Skip to comments.There Is No World Currency War
Posted on 02/13/2013 8:04:51 AM PST by Kaslin
All this chatter about a so-called global currency war is utter nonsense. All that is happening is the Japanese are wisely taking steps to increase liquidity and depreciate their vastly overpriced yen. They are doing this in order to avoid deeper and deeper deflation. That deflation will sink the Japanese economy for years to come if remedial actions are not taken.
Among all the big economies, none needs quantitative easing more than Japans. All the Japanese have done so far is make cheap loans to banks, but with no concerted QE. But QE is coming this spring, when Prime Minster Abe appoints a new Bank of Japan head man.
Mostly through jawboning, the Abe government has lowered the yen in round numbers from about 77 to the dollar to roughly 93 to the dollar. Its about a 20 percent change. Long overdue. My guess is the yen will wind up around 120 to the dollar as the year progresses.
To suggest that this is inflationary is a complete fantasy. It is aimed at stopping deflation. Over the past three years, nominal GDP in Japan has been roughly flat. In other words, total spending for the economy has been nil. Thats a recession. And a long one at that. (In some sense, Japan needs to recover from a 20-year recession.)
Now, monetary pump-priming is not the only solution for Japans economic woes. Supply-side tax cuts would go a long way toward promoting growth. There has been a small corporate tax cut, but more is needed.
Personal tax rates are way too high in Japan. And the Japanese stubbornly insist on all these ineffectual Keynesian deficit-spending policies. They are a complete waste of money and have run up Japanese debt to huge levels.
New fiscal policies are essential to promote growth in Japan. But just as inflation is a monetary phenomenon, so is deflation. And if Japan is going to correct this by adding reserves and depreciating the overvalued currency, this is all to the good.
Elsewhere around the world, the U.S. dollar has been steady. The dollar-gold price has fallen about $350 and remains in the mid-$1,600 range. The euro-dollar currency rate has been reasonably steady, between 1.30 and 1.40. The dollar itself is hovering around 80 on the DXY index. And on the other side of the world, the Chinese yuan has been fairly stable.
So there is no currency war -- just a more sensible Japanese monetary policy.
By the way, its no coincidence that a more pro-growth yen decline has helped trigger stock market rallies around the world.
My personal belief is that I prefer deflation - long term.
I happen to agree with him even though he married my daughter and that they live there. What is a good son in law good for anyway?
Larry’s still got it — everything’s fine, nothing but blue skies, trust the (Japanese) government numbers and explanations. I wish his stuff came with a laugh track.
Considering they've been doing QE for the past couple decades, I think old Larry needs to put down the blow and realize it isn't 1989 any more.
For decades the so-called ‘experts’ have told us to be wary of ‘INFLATION’ as it is BAD.
Now they are telling us ‘DEFLATION’ is BAD, so what is so ‘bad’ about it?..........
Kudlow, the guy who predicted a 20,000 DOW before the housing bubble.
Deflation is bad for those who carry debt. Mortgages, other notes secured by real assets, securities, Treasury notes.
Look at the worst of the housing bust with upside down valuations, unable to sell, foreclosures not worth the balance of the note remaining.
Spread that across the whole economy with no end in sight.
That’s deflation, the bad side of it. Companies would collapse due to lack of demand, bank failure would be unrelenting.
I have a 30 year fixed rate mortgage, and I don’t plan on moving or selling until I die, so how would it affect me?..........
He is a believer in the current conventional wisdom that printing money is the all-purpose, economic fixer-upper. He's wrong.
There is a currency war going on. All the world's largest [and not a few of the smallest] economies are racing each other to see who can devalue the most.
The thinking is that exports will be spurred. But that doesn't take into account that imports will rise in price and many inputs into manufacturing are imported. And, besides, whatever export-spurring does occur, prices and wages eventually adjust and the advantage is lost until the next round of money-printing.
Lather, rinse, repeat.
Your pay will deflate but your mortgage won’t, for one.
The light of our dotage! Grandchildren!
so what is so bad about it?..........
The system they created depends on it. Our culture is like a family that sees their income continue to increase so they go into debt with that in mind, but increase it at a faster pace than the income increase. The income increase could be seen as inflation. That is, the money increases in quantity.
So if the quantity of money decreases (deflation) it is the same as a family who has high debt as well as high income seeing their income shrink, but the debt doesn’t.
Imagine earning 10,000 a month and taking on an additional 500 a month in debt every month. It’s fine if next month you make 10,500, and the next, 11,000. But then one day your income is reduced to 9,000 and it stays there or even goes down a hundred or so every month?
I think that is where we are. It’s why we keep giving ourself a “raise” with QE. But it is growing exponentially. And saving is discouraged by money losing value as it rots in a bank.
I skim the surface. The idea was supposed to be that moderate inflation could go on ad-infinitum, but it wasn’t moderate. The economy is contracting.
If there was no debt, no big deal, but in a fiat currency situation, all money is loaned into existence.
Inflation is bad because it destroys the value of the money and causes people to do stupid things like spend it right away on food and toilet paper rather than save it to use as toilet paper later.
Deflation is bad because the government figures that without the constant prod of inflation, people might take a moment off the treadmill and save cash for the future and expect its value to increase untaxed without the need for the banking system.
Of the two, deflation is far better in my opinion. But it cuts the banks and taxman out of the cycle and the bank cartel (Federal Reserve) and government cannot abide that.
The natural state in a society with gradually increasing productivity would be a slight (less than 1% deflation rate). But the banks and government hate even that, so print, print, print that cash!
My pay would deflate, i.e. it would have more buying power, so I wouldn’t spend as much on goods and services, assuming their costs went down as well, but my mortgage payment remains constant, except for taxes, which here are figured on the appraiser’s office valuation at a percentage of real estate transactions in the neighborhood.............
There is also the threat to your continued employment that a deflationary spiral would pose. Falling prices reward those who delay purchase, and so they do. Companies collapse due to lack of demand, everybody’s holding onto their increasingly dear cash.
If you’re free and clear of debt and have amassed savings, deflation can be a good thing, assuming your financial institutions don’t go bust and take your savings with them.
Baghdad Bob Kudlow.
I know one design of inflation is it forces you to keep working, harder, longer in order to keep up. Gov’t likes it and so do corporations. And it ensures there is no break from the rat race as well.
It also discourages people from retiring, therefore more people in the workforce or looking for work and this is where corporations like it, more people available to work, therefore drive down wages.
> Deflation is bad because the government figures that without the constant prod of inflation, people might take a moment off the treadmill and save cash for the future and expect its value to increase untaxed without the need for the banking system.
Larry's probably close enough to retirement that he knows that for the last few years, the last lap or so, he can do it in the dark, slap a stamp on it and mail it in.
Hope he's got secure savings somewhere. If he's been eating home cooking, he will end up in a soup line.
The Economist devoted an issue last October a year ago (2011, I think) to the "need" for central bankers to do just what you describe, as a way of welshing on retirement-system promises. Forcing people to defer retirement or come out of retirement to join the "secondary" employment market (scut work) for hand-to-mouth wages, as a way of sloughing off politicians' promises of the last 60 years.
In Europe, those benefits may have been too big for the amount of work done, but in the States, home of the hardest-working people on earth, it's a bankers' wet-dream ream job.
If enough seniors stay at work, that will allow the pols and Bernanke's trolls to let Social Security and Medicare go bust. Just let 'em crash and then say, "Oh, gee, oh well -- we tried, but the Republicans wouldn't raise taxes on the rich enough to pay for it". </off vast lies>
Now "professional" counselors are telling American seniors to stay in the workforce until age 70.
I already seen this happen to a few friend’s parents. One friend’s dad is like 72 years old and he had to go back to work. Not in the best of health either. For my parents, they are in their late 70’s and if the stock market more than totally tanked tomorrow, they would be screwed. My dad would have to spend some money to get his architecture license active again. For myself, I am trying to keep my investments from losing value but unless things, I am pretty well going to have to work until I die.
On the bankers, the system is setup where you are penalized if you are debt free like the home mortgage deduction. But then have a mortgage, if you cannot pay it, you lose your house and you must be much more dependent on a paycheck and corporate interest can hold that over you. Don’t play the game, you are out of work and no check to pay your mortgage.
> Forcing people to defer retirement or come out of retirement to join the “secondary” employment market (scut work) for hand-to-mouth wages, as a way of sloughing off politicians’ promises of the last 60 years.
Deflation is much worse than inflation. Neither is very good though.
I read that there is a re-evaluation coming.
The Chinese were saying the same thing as the Europeans about the dollar back in 2009. There was much talk in various parts of the world about abandoning the dollar as the world’s reserve currency.
That talk has gone silent in the last 18 months or so.
The whole monetary bias has shifted toward the dollar in the last 18 months as the money center banks have come to recognize the financial effects of shale oil and gas fracking revolution.
The effect of fracking has been to reduce us imports of oil and oil products by 250 billion annually since 2007. The US is now expected to be oil independent in 5-7 years. That means 500 billion dollars won’t be going overseas every year anymore.
Fracking also means that the US now has 100-200 years worth of extra oil and natural gas reserves. This represents an extra 50-100 trillion (that’s with a T) dollars worth of oil and natural gas backing the dollar.
There are no energy independent countries with weak currencies.
We have always been at war against Eastasia.