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This Is What It Means To Lose A Currency War

The term gets tossed around a lot, but the meaning and consequences of a “currency war” aren’t intuitively clear to most people. Especially confusing is the idea that you lose the war when your currency goes up. The suddenly very strong dollar, for instance, should, one would think, be a good thing, since it seems to imply that the rest of the world is impressed enough to covet our currency.

That’s true in a sense, but in another sense — and beyond a certain point — it becomes a potentially huge problem, because a strong currency makes exports (priced in dollars) more expensive and therefore a tougher sell. Consider today’s headlines:

Commodities rout slows Caterpillar
CHICAGO (Reuters) – Caterpillar Inc on Tuesday reported lower quarterly net profit that missed expectations as lower prices for copper, coal and iron ore hurt mining equipment orders, and warned the recent fall in oil prices would make for a difficult year in 2015. The report sent the company’s shares down nearly 6 percent in premarket trading.

Plunging profits have sent shares of Microsoft tumbling
Microsoft shares slid more than 7.6% in pre-market trading after second-quarter earnings showing a dip in earnings. Microsoft reported earnings per share of 71 cents, meeting estimates but falling below the 78 cents reported during the same quarter last year.

Procter & Gamble Profit Down 31%, Hurt by Exchange Rates
Procter & Gamble’s second-quarter earnings sank 31 percent as the strong U.S. dollar cut into the performance of the world’s largest consumer products maker.

The Cincinnati company, which sells products ranging from Tide detergent to Crest toothpaste, said Tuesday that exchange rates will remain a challenge well into fiscal 2015, especially in the second half of its year. Overall, it expects foreign exchange to chop its core, fiscal 2015 earnings by 12 percent and reduce its revenue by 5 percent.

And why should we care about falling corporate profits?

Wall Street tumbles with Microsoft, Caterpillar; data weighs
NEW YORK (Reuters) – U.S. stocks fell sharply on Tuesday, with Microsoft and Caterpillar shares tumbling after quarterly results, while an unexpected decline in durable goods orders also weighed on sentiment.

Many multinational companies have posted disappointing results and forecasts, with the stronger dollar a common culprit.

Adding to earnings concerns, a gauge of U.S. business investment plans unexpectedly fell in December, a potential sign that slowing global growth and falling crude oil prices were starting to have an impact on the economy.

So this is what it means to lose a currency war: plunging corporate profits, falling stock prices, a slowing economy, rising layoffs. Then, when the reality of a weaker economy reaches Main Street, angry voters, difficult elections, and regime change. This last part is of course unacceptable to the people managing economic policy and is why virtually no one can accept defeat in such a conflict.

So…a few more days like this and expect a parade of Fed, Treasury and congressional talking heads to float the idea of cancelling those promised interest rate hikes and, just maybe, returning into the good old days of QE Infinity.

70 thoughts on "This Is What It Means To Lose A Currency War"

  1. Pingback: The Küle Library
  2. What do you think it means for home prices? I could buy at 3.5% rate today. This leads me to think more foreclosures and lower prices. Thoughts?

  3. This Socalbeachdude should get banned from here. Cripes. I like this blog and the articles, but whenever I get to the comments section, here is Mr. Bold yapping up the same troll bait he did in the past 10 articles he commented on… and about 50% of the comments on any thread are from him alone.

    Very, very irritating the way he derails all constructive conversation. I wouldn’t care about him expressing his opinion, but him responding to EVERY comment that gets posted is simply counterproductive… in fact, after reading this comment thread to make sure I wasn’t double posting the same concept, I’ve completely forgotten what I was going to say in the first place.

    Love the articles, but this guy being on every thread… and attacking every single comment within them… takes away from any sort of community discussion on the articles. It’s a shame, because they are good articles that could produce intelligent conversation and thus, learning.

  4. A lot of companies hedge their currency risk. So, losing a “currency war” is a strawman. There’s much more going beneath the surface. Falling oilprices DO have a MAJOR impact on the overall economy.
    Watch this video:
    According to my info, every job in the energy sector supports 3 jobs outside the energy sector. But now with oilprices this low that multiplier effect has already gone into reverse.

  5. John,Your site has been invaded by a vampire & it’s not worth the trouble dealing with him,…….goodbye John!
    When you get rid of this maniac let me know.

  6. The recent rise in the dollar is leading to a further hollowing out of the USA economy. We already exported a good chunk of our manufacturing sector, but we had one bright spot in recent years. That would be shale oil, which is economic at $100/bbl.

    Now that oil is at $45/bbl, you can see drill rig counts tumbling, along with drill permit requests.

