RSS

Category Archives: Currency Wars

Foreign Currency Inflation Causes U.S. Dollar Deflation


Dangerous Deflation is Death to Debtors [courtesy Google Images]

Dangerous Deflation is Death to Debtors
[courtesy Google Images]

Forbes magazine recently published “Egypt Is About To Slash The Value Of Its Currency To Revive Its Flagging Economy”. According to Forbes,

.

Egypt’s Finance Minister Amr El Garhy has said his country needs to move faster in dealing with its currency woes, opening up the possibility of a large and rapid devaluation of the Egyptian pound.”

.

Big deal. Egypt is devaluing (inflating) the Egyptian pound. Who cares, right?

Q:  What’s the value of the Egyptian pound have to do with the U.S. dollar and U.S. economy?

A:  Actually, more than you might suspect.

. Read the rest of this entry »

 

Tags: , , ,

Promises, Promises


What Can't Be Paid, Won't be Paid [courtesy Google Images]

What Can’t Be Paid,
Won’t be Paid
[courtesy Google Images]

Last month (July), AFP published an article entitled “Japan PM unveils $266 bn stimulus plan to boost economy”. According to that article,

.

Japan’s government and central bank have come under increasing pressure to do more for the economy.

“Therefore, [in July] Japan’s government announced a stimulus package worth more than 28 trillion yen ($266 billion) in its latest attempt to fire up the lukewarm economy . . . .”

.

By itself, $266 billion in government stimulus doesn’t strike me as significant. Back around 2008-2009, the U.S. government injected $800 billion into the U.S. economy under QE1. Later, under QE3, the government injected $80 billion per month (almost $1 trillion per year) into the economy. These injections may have postponed a U.S. economic depression, but they didn’t generate much of an economic recovery.

Given that Japan is the world’s third largest economy, I don’t expect $266 billion (just one-third of the $800 billion injected during the U.S. QE1) to have much more effect on Japan’s economy than QE1 had on the U.S. economy.

This implies that Prime Minister Abe’s proposed “stimulus package” is more of a gesture to “do something” rather than a real economic remedy for the stagnating Japanese economy.

Read the rest of this entry »

 

Tags: , , ,

Teeter-Totter Relationship Between U.S.$ and Foreign Currencies


USDX [courtesy Google Images]

USDX
[courtesy Google Images]

The “Group of 20” (G20) includes the world’s 20 biggest industrial and emerging economies. G20 finance ministers and central bank chiefs met in China on Saturday and Sunday (July 23-24, A.D. 2016).

According to the AFP (“US Warns Against Devaluation Ahead of G20 Finance Meeting”), on the Thursday before this G20 meeting:

..

US Treasury Secretary Jacob Lew said that top economies should refrain from competitive currency devaluations–a message likely directed at China.

According to Secretary Lew, “The global outlook . . . underscores our focus on the commitment made at the last G20 in Shanghai to consult closely with one another on [currency] exchange rate policy, and to refrain from competitive devaluation.”

.

First, the term “competitive currency devaluations” is misleading insofar as “competitive” signals something civil like a genteel, after-dinner game of Whist in the parlor. In fact, these “competitive currency devaluations” are almost as potentially serious and lethal as nuclear war.

(More, it’s conceivable that China’s “competitive currency devaluations” just might be enough to trigger naval conflict between China and the U.S. or even Japan in the South China Sea.)

Read the rest of this entry »

 

Tags: , , , ,

USDX Adversarial Relationships


USDX [courtesy Google Images]

USDX
[courtesy Google Images]

The U.S. Dollar Index (USDX) is a number that measures a “teeter-totter” relationship between the U.S. fiat dollar (on one end of the “teeter-totter”) and six foreign, fiat currencies (sitting on the other end of the “teeter-totter”). That relationship measures the relative inflation/deflation between the U.S. dollar and the other six currencies.

The six foreign currencies and their relative “weights” in the USDX are:

Euro (EUR), 57.6% weight

Japanese yen (JPY) 13.6% weight

English pound sterling (GBP), 11.9% weight

Canadian dollar (CAD), 9.1% weight

Swedish krona (SEK), 4.2% weight

Swiss franc (CHF) 3.6% weight

First, note that the most heavily-weighted foreign currency is the euro which makes up almost 58% of the total “weight” of the six foreign currencies in the USDX. Changes in the perceived purchasing power of the euro can have a significant effect on the USDX. Changes in the purchasing power of the Swiss franc (just 3.6% of the total weight of the six foreign currencies) will have only a negligible effect on the USDX.

Read the rest of this entry »

 
 

Tags: , , ,

Failed QE Caused Market Falls?


The "Black Hole" of QE [courtesy Google Images]

The “Black Hole” of QE
[courtesy Google Images]

Last Thursday (Aug. 20th, A.D. 2015), the Dow Jones Industrial Average fell 358 points.  The New York Times wrote “China Woes Send Stocks Into Tailspin” in an attempt to blame the fall in US markets on the previous fall in the Chinese stock markets and recent devaluation of the Chinese yuan:

 

“Stock markets around the world plummeted on Thursday, signaling that investors have not gotten over the shock of China’s devaluation last week and remain nervous about the health of the global economy.

“The selling began in Asia . . . . moved to Europe . . . and ended with a rush for the exits in the United States.

 “The Dow Jones industrial average tumbled 358.04 points, or 2.1 percent, to close at 16,990.69.

“. . . the S&P 500 declined 43.88 points, or 2.1 percent, to 2,035.73, its lowest level in six months . . . .

“The biggest source of uneasiness right now appears to be China’s economy. Many analysts assumed that China’s recent devaluation was in part motivated by a desire to stimulate China’s economy. . . .

“But the devaluation stoked suspicions . . . that China’s economy might be weaker than its official figures suggested.”

  Read the rest of this entry »

 

Tags: , , , , , ,

All’s Fair in Love and Currency War


The Fog of (Currency) War [courtesy Google Images]

The Fog of (Currency) War
[courtesy Google Images]

On Monday, The Washington Times reported (“People’s Bank of China decides to devalue its currency”) that,

 

“In a potentially major move for trade and relations with the U.S., China’s central bank has decided to devalue its currency in a bid to shore up its sluggish economy.”

Most economists agree that increased inflation can “shore up” a nation’s sluggish economy.  But modern inflation on the international level is relative to other currencies much like a teeter-totter.  When one currency goes up, the other currency must go down.

Read the rest of this entry »

 

Tags: , , ,

Allies Revolt?


[courtesy Google Images]

[courtesy Google Images]

The New York Times recently reported in “Hostility From U.S. as China Lures Allies to New Bank” that,

 

“ When Xi Jinping, then the newly minted Chinese leader, first broached the idea of a new Asian development bank in a public speech in 2013, few in Washington paid it much heed.

“But as Beijing systematically recruited longtime American allies to help fund and oversee the new bank, it became clear that the push was more than a public relations gesture to China’s Asian neighbors.  It was also a direct threat to the post-World War II financial institutions led primarily by the United States, and to President Obama’s pledges to make a “pivot” to Asia in American foreign policy.

“Now with Britain, France, Germany and Italy signing up to join the new bank, despite direct pleas from Washington to steer clear, the question is whether the Obama administration mishandled a significant challenge from China, and what it might have done differently.”

 

No, that’s not “the question”.

“The questions” are:

Read the rest of this entry »

 

Tags: , , ,