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Currency War

US Nearing Recession, Dollar Falling Hard

by John Rubino on May 13, 2015 · 25 comments

The dollar soars by a record amount versus the euro and the yen in 2014. And economists predict strong growth in 2015. Really? If a country can have a rapidly-appreciating currency with all the benefits that that confers, and strong economic growth with all the obvious advantages that that confers, why wouldn’t everyone be going […]

 

When a country pegs its currency to a bigger one like the US dollar, it in effect outsources its monetary policy to the operator of that other currency. This confers several benefits, including the enforced discipline of the other, presumably more rigorous monetary regime and the simplicity of letting someone else stress over controversial policies […]

 

Most talk of currency war focuses on the problems caused by countries devaluing their money. This does indeed cause a lot of problems, especially long-term once everyone figures out the game and starts front-running it by preemptively dumping their currency. But in the short run, for every loser there’s a winner, in the form of […]

 

As pretty much everyone is now aware, US Q1 growth was way below expectations. And the only reason it was even marginally positive was because businesses expanded their inventories at a record rate. Here’s a chart from Zero Hedge comparing the economy’s growth with that of inventories: In other words, if US businesses had just […]

 

US Factories Crushed By Strong Dollar

by John Rubino on April 24, 2015 · 6 comments

Government statistics are always suspect, for at least one obvious reason: Modern economies are way too big and complex to measure in real-time. So virtually every number is revised in the months after its release, frequently to the point of saying something very different. But by then lots of new data has come out and […]

 

Is The Credibility Bubble Bursting?

by John Rubino on April 19, 2015 · 15 comments

In a fiat currency system, perception is, by definition, everything. Paper money has no intrinsic value. So the people saving it and accepting it in exchange aren’t expressing faith in the money itself but in the competence and honesty — and power — of the institutions managing it. Let that faith erode and those slips […]

 

Welcome To The Currency War, China Edition

by John Rubino on April 13, 2015 · 11 comments

Here’s one for the “seriously, you’re surprised?” file: China pegs its currency, the yuan, to the dollar, the dollar soars, taking the yuan with it…and fewer foreigners buy suddenly-much-more-expensive Chinese products. Duh. China’s Export Engine Loses Steam, Adding to Growth Pressure China’s exports unexpectedly slumped last month, eroding the outlook for one of the economy’s […]

 

Is The Whole World Slowing Down?

by John Rubino on April 4, 2015 · 23 comments

The stats just keep getting stranger and, if you’re a policymaker or an investor, scarier. According to a (now widely publicized) McKinsey & Co study, instead of deleveraging after the debt-induced crisis of 2008-2009, the world borrowed another $57 trillion. And virtually everyone has been expanding their money supply aggressively. The next couple of charts […]

 

The point of competitive devaluation, aka currency war, is that a cheaper currency gives a country several advantages over its trading partners, leading to better growth and generally happier voters. The trading partners, meanwhile, get the ugly mirror image — slowing growth and disgruntled citizens — so they eventually respond in kind, with devaluations of […]

 

The euro is tanking again, as the ECB starts buying bonds for its long-promised “whatever it takes” QE program. Today’s exchange rate move is dramatic enough to generate headlines like this, from Forbes: Euro Nears Parity With U.S. Dollar And the decline is accelerating: What we’re seeing here is a brilliantly-fought currency war battle, i.e., […]

 

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