‘Beggar Thy Neighbor’ Leads To Currency Wars
The United States still has an official policy of pursuing a strong dollar, right?
Yes, right, and if you were to believe that, might I interest you in a bridge in Brooklyn?
The simple fact is that five years into our economic crisis, the major economic centers of the world, those being the USA, the EU, and now Japan are all employing the same central bank policy to support their economies. This policy of quantitative easing is an attempt to accomplish a combination of the following, with different emphasis depending on the region:
1. compel investors to redeploy money into risk assets
2. monetize their debt
3. promote inflation
4. ”beggar thy neighbor“, that is, devalue their currency in an attempt to promote exports and support their economy at the expense of their trading partners.
What do we end up with? A lot of confusion and a regular drumbeat of conflicting statements put forth by central bankers. These statements remind me of a line often directed to Wall Street management and Washington politicians. That is, “how do you know when a Wall Street CEO, a Washington politician, or a central banker is lying?”
“When their lips move.”
Let’s listen to Pimco’s Mohamed el-Erian’s give his 2-minute take on how all these governments are pursuing the same policy.
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I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.