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Guest Post: Is A Currency War Coming?

Tyler Durden's picture


Submitted by Kurt Brouwer of Fundmastery

Is a currency war coming?

I have made it clear that I believe the U.S. Treasury wants a weaker dollar.  For more on that, see U.S. Treasury seeks weaker dollar.  In addition to the post itself, the comment string is very interesting and worth reading.

For different reasons, the Federal Reserve and the Bank of Japan are
trying to weaken their respective currencies.  China is allowing its
currency, the yuan, to strengthen, but not quickly enough for the U.S.

In addition to this potential currency manipulation, we have the Bank
of Japan and The Federal Reserve engaging in economic stimulus programs
called quantitative easing, which is a new way to debase currency
through the digital printing of money.

A central bank two-fer

This amounts to a two-fer for central banks in that they can
accomplish two seemingly diverse tasks. It reminds me of an old spoof
television commercial showing a couple fighting over whether a product
was a floor wax or a dessert topping–”It’s a stimulus program.  No, it’s
currency manipulation.  No kids, it’s both.”

By printing more money, central banks (U.S. and Japan) hope to
stimulate moribund economies and this manipulation has the salutary
effect of also weakening the currency such that exports are enhanced. 

This piece features the thoughts of the International Monetary Fund (IMF) on the current state of play in foreign exchange:

Cooperation on the global economy is
“decreasing,” the head of the International Monetary Fund said
Thursday, warning countries about the risks of a so-called currency
Momentum to cooperate on economic policies is “not
vanishing but decreasing,” IMF managing director Dominique Strauss-Kahn
told reporters ahead of the annual meetings of the IMF and World Bank.
He said that falling cooperation is a threat, because “there’s no
domestic or national solution to [a] global problem.”

Strauss-Kahn added that some countries consider their
currency a “weapon,” and that the “currency war” being talked about by
many is a negative thing.

As of yet, we are not in a currency was, but it appears to me that
some folks — Treasury Secretary Geithner being one — are itching for a
fight.  Congress has also gotten into the act.  This might make sense in
a different economic environment, but it is very foolish now.  We
really do not need a currency war now and we really do not need further
politically-inspired trade restrictions.  Either or both are likely to
make our economy worse. continues:

Strauss-Kahn spoke to reporters a day after U.S.
Treasury Secretary Timothy Geithner effectively blamed China for
stoking a currency war.

“When large economies with undervalued exchange rates act to keep the
currency from appreciating, that encourages other countries to do the
same, and this sets off a dangerous dynamic,” Geithner said in a speