Currency wars are necessary if all else fails

[TotallyOz]

 

The overwhelming fact of the global currency system is that America needs a much weaker dollar to bring its economy back into kilter and avoid slow ruin, yet the rest of the world cannot easily handle the consequences of such a wrenching adjustment. There is not enough demand to go around.

Asian investment in plant has run ahead of Western ability to consume. The debt-strapped households of Middle America, or Britain and Spain, can no longer hold up the dysfunctional edifice. Asians must take over, or it will come down on their own heads.

 

The countries actively intervening in exchange markets to suppress their currencies

[KhorTose]

Great article and definitely points to the coming Future. Sorry expats, you may all have to start looking at returning home as Asia will not be that cheap anymore.

[Guest]

Those who still have cash rolling in should consider building a big Asian proportion in their investment portfolios. This has been obvious for years.

 

Maybe I am a lone voice on this, but it's one of the few areas where we have some scope to mitigate exchange rate risks with our own decisions.

[Guest voldemar]

 

 

 

 

 

 

 

I happen to think that the Fed will need to launch QE2 on a big scale as US fiscal tightening bites, the inventory spike fades, and the housing foreclosure crisis gathers pace. But we are not there yet.

 

 

 

This is a dangerous moment for the world, and may backfire against the US itself. We are already starting to see the same sort of rush into oil and resources that played such havoc in mid-2008, and may have been a key trigger for the Great Recession. There is a risk that this commodity shock will hit before QE stimulus filters through.

 

And while the French deny that they are in talks with China over the creation of a new currency regime, I heard French finance minister Christine Lagarde say in person at a meeting in Italy that France would use its G20 presidency to push for an alternative to the dollar. She specifically cited the “Bancor”, the idea floated by Keynes in the 1940s for a commodity currency priced off a basket of metals. The US risks gambling away the “exorbitant privilege” it has enjoyed for two thirds of a century as currency hegemon.

 

 

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8054066/Currency-wars-are-necessary-if-all-else-fails.html

Bancor is nonsense. Reserve currency is not a basket of metals. How are you going to keep your reserves in such a symbolic currency? Of course, one can store physical metals...

The danger of QE2 is not in gradual devaluation of dollar. One can always hedge it as

z909 suggests under normal circumstances. The problem is that debasement of dollar

creates a natural reaction in the form of massive capital outflows. I am not only talking about offshore accounts. Each time one buys foreign stock or bond, capital escapes US.

This process may become uncontrollable and the major danger is that US government may be forced to introduce capital controls.Depending on severity of the measure, Americans may loose the ability to invest in foreign capital markets or even the ability to transfer or use their money abroad. That is the real danger. A recent example of capital controls is Iceland. The situation over there is devastating: the currency lost 80 percent of its value versus euro , huge unemployment and high inflation...