The term, “CURRENCY WARS”, according to the FINANCIAL TIMES, “lexicon”, originated with Guido Mantega, then finance minister of Brazil who in Septemeber, 2010, used the term as a label for the act of devaluing a currency to gain an export advantage over other countries. Later, FORTUNE magazine quoted USA Treasury Secretary, Jim Geitner as adamantly opposed to the notion that a currency war had started internationally. But it had. Geitner was either unplugged from global economics or was misinforming the general public to avoid attracting attention to it. About a year later, November 2011, Jim Rickards’ book by that title, “Currency Wars” was published.
Currency wars started before 2010. But it is literally today, Aug. 18, 2015, approximately 5 years after it started, that we are beginning to hear of it being discussed openly on one of the business news channels. If this is the first you are hearing of it, thank your mass media information sources for keeping you in the dark about this MAJOR WAR that has surrounded you and has been raging around you. Make no mistake about it, this war, though being fought by currency printing presses is as vicious and damaging as a war with bombs and bullets…and you didn’t even know about it.
The fact that it is being bandied about, literally today, tells me that something big has changed at either the US Treasury Department or at the US Federal Reserve. Likely it is going to be the new reason to explain why the US Federal Reserve can NOT raise interest rates in September, nor in December, January, and so on.
So, how does a nation fight in such a war, a currency war? By making a nation’s currency much cheaper. By printing, not by tightening via raising interest rates.
This war has been raging on for years. The alternative media has been doing a yeoman’s job to keep their readers informed. Those of you who have been reading those alternative media websites have had a likely investment advantage.
The fact that the term is emerging in the business media channel TODAY suggests to me, my opinion, that the US Federal Reserve needs to grease the information skids and popularize the fact that the USA, like every other country, is almost helpless. Jim Rickards warned that countries will have to print to cheapen their currencies and to race one another to the bottom. So, it is Rickard’s opinion, and that of many other professional investors, that the US Federal Reserve would be nuts to raise interest rates since that would strengthen the US Dollar further and CRUSH any remaining US-based manufacturing by making them even more uncompetitive than what today’s USA-based exports already are.
I fully expect that from now on the US Federal Reserve will insist that, due to the International Currency War, it can NOT raise interest rates. But that won’t be sufficient. It gets a bit complicated to explain, but in simple terms, because the USA is one of the most important reserve currencies and all other currencies are measured in terms of the US Dollar’s value, it is as if the USA and all other currencies are riding the same escalator down. When the US dollar gets on the down escalator so do all other currencies, just a step or two behind. On the other hand, just keeping everything status quo will almost guarantee that America will lose this currency war.
We’ve seen this kind of war before.
Back during the Great Depression when countries were doing everything they could to find an international advantage for their own manufacturers and thereby for their own unemployed workforces, currency wars turned into outright trade wars. Like two pugilists squaring off who raise their fists in defensive postures, nations prepared themselves, back then, for their trade wars by raising their tariffs, and other obstacles to limit access by cheap goods to their domestic markets. Trade barriers were raised and tarriffs were erected which then worsened international trade.
Patrick Barron who wrote an article for the Mises Institute’s blog stated, “…a ‘currency war’, whereby nations engage in competitive currency devaluations in order to increase exports, is really ‘currency suicide’… As it intervenes,… a country expects that its export industries will benefit with increased sales, which will stimulate the rest of the economy…….this tactic also exports unemployment to its trading partners by showering them with cheap goods and destroying domestic production and jobs.” [Source: “Currency War Means Currency Suicide”, by Patrick Barron. December 10, 2013. Mises Daily. Mises Institute.]