    1. The rise in the value of the US dollar is very good for the US economy. As to manufacturing the US is the second largest manufacturer in the world. As to shale oil, that is a CATASTROPHIC COLLAPSING DISASTER causing about $1.5 trillion in debt to finance that stupidity now going bad, not to mention the losses to shareholders of companies engaged in that nonsense.

  7. Wonderful news! The US dollar is soaring and is up to nearly 95 on the DXY while overpriced junk like gold and silver are plunging. Happy days are indeed here again!

  8. There are $11 trillion worth of carry trades out there, two thirds in dollars, that are in emerging markets. souring as we speak that will send them back to dollars as they sell their weakening assets. Banks that invest heavily in these trade will suddenly suffer a liquidity crisis and choke off lending to small businesses, causing another 2007 like crisis. As more banks sell their foreign assets the dollar gets stronger, the recession grows thanks to the Saudis and their control of oil and the worlds economy, and our ignorance of how the world works against our interests as we should have been moving further from their capture to energy independence. And we can thank our own oligarchy of Kochs, and Exons for their influence to keep us under their spell.

  9. The US dollar is now at 94.60 on the DXY today and soaring upwards like a rocket and will soon be over 95 and then racing towards and to 100 on the DXY Happy days are here again with the US dollar winning all the way!

    1. The export of dollars created from thin air (debt) will not affect domestic inflation until the export of those dollars comes back to make their claims within the US.

      In the balancing act of the Yin-Yang, the USD, being more vulnerable, will garner special attention even if gold has to “take it on the chin” now and again. Gold cannot go bankrupt because it is not a promise and has no counter-party risk.

      The USD, as with any debt based fiat currency, can go to nothing.

      1. Where do you come up with such inane and clueless nonsense? There has been no increase whatsoever in the US money supply from QE, but rather only an increase in the MONETARY BASE with all of that staying entirely inside the Federal; Reserve in the excess reserves accounts of the banks there from whom the Federal Reserve purchased securities.

  10. The United Staztes has tremendous NET BENEFITS FROM A STRONG DOLLAR because the US is a huge NET IMPORTING COUNTRY and the prices of imports into the US fall in proportion to the gain in currency exchange value of the US dollar. As to US exports, most of those are high-valued added goods which are quite PRICE INELASTIC (insensitive) and there will therefore be little adverse impact with the strong dollar on US exports.

  11. The US dollar will continue rising for the foreseeable future on both the DXY and in purchasing power against commodities with the only upper limit on the DXY being around 164.72 where the US dollar was in February 1985.

  12. US multinational corporations have been having WINDFALL ARTIFICIAL RECORD PROFITS due to the extremely low valuation of the US dollar in the FOREX markets and as the US dollars move up on the DXY and in the FOREX markets to PROPER EQUILIBRIUM LEVELS as it is doing and has been doing for nearly a year now, corporate profits will simply adjust towards more normal equilibrium levels accordingly.

  13. I have very minimal debt, good job security. bring on the stronger dollar, I want more cheap silver before the next QE(s)

    1. QE has nothing whatsoever to do with the price of commodities. As to the price of silver it is just a preposterously overpriced commodity. The price of silver has PLUMMETED ABOUT 60% over the past 4 years since April 2011 when it hit a manic speculative high of $50 per ounce and it is now below $18 per ounce with only $10 per ounce left to fall to get back to its mean.

        1. Silver has plummeted from $50 an ounce to less than $18 per ounce in less than 4 years and is now less than $10 per ounce away from reaching $18 per ounce and could get there this year. It was as low as $4 per ounce in 2001 after plummeting 90% from $50 per ounce in January 1980.

          1. Soon, but the real question is whether and when it will return to $4 per ounce where it was in 2001.

          2. There is a VAST OVER SUPPLY (OVERHANG) OF SILVER in the markets, and there is no denying that irrefutable fact.

            Silver obviously has nothing whatsoever to do with money or currency. Most silver is PRODUCED AS A BYPRODUCT and the production costs for silver as as low as nearly zero per ounce and average cash costs for production are now around $7.50 per ounce..

            WORLD DROWNING IN EXCESS SILVER INVENTORY OVERHANG…

            Silver inventory reaches 16-year high after worst rout since ’81 – Mineweb

            http://www.mineweb.com/mineweb/content/en/mineweb-silver-news?oid=224379&sn=Detail

            Silver Cash Costs $7.50

            https://www.facebook.com/photo.php?fbid=299130080236881&set=a.106912896125268.17143.100004196737865&type=1

            Silver could easily plummet to $4 per ounce where it was in 2001.

