The World Currency War continues

A while back I wrote about the beginning of a World Currency War . For those who have a done a bit of travel and discussion with some of the BRIC (predominantly Western educated) intellectual elite, you know that many of these people feel it is their duty to "restore a balance to the force".

For you non-Jedi Knights out there the message is simple and repetitive:


We have attended your schools, experienced the wonder of your advanced society and are not very impressed. We do not feel that you're doing a good job as the world's economic leader and are going to make a concerted effort to reel in your government and Federal Reserve Bank's bully tactics. We intend to hurt you where you are most sensitive...in your pockets.

Many say that Brazil is the brain and that China is the muscle, of the BRIC body.
I still haven't figured out India's body part, but Russia definitely holds the hand in your pocket, grabbing the briefcase and scurrying to the escape hatch during board meeting status.

All humor aside, the PBOC's decision to raise benchmark rates for the first time since 2007 shouldn't shock anybody who's been paying attention. This is not simply a U.S. vs. China issue. There are other players involved who are not necessarily exposing themselves but need to be taken into account when trying to adequately value the overall picture.

Not surprisingly stocks and oil fell right away, while the dollar rose on news of the PBOC decision. Crude took its steepest tumble in seven weeks and the Federal Reserve was once again pimp slapped with the reminder that it doesn't make policy for the markets or the globe.

Naturally, I do not expect Ben and the boys to figure it out or change the game plan.

The currency war of the early 21st century will not bring about the sort of devastation that the wars of the 20th century did in terms of nation-on-nation bloodshed. Over the long term, however, I am fairly confident that we will see just as much wealth erosion as we did in the tumultuous 30-year stretch from 1915-1945.

Let's go Bears!!!"

 

Fears of a one world currency...?

While I don't think that will happen, these countries have to look after themselves, especially those that are dependent on export-driven growth South Korea and Singapore are good candidates for this.

I think the taxes and other restrictions on capital investments in these respective countries has its pro's and cons. As these countries try and limit capital inflows by restrictions and taxes, it will further devalue their currencies, thus making the dollar increase, as we have seen today.

 
Best Response
eyelikecheese:
Fears of a one world currency...?

The ultimate fools errand. If you're the type of conspiracy theory thinker who thinks Eugenicists want a mass world war, perhaps your cup of tea.

While I don't think that will happen, these countries have to look after themselves, especially those that are dependent on export-driven growth South Korea and Singapore are good candidates for this.

Though the logic is sound. What do they do if they piss off their best customers?

I think the taxes and other restrictions on capital investments in these respective countries has its pro's and cons. As these countries try and limit capital inflows by restrictions and taxes, it will further devalue their currencies, thus making the dollar increase, as we have seen today.

My view: adverse effect. Dollar increase, good for their exports. But like I mentioned above, who are there best customers? "Let the markets sort it out" never sounded more complicated.

 
eyelikecheese:
Yes but what about local currency denominated assets? Especially the foreign investments denominated in the local currency. Would severly hamper those investments due to the dollar increasing relative to local currency

Good point. Keeping in mind that most (if not all) developing economies keep their currency reserves dollar denominated, I would say dollar appreciation outweighs the negatives you mentioned on a relative, overall basis.
This at least, WAS rational logic in the past. How it will/won't change going forward has a lot to do with issues none of us can reasonably quantify or predict.

 

I think with capital inflows of 60billion to emerging economies this year, vs OUTFLOWS of 50billion from the United States causes some concern for devaluation and attracting more capital for infrastructure and other investments

 

"Emerging economies" is a vary expansive generalization. This isn't one economy we're talking about, they are different countries which face different issues and have often divergent goals in the economic arena. When you say 60>50 are you using secondary and tertiary issues for you valuation?

Examples range from such seemingly small details as the abundance of dollar denominated reserves allowing for easier international loan approval, the implicit value of American military protectionism in relation to the economic sphere, having a stable and consistent demand base (though admittedly down a bit), etc.

I know that the answer is "NO" because these are issues we have not figured out how to model on top of that even gathering this sort of quasi-economic data is highly improbable.

This is why I am less and less enamored with statistical and data analysis for the exact reason you and I are exemplifying here. Everybody sees information through their own optical prism. What I am saying is that America is the one country, which does not have that luxury, precisely because of the dollar's role as reserve currency.

