Friday, October 8, 2010


Alright. This has been called an outright war, gentlemen. There is no more sense being coy about it, so let’s recognize the battlefield tactics for what they are. For it is clear that this currency war is not just a mere act of policy (you wish!), but a true global trade statement – a continuation of trade policy by other means (sorry Col. Clausewitz).

Developed country with trade deficit

- Engage in massive and multi-tranche Quantitative easing/currency printing, currency depreciation.
- Buy everybody’s bad debt for cash, cash, cash, baby!
- Encourage your local fund managers to send all this new cash to asset markets all over the world.

Emerging market country with surplus trade

- Buy up all securities issued by the global reserve currency issuer/your major trading partner/the biggest moron without a clue.
- Use the forex reserves you build up to buy new colonies in Africa and/or basic commodities
- Blow asset bubbles everywhere

Developed country with surplus trade

- Group up with less productive economies.
- Adopt a common currency
- Reap the benefits as your partner countries’ debt problems cause a falling currency
- Constantly blame their idiocy, but keep bailing out their debt. Keep the gravy train rolling for your local exporters.

Emerging market country with balanced trade

- Set up capital controls/massive forex sterilization campaigns, to manage ill-effects of all the hot money coming in.
- Use the forex reserves this build up to pay down forex-denominated country debt, and/or swap medium-term sovereign loans into longer term. Exchanging 10 year tenors into 1000 years at rates that end up taking a pound of flesh from your investors is considered the equivalent of taking the hill.
- Blow asset bubbles everywhere

Developed country with balanced trade

- Keep policy rates at zero bound/quasi zero bound.
- Engage in wasteful government projects, to keep yield-chasing global speculators turned off/away
- Build multimillion dollar artificial lakes right next to the real thing. Just because.

The first and most important rule to to use our entire central bank powers with the utmost energy. The second rule is to concentrate our bank power as much as possible against that section where the chances of debauching the currency is most effective, so that our chances of success may increase at the decisive point. The third rule is never to waste time. Unless important advantages are to be gained from hesitation, it is necessary to debase at once. By this speed a hundred enemy central banker measures are nipped in the bud, and global speculator opinion is turned off most rapidly. Finally, the fourth rule is to follow up our successes with the utmost energy. Only pursuit of the race to the bottom gives the fruits of victory. (sorry again, Colonel).

Now listen up. Each one of you, soljuhs, owes me a thousand of your enemy's jobs, and I want my thousand jobs. Sdat clear?


Greg said...

What this shows I think is what Mosler has taken to saying recently is that any kind of international banking regs are bad. Each country should simply have its OWN regulatory body and make rules that are consistent with its countries financial goals. Having international rules essentially puts us on a common currency which as the Euro has shown, doesnt work out too well in the long run. Common currency or common banking rules amount to the same thing I think.

Rogue Economist said...

I agree. My take on it is that nations can either have their own set of rules; or we can have international rules, but everybody should be free to set up shop anywhere. Either enable nations to function as viable independent states, or do away with them altogether. Taking half-measures in globalization is what leads to all sorts of imbalances.