Market Watch

You Want Currency Wars? You Got 'Em!

Although Paul Krugman denies currency wars are under way HERE , China doesn’t seem to agree…

From the Telegraph:

China’s central bank deputy governor Yi Gang said: “China is prepared. In terms of both monetary policies and other mechanisms, China will take into full account the quantitative easing policies implemented by central banks of foreign countries.”

However, Mr Yi said a currency war can be avoided if policymakers follow the consensus reached at the Group of 20 nations meeting in Moscow last month.

 

I guess China doesn’t take kindly to quantitative easing policies, especially when they hold large amounts U.S. debt. It’s not just the U.S. Looks like Japan would like to print their way out of a two decade deflationary cycle…

Japan

The promise of “drastic monetary easing” from Haruhiko Kuroda, expected to be confirmed in the top role at the Bank of Japan (BOJ) within weeks, raised concerns over the impact on trade.

Mr Kuroda said he would set no limits on the amount of money the Bank pumps into the economy, warning its current policies were not enough to lift inflation to the 2pc target.

Japan, the world’s third-largest economy, has been struggling with deflation for nearly two decades, with falling prices encouraging consumers to delay purchases in the hope of paying less later – entrenching the downwards economic spiral.

Mr Kuroda acknowledged the likely impact of more aggressive monetary easing would be for the yen to weaken, strengthening Japanese exporters’ competitive edge – but said that was not the direct goal.

 

Of course Europe has their own troubles with exports that will need to, and will be, address via printing“aggressive” monetary policy. Lets not forget Argentina who is a little further down paper money manipulation road….

 

HEDGE

Today, in a futile attempt to halt inflation, the government of Cristina Kirchner announced a two-month price freeze on supermarket products. The price freeze applies to every product in all of the nation’s largest supermarkets — a group including Walmart, Carrefour, Coto, Jumbo, Disco and other large chains. The companies’ trade group, representing 70 percent of the Argentine supermarket sector, reached the accord with Commerce Secretary Guillermo Moreno, the government’s news agency Telam reported. As AP reports, “The commerce ministry wants consumers to keep receipts and complain to a hotline about any price hikes they see before April 1.”

Perhaps they will. What consumers will certainly do is scramble into local stores to take advantage of artificially-controlled prices knowing very well they have two short months to stock up on perishable goods at today’s prices, before the country’s inflation comes soaring back, only this time many of the local stores will not be around as their profit margins implode and as owners, especially of foreign-based chains, make the prudent decision to get out of Dodge while the getting’s good and before the next steps, including such measures as nationalization, in the escalation into a full out hyper inflationary collapse, are taken by Argentina’s female ruler.

 

I guess this is the new normal for wold monetary policy. Maybe it is “growth” wars instead of currency wars. The question I have is who is going to grow, the people or the policy makers. Devaluing the currency has other effects.

“Central banks are going to throw the kitchen sink at reviving growth and spurring inflation because the alternative to that is deflation,” Neil Williams, head of economic research at London-based Hermes Fund Managers, which oversees about $42 billion, said in a phone interview on Feb. 27. “The countries that have overall loosened their policies most have had the weakest currencies. It’s not a blatant attempt to out-grow others, it’s just a case of all countries trying to do the same thing at the same time.”

A year later, Russian leader Vladimir Putin said that the Fed’s strategy of printing dollars to buy Treasuries to inject cash into the financial system was evidence the U.S. was “being parasitic with the dollar’s monopoly position.”

“We neutralized, softened the currency war issue that other countries are facing,” Mantega said last week in an interview at Bloomberg’s headquarters in New York. “I didn’t invent the currency war, I just pointed out a problem that can be overcome with an accord among countries.”

Read the full Bloomberg article HERE