            Silver is the most volatile of all of the metals and there is a VAST OVERSUPPLY OF THE STUFF.

            During the GREAT SILVER CRASH OF 1980-2001 the price of silver plummeted 90% from $50 an ounce in January 1980 to $4 per ounce in 2001.

            Historically, the price of silver for hundreds of years was around $1 an ounce and went up to around $2 per ounce before the manic metals speculation began in 1972.

          3. so how many ounces is there of silver in inventory to date? and how many mines that don’t produce silver as a by-product that would be affected by a low silver price of $8 an ounce? if these mines were to close would the rest of production from by-product mining be able to cover the supply to demand amount that wont eat into the inventory so to speak?

          4. In what inventory and where? To what date and from what date?

            Much of the silver production is as a byproduct of other mining, particularly copper and gold mining and that silver would be produced regardless of the price of silver as long as that other mining continued

            For more specific information on all aspects of silver, see the silver industry website at:

            http://www.SilverInstitute.org

            The latest production report from the Silver Institute states:

            Silver mine production grew by 3.4 percent to reach 819 Moz. A large portion of the growth is attributable to the primary silver mining sector, which experienced strong growth from the start, along with the ramp-up of operations that entered production in recent years. Primary silver mine production grew 6 percent, and accounted for 29 percent of global silver mine supply. Mexico was the world’s leading silver producer, followed by Peru, China, Australia and Russia. Primary silver mine cash costs stood at US$9.27 an ounce, increasing 1 percent in dollar terms.”

            https://www.silverinstitute.org/site/supply-demand/silver-production/

          5. So how is the price of copper going towards the cost of production? will this effect the supply amount of silver they produce if silver was to be $8 or even $4 an ounce as you say? if high cost copper mines that produce silver as a by-product were effected by low copper prices and low silver prices you predict, then wouldn’t the supply amount of silver ounces drop? then causing a drop in supply to demand of silver, thus needing silver from inventory? I am trying to see where your future predictions of $4/$8 silver prices stem from?

          6. That is a whole lot of hypotheticals, dude. You may not be aware of this but the price of silver was $1 per ounce for hundreds of years and then by 1971 was about $2 per ounce. It then rose to $50 per ounce due to the Hunt Brothers criminally manipulating silver demand for which Bunker Hunt was convicted by January 1980 and then spent the next 22 years collapsing 90% in price to $4 per ounce by 2001.

            Silver prod9uction costs are very low and average around $7.50 per ounce and that is leaving aside the scrap / recycled supply which essentially has nearly zero cost per ounce.

          7. so what has steered you to the conclusion that silver will return to $4-$8 an ounce? I am curious..

  14. For over 4,500 yeas all “fiat” currency has failed … the Federal Reserve has printed our economy into a debt tailspin that is beyond anything but a modestly-controlled collapse of the US greenback dollar … reduced via inflation to 2% of value compared to the dollar in 1913 (the year the third U.S. Central Bank was established but was later named the Federal Reserve because the first two U.S. Central Bank efforts were not re-chartered by the U.S. congress for fraud and serious mismanagement).

    1. Those are totally bogus assertions. The Federal Reserve has done no such thing as you assert at all. In fact, the Federal Reserve has been very careful to ensure that the US money supply as measured by M1, M2, and MZM have ONLY INCREASED MODESTLY over the past 7 years.

      As to the value of the US dollar over the past 100 years…

      No, the dollar did NOT really lose 95% of its value since 1913

      Let us take at the period from 1913-2006, where we have complete data. So what do they mean, when they say the dollar lost 95.1% of its value in those 93 years? Essentially, an average good/service that cost $1 in 2006, used to be priced at 4.9 cents in 1913. In other words, the average price level of goods/services increased by 1930% since 1913. True, but guess what, average earned income increased by 6560% during the same time period. Average earned income rose from $740/yr in 1913 to $49,300/yr in 2006. Adjusting for inflation, $740/yr in 1913 is $15,000/yr in 2006 dollars. Average incomes, not only kept pace, but beat price inflation by 230%.

      So does it make any sense all to say the dollar lost value? In reality, the REAL purchasing power of the average American, has increased by 230% in the past century. Sure, prices were cheap in 1913, but $740/yr doesn’t buy you a whole lot, not anymore than 15,000/yr today.

      http://realfactbias.blogspot.com/2012/02/no-dollar-did-not-really-lose-95-of-its.html

      1. This is such a crock of baloney.

        What matters in your scenario is that people never get the opportunity to retire because they can never manage to save for it. This is what is happening in places like Japan – how can you plan for retirement when your currency inflates you away? You can’t. All you can do is keep working.

