- Albert Edwards: The US Is About To Take Global Currency War To A Whole New Level
by Tyler Durden, https://www.zerohedge.com/
It is rare for Wall Street analysts to break the echo chamber of the intellectual Trump #resistance – after all, “Orange man crazy, his tweets make no sense” remains all the rage among those who are paid 7 figures for their (mostly wrong) economic insight; it wouldn’t look good if Trump, breaking through the barriers of political correctness and obfuscation, exposes “deep” economic and financial truths on twitter. For free.
One person who has no fear in defying Wall Street convention is also one of its biggest perma-bears (which it comes to equities, and the opposite for bonds), SocGen’s Albert Edwards, who in his latest letter brings attention to the barrage of recent tweets from President Trump indicating that “his tolerance for the strong dollar has just about run out.”
As we observed roughly two weeks ago, the dollar had resumed its rise even ahead of the stellar payrolls report, largely due to the prospect of yet another round of Draghi “whatever it takes” jawboning and even easier ECB policy – sending eurozone bond yields to record lows.
So as the global economy falls ever closer towards outright deflation, Edwards predicts that “the global currency war will explode into life. Countries will fight to avoid deflation in the next recession and competitive devaluation will be the tool of choice.” Indeed this was the solution Ben Bernanke suggested in his famous 2002 speech about how to avoid ending up like Japan, to wit:
“Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today (ie 2002), it’s worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from US history is Franklin Roosevelt’s 40% devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 % in 1932 to -5.1% in 1933 to +3.4% in 1934. The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt’s devaluation.”