- Currency Wars Often Lead to Trade Wars … Which In Turn Can Devolve Into Hot Wars!
Currency War → Trade War → Hot War?
According to numerous high-level insiders, the global currency war is accelerating:
– Current Bundesbank president Jens Weidmann
– St. Louis Federal Reserve Bank president James Bullard
– Philadelphia Federal Reserve Bank president Charles Plosser
– Outgoing Bank of England chief Mervyn King
– Russian Central Banker Alexei Ulyakeyev
– European Central Bank board member Benoit Coeure
– Reserve Bank of Australia Governor Glenn Stevens
– Brazil’s finance minister Guido Mantega
– German chancellor Angela Merkel
– Billionaire investor George Soros
– Chinese central bankers and state-run media
– The former president of the Bundesbank – and now UBS chairman – Axel Weber
And Japan’s escalation of the currency war has caused leaders in the Eurozone (more), Norway, Sweden, South Korea, Taiwan, Columbia, Mexico, Peru, Chile, Venezuela and many other regions to devalue or consider further devaluing their currencies. China may be joining as well. (And James Rickard and Reggie Middleton think that Germany’s demand for its gold is part of the currency war.)
We’ve been in a global currency war for years. As the Wall Street Journal asked in 2010:
Beggar-thy-neighbor currency devaluations proved ruinous for the global economy in the 1930s. Is the world setting off down the same slippery slope again?
Yes, we are. Despite drivel from ignorant sources, currency wars don’t help the average person. Quantitative easing – the main lever to depreciate currency – hurts the little guy and only helps the super-elite.
Former Secretary of Labor Robert Reich points out that a weak dollar makes everyone poorer … and any new jobs created by a a policy of devaluation are low-wage jobs. Economist Mark Thoma noted in 2010:
While the positive effects a currency war produced in the 1930s [many disagree] are unlikely to reappear, there is a chance of large negative effects such as a simultaneous trade war or the breakdown of the international monetary system, so let’s hope a currency war can be avoided.