        Think about what happened in the 1970’s. In the early 1970’s, “the lottery” used to pay out around $150,000, because that was enough to live very well for the rest of one’s life – ie. the average house was $25-30,000 and a brand new car could be bought for $4,000-$5,000 – granted, people earned much less money per month too, something like $600-700/mo.

        After the runaway inflation of the 1970’s, we finally got into the 1980’s, when homes were now $75-$100,000, cars were $15-$25,000 and $2,000/month was a fairly average working man’s wage.

        So sure… wages more or less kept up with inflation…

        The problem is though, if you won the lottery in 1971 of $150,000, you were totally screwed by the early 1980’s – when, by the way, the new benchmark of winning the lotto was now $1 Million, to make you set for life.

        If all that we can console ourselves about is that wages will rise along with inflation, so our purchasing power stays the same as far as “our income” goes, then we are truly little more than friggin’ serfs, destined to work like slaves until the day we die.

        George Washington wanted the USA to be on the gold standard so that one could figure out EXACTLY the amount of money he would need to live out the rest of his days.

        On the gold standard, for example, the historic 5% interest held true (even today, interests rates are supposed to be 5% above the inflation rate – lol, even with NIRP we’re getting screwed by interest paying only 2% on a term deposit).

        Anyway, if we had zero inflation (the USA had only 17% inflation IN TOTAL from the Revolution to 1913) and you could get the proper 5% interest on prudently investing your money, it is pretty easy to see how you could calculate EXACTLY at what point you could quit working and retire with security, couldn’t it?

        If, in 1971, I had $150,000 from wining the lotto, and got paid 5% on it, I would collect $7,500/yr on it… and if I only needed $5,000 to live comfortabely, I could retire and never work again.

        But with inflation, like what we seen in the 1970’s, all those poor bastards that were “set for life” in 1971 were back working at the damn sawmill again by 1981 (if they could get hired at all and weren’t thrown into poverty).

        Think about what the Japanese people are facing. The government is inflating their money like crazy – and yet, Japan is still a first world country with first world living standards… obviously, for those who are working, their wages are inflating along with everything else. They aren’t starving in the streets… but they will NEVER be able to retire either, because every time they save a few bucks, it will be inflated to nothing of value… which means back to work to get some more!

        No thanks!

      2. I see you are hated all over the world and over an extensive period of time. Does not surprise me. Farewell my fuzzy little friend. By the way – I am blocking you again.

  15. Its assured mutual destruction, but its fun to watch until you have to go shopping and see that “LOW” inflation.

    I wonder where our paid banker troll is???

    Watch this….

    Hum, I am thinking to buy some Silver… the price just keeps going up. I better buy before it gets too high….Seems like its still a good deal….

    Heeellllllooooooooo!

    1. Silver is preposterously overpriced at anything above its mean of $8 per ounce to which it is reverting. The price of silver has PLUMMETED ABOUT 60% over the past 4 years since April 2011 when it hit a manic speculative high of $50 per ounce and it is now below $18 per ounce with only $10 per ounce left to fall to get back to its mean.

      There is a VAST OVER SUPPLY (OVERHANG) OF SILVER in the markets, and there is no denying that irrefutable fact.

      Silver obviously has nothing whatsoever to do with money or currency. Most silver is PRODUCED AS A BYPRODUCT and the production costs for silver as as low as nearly zero per ounce and average cash costs for production are now around $7.50 per ounce..

      WORLD DROWNING IN EXCESS SILVER INVENTORY OVERHANG…

      Silver inventory reaches 16-year high after worst rout since ’81 – Mineweb

      http://www.mineweb.com/mineweb/content/en/mineweb-silver-news?oid=224379&sn=Detail

      Silver Cash Costs $7.50

      https://www.facebook.com/photo.php?fbid=299130080236881&set=a.106912896125268.17143.100004196737865&type=1

      Silver could easily plummet to $4 per ounce where it was in 2001.

      Silver is the most volatile of all of the metals and there is a VAST OVERSUPPLY OF THE STUFF.

      During the GREAT SILVER CRASH OF 1980-2001 the price of silver plummeted 90% from $50 an ounce in January 1980 to $4 per ounce in 2001.

      Historically, the price of silver for hundreds of years was around $1 an ounce and went up to around $2 per ounce before the manic metals speculation began in 1972.

          1. This guy’s invasion of a website is similar to a virus inside your computer,Maybe Norton can get rid of him!

      1. You’re arguing against billions of people in Asia, central banks around the world, Alan Greenspan, and 5000 years of monetary history. Give it up.

