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As The “Sanctions War” Heats Up, Will Putin Play His ‘Gold Card’? | David Stockman’s Contra Corner
As The “Sanctions War” Heats Up, Will Putin Play His ‘Gold Card’? | David Stockman’s Contra Corner.
The topic of ‘currency war’ has been bantered about in financial circles since at least the term was first used by Brazilian Finance Minister Guido Mantega in September 2010. Recently, the currency war has escalated, and a ‘sanctions war’ against Russia has broken out. History suggests that financial assets are highly unlikely to preserve investors’ real purchasing power in this inhospitable international environment, due in part to the associated currency crises, which will catalyse at least a partial international remonetisation of gold. Vladimir Putin, under pressure from economic sanctions, may calculate that now is the time to play his ‘gold card’.
A BRIEF HISTORY OF THE CURRENCY WAR
“We’re in the midst of an international currency war. This threatens us because it takes away our competitiveness.” Brazilian Finance Minister Mantega uttered these words in September 2010, about two years after the spectacular global financial crisis of late 2008. During and following the crisis, the euro declined by around 25% versus the dollar. The pound sterling declined by nearly 30%. And while the Brazilian real also declined initially, it subsequently regained these losses in less than a year, unlike either the euro or pound. Dramatic swings in currency values can have a material impact on relative rates of economic growth. And when global economic growth is weak, the temptation to devalue and take some global market share from competitors is strong. “The advanced countries are seeking to devalue their currencies,” claimed Mantega.[1]
The decline in the value of the euro in 2008-11 was of special importance because it exposed a key fault-line across the euro-area: That between the competitive exporters of the North, such as Germany, Poland and the Czech and Slovak Republics; and the less competitive importers of the South, such as Italy, Spain, Portugal and Greece. With the euro weaker, the exporters’ economies were booming. Yet the fallout from the financial crisis fell hardest on the least competitive euro members, threatening the solvency of their banks and, by extension, the sustainability of their governments’ finances.
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Saxobank CIO Warns We’re About To See A Full-Scale Currency War | Zero Hedge
Saxobank CIO Warns We’re About To See A Full-Scale Currency War | Zero Hedge.
There’s increasing risk we’ll soon see a “significant paradigm shift” from China in its attitude to the strength of its currency, warns Saxobank CIO and Chief Economist Steen Jakobsen. He says we’re about to see a full-scale currency war, notably between China and Japan, two of the world’s greatest exporting countries.
There are a number of important world meetings over the coming few weeks and the Chinese will be “very vocal”, says Steen, as it’s getting increasingly worried about its loss of growth momentum. The yuan has strengthened significantly in recent weeks while the yen has declined substantially. The country’s determined, he says, to refocus and maintain its export share of total growth.
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It’s Currency War! – And Japan Has Fired The First Shot
It’s Currency War! – And Japan Has Fired The First Shot.
This is the big problem with fiat currency – eventually the temptation to print more of it when you are in a jam becomes too powerful to resist. In a surprise move on Friday, the Bank of Japan dramatically increased the size of the quantitative easing program that it has been conducting. This sent Japanese stocks soaring and the Japanese yen plunging. The yen had already fallen by about 11 percent against the dollar over the last year before this announcement, and news of the BOJ’s surprise move caused the yen to collapse to a seven year low. Essentially what the Bank of Japan has done is declare a currency war. And as you will see below, in every currency war there are winners and there are losers. Let’s just hope that global financial markets do not get shredded in the crossfire.
Without a doubt, the Japanese are desperate. Their economic decline has lasted for decades, and their debt levels are off the charts. In such a situation, printing more money seems like such an easy solution. But as history has shown us, wild money printing always ends badly. Just remember what happened in the Weimar Republic and in Zimbabwe.
At this point, the Bank of Japan is already behaving so recklessly that it is making the Federal Reserve look somewhat responsible in comparison. The following is how David Stockman summarized what just happened…
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oftwominds-Charles Hugh Smith: Japan’s Monetary Pearl Harbor
oftwominds-Charles Hugh Smith: Japan’s Monetary Pearl Harbor.
Trying to “fix” a sclerotic, inefficient state-cartel economy by boosting inflation–the ultimate goal of Japan’s Monetary Pearl Harbor– is a self-liquidating path to destruction.
The Bank of Japan’s surprise expansion of financial stimulus strikes me as the monetary equivalent of Pearl Harbor –not in the sense of launching a pre-emptive war (though the move does raise the odds of a global currency war), but in the sense of a leadership pursuing a Grand Strategy to the point of self-destruction because they have no alternative within their intellectual and political framework.
