another country is avoiding its debts through fiscal wangling.
Also, the Dollar may increase in value.
Stranger things have happened.

 

IMHO, 2013 will be fifth year with more than a trillion spent by government than collected, so the dollar increasing in purchasing power would only slightly less strange than flock of flying pigs. Dollar may increase relative to Euro or Yen but than is only due to them taking the lead in the currency war (excuse me I mean, "Domestic economic stimulation" via their currency printing presses).

I was not calling US dishonest - China knows full well it is losing value by holding Treasury paper - Why they started to decrease their holding (slightly, but as fast as they can) 2+ years ago. I think China is "duping" some African nations into selling their goods cheaply for dollars that will not hold their value, but probably the corrupt leaders don´t care as they can by palaces in Europe etc. NOW to flee to when thrown out of office. The main crooks are not in China, even if the African people are being duped. The real crooks are the corrupt African leaders getting wealth by selling their nations goods cheaply for their own gains.

 

You've misunderstood my argument.
You are accusing China of being dishonest, or at least devious, because it is using American Currency.
Then you say that the US is not dishonest.

I'm putting it the other way round.
That China is being perfectly honest, in using American currency,
which it has earned through hard work and clever commerce,
and that the USA is being dishonest in lowering its debt by deliberately devaluing its currency.

I don't generally disagree with you much, but I think you've got this wrong.
I think your argument is completely back to front.

In any case, it is patronising to say that the African Nations are being "duped".
They are no longer naive natives who will swap gold for beads and mirrors.

I think it is possible that the US Dollar may fall in value dramatically,
they are over stretching their credit,
but it is unlikely.

If the US can resist going round the world kicking beehives,
and become self sufficient in power,
and start making things again,
that debt may come to fall considerably.

 

Not with the ill educated masses of most African countries. With their self-serving and usually very corrupt, leaders assisting the Chinese, the people are losing the birth right wealth for essentially nothing. Only place where there seems to be significant understanding of this is in Nigeria, where organized resistance is violently interfering with the international oil company’s activities and that includes some Chinese ones, but China is also doing some good things for the people too.

I don´t think we have much disagreement on the facts, just what they should be called. I take the position that if the buyer (of dollars for goods sold) knows full well there is great risk that the dollars received will continue to drop in value (purchasing power) and perhaps fall in value very rapidly at some future time, then the dollar buyer is not being "duped" and the US is not being dishonest as you state, at least not to that Chinese buyer, which is trying to pawn its dollars off on others AFAP, for materials of real intrinsic value. - Often using fully paid up front contracts for up to 30 years of future goods deliveries.

Probably the US is being dishonest when selling "saving bonds" to young buyers* or old people whose judgments are based on what was true many years ago and still remembered /believed. To the extent that the US promotes Social Security as "YOUR S.S." as if you owned something or at least had rights to the future income the SS will calculate for you now and does nothing to dissuade people from thinking it is an obligation of the government to pay them (instead of an income transfer program to the old from current workers that will pay drastically reduced benefits when there are only 2 workers for everyone collecting SS) I would call that the US "duping" its own population, if not out right lying to them.

I won´t hold my breath for that to happen. My judgment on the debt reduction is the opposite even if, as Obama seems to be doing, the US kicks fewer bee hives, is that the interest rates on new treasury paper will rise (or only the Fed will be buying it, except for a few insurance companies whose future obligations are quite accurately known and stated in fixed dollar amounts). I.e. The US´s past economic sins will sink the US economically, even if it gets "economic religion" now. To be a little more quantative, if the 10 year bond hits 3% or the 30 year bond hits 4% interest, (still far below the long term averages) the US is an economic "goner" that can live only a year or two more on fresh printing press dollars.

The Fed now has the economic tiger by its QEternity tail and can´t let go or if it does, the US crashes.

* When I finally got my Ph.D. and a job, I even bought a 10K saving bond. The interest rates and thus the purchase price discount were much higher then. Even so, it was a mistake as years later when I cashed it in I had large salary and it was taxed at my incremental rate. Better if I had just bought some utility company´s shares - gotten steady dividends spread over years and favorable long term capital gains tax rate when I did sell. Oh well, I learned and one must always pay for education.

 

Abe is currently ahead in the currency war, here is how:

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But England is closing on the Japanese lead. Don´t worry- the US will catch up soon.

It recently (4 or 5 months ago as I reacall), before Abe looked like he would win, it took less than 80 yen to buy a dollar!

 

Bring back the Gold Standard!

 

October 05 23:16:35 1998

You can have your magic beans Jack,
your children are hungry and we need the cow back.

The lack of just terms and equitable or fair pacts,
expose all crooked beanstalks to concerted attacks.

Unless obsessive cycles are stopped in their tracks,
our towns will again be as flat as tacks.

You have been too trusting Jack,
your children’s futures remain black,
while current problems compound through lack.

Struggle earnestly against the pack,
repudiate rights to depreciatingly retract,
as giants fortress lie ripe for sack.

For only fair shares of the golden goose Jack,
will save beanstalks and giants from the axe.

 

Another thread required for that one really.
Some people blame the removal of the Gold Standard for 20th Century inflation,
but the likely culprit is the expense of two World Wars, which nearly bankrupted many of the nations engaged.


Added later. Just found this.
May have to abandon my war theory.

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Anyone want to store some Pound under their beds?