        1. Huh? Are you somehow not aware that the price of gold has plunged 33% ove the past 4 years. Are you not aware that central banks have reduced their gold holdings by 10% over the past 10 years from 35,000 metric tonnes to 32,000 metric tonnes? As to monetary history, gold has ver7y little to do with that. As to Alan Greenspun, Andrea Mitchell is having an increasingly difficult time dealing with him and will likely soon have to put him in a nursing home.

          Gold plummeted another $30 per ounce today and is now down to $1,256 and rapidly on its way towards and to its mean of $456 per ounce.

    2. That had to be the most blatant act of Troll Baiting I have seen in a very long time…..almost to easy wasn’t it? Especially when you mentioned silver LOL. Should have mentioned gold and he would have gone ballistic.

      1. Silver is now down 62% over the past 4 years and only $8.86 away from its mean of $8 per ounce where it is rapidly headed.

  16. So, the alternative of losing a currency war is to print to infinity, making your currency the least valued in the world. Didn’t Germany try this in the early 1920s?? Seems like the choice is a crushing depression brought on by a currency that is too strong or a bout of hyperinflation resulting in a currency that is worthless. NO WAIT! That is why we have the Fed to carefully guide us to have a currency that is just a little bit above worthless when everyone else’s currency goes totally worthless. Then we win, right? It’s a good thing we have alert, responsive central banksters at the Fed who are totally in control, and no one else has central banksters who have a clue to guide them.

    1. GOLD WAS THE DIRECT CAUSE OF THE WEIMAR CURRENCY ISSUES and that by long ago ELIMINATING GOLD FROM HAVING ANYTHING TO DO WITH CURRENCIES that nothing like the Weimar issues can ever happen again, do you George?

      The cause of inflation in Germany from 1920-23 the huge war reparations demanded from Germany with their currency of the time, the Papiermark, and wasn’t the solution to that in 1923 the replacement of that currency with the Rentenmark which had nothing to do with gold, coupled with the Dawes Plan which created bank financing for a much less onerous war reparation payment plan.

      Weimar Republic

      https://en.wikipedia.org/wiki/Weimar_Republicusg=AFQjCNGrg4D_EgePedv_X4OxDCHklDRCEw

      As to how Adolph Hitler rose to power along with the huge move back to prosperity for Germany during the 1930s while the rest of the world was battling major depression, I would suggest you watch:

      ‘Adolf Hitler – The Greatest Story NEVER Told’

      https://www.youtube.com/watch?v=Vnu5uW9No8g

  17. The currency war is a symptom, not the actual problem. The problem is that the post Breton Woods floating currency system is breaking down. Hard to say what will replace it. Most likely it will be some sort of 1-world fiat currency issued by the IMF.

    This whole Greek Theater is probably completely orchestrated and is part of the set up. After the next planned crash, people all over the world will be begging Yellen and friends to ‘do something, anything’ to stop the downward spiral.

    1. Currencies are merely returning to PROPER EQUILIBRIUM LEVELS after around a decade of massive artificial distortions in their relative values caused by manic speculators in the FOREX GAMBLING CASINO.

        1. Huh? Isn’t it obviously that the US dollar has been way undervalued for a long time and is now simply rising back up to proper levels?

          1. What’s blatantly obvious is that you are one pathetic, contemptible, lying shill … duuuuuude.

          2. Nope, dude, but that would appear to describe you. Are you really that utterly clueless as to the facts and realities? Seriously? Why?

          3. One of my children collects notes and coins . It’s a very interesting educational hobby that I actively encourage . It’s great to sit with her and look at all the failed currencies and see some of the higher valued printed pieces of worthless paper. She has many folders of failed FIAT currencies .

            I collect silver and gold and measure my wealth in ounces.

            Sorry dude,
            I am drawn towards shiny PM things and I seem unable to resist regular purchases of gold and silver. It’s an addiction thing, but my suppliers sometimes allow me to get more ounces for my bits of paper . I feel they are manipulating me .
            I expect my future grandchildren will look back and say why couldn’t that silly old bastard collect stamps, or football programmes or stuffed animals .

            Thanks for the advice dude, appreciate all your bold comments but I am “beyond saving”

      1. Wrong. The USA is has been running a trade DEFICIT, more or less continuously, for several decades. Our currency should be weakening. A weaker dollar would make our exports more attractive, and eventually close the trade deficit.

        Unfortunately, the financial system has been manipulated for so long, it is incapable of auto-correction. The endgame of this experiment is a horrible depression, so of course they are trying temporary fixes out of desperation.

        1. What does the US trade deficit have to do with proper equilibrium levels in foreign exchange for the US dollar? That doesn’t in any wa make a currency weaker.

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