 

I just like to randomly throw numbers out there. Your spot on with your analysis, I was just making broad generalizations. The 60/50 number was from the WSJ I believe. It was an article talking about QE2. Search for it yesterdays paper, you'd enjoy it

 
eyelikecheese:
I just like to randomly throw numbers out there. Your spot on with your analysis, I was just making broad generalizations. The 60/50 number was from the WSJ I believe. It was an article talking about QE2. Search for it yesterdays paper, you'd enjoy it

Not trying to brow beat you, just think we have to explore alternative angles. As to what they are...I'm very open to suggestions.

 
Midas Mulligan Magoo:
<span class=keyword_link><a href=//www.wallstreetoasis.com/finance-dictionary/what-is-london-interbank-offer-rate-libor>LIBOR</a></span>:
MMM,

You really don't think Ben and the boys were involved in this?

I always think they're involved, just wanting to explore alternative avenues.

I read an article on SeekingAlpha that tried to equate this to a de facto rate hike by The Fed (since the Yuan is pegged to the $). Not sure how strong this analysis works (I tried to think through it myself but it doesn't make sense; if the POBC raise rates, then the peg would discontinue).

Check it here and let me know what you think.

http://seekingalpha.com/article/230842-chinese-rate-hike-slams-equities…

looking for that pick-me-up to power through an all-nighter?
 

I hate to alter the direction of this post, but every time I hear someone mention a World Currency, I can't help but think of the push for Esperanto awhile back. The one world language that would make travel and trade a more level playing field and hundreds of other nonsensical ideas about 'uniting the world'. The EU is nothing, if not dysfunctional. Could you imagine the ridiculous circle jerk of red tape that would ensue?

MMM, you're right as usual. It's always safe to assume Ben and his cronies are involved at one level or another. It's a bit naive to think that when shit like this is going down some phone calls aren't made and some palms aren't greased.

As far as other angles, I think we might see more countries adopt larger nation's stronger currency. More smaller Asian nation's adopting the yuan and the like. Just something to think about.

If I had asked people what they wanted, they would have said faster horses - Henry Ford
 
happypantsmcgee:
I hate to alter the direction of this post, but every time I hear someone mention a World Currency, I can't help but think of the push for Esperanto awhile back. The one world language that would make travel and trade a more level playing field and hundreds of other nonsensical ideas about 'uniting the world'. The EU is nothing, if not dysfunctional. Could you imagine the ridiculous circle jerk of red tape that would ensue?

MMM, you're right as usual. It's always safe to assume Ben and his cronies are involved at one level or another. It's a bit naive to think that when shit like this is going down some phone calls aren't made and some palms aren't greased.

As far as other angles, I think we might see more countries adopt larger nation's stronger currency. More smaller Asian nation's adopting the yuan and the like. Just something to think about.

I for one would love if the Yuan took a larger role in the world currency game. As a matter-of-fact it's the only way you can simultaneously relieve the constant malversation of currency trade and give the Chinese people a better living standard (what's the point of having the world's largest economy if people still go for lunch in the dumpster?). That having been said my faith in Commies to the right/smart/honest/rational thing is nil, so I'm not holding my breath.

As far as the world currency issue, it's every Eugenicists wet dream. Standing high atop the ivory tower gusy like Ted Turner, Soros, Buffett and company are happy to preach the benefits of one world currency. The problem is that the elites don't know what an empty stomach feels like and the effect of a world currency would be cataclysmic. If you pay attention to the sort of news that isn't readily available on major outlets, you know that the dissatisfaction with the Euro has led to bad vibes in Europe that haven't been around on such as mass scale since the mid 1940's. Now, I am not saying anything will come of that, but when you tie different cultures to the same operational mechanism (currency) you got yourself a pretty friggin'

.

Btw, this is my gift to you younger guys who haven't seen it. Classic.

 

The Chinese will use their exorbitant war chest they call their currency reserves to stir geo-political matters in their favor. The economist has a great article on this subject and in one of the side articles mentions how the Chinese were purchasing Yen bills further straining the Japanese who are trying to lower the Yen from its 15 year high, and funny enough as soon as the fishermen were released the article suggests their was a sudden easing suggesting the Chinese had liquidated their positions.

They are also said to be using proxies in London to do their currency purchases. We really are giving them a free fucking ride on our backs, more and more western companies are complaining some sectors being illegally subsidized by the Chinese and for other companies barriers are enacted which makes it impossible to get anything done, yet they are able to purchase Japanese bills when Japan isn't allowed to purchase theirs and they are allowed free access to American markets.

Fuck the Chinese, I make no apologies about my hatred for communism and for the way they conduct business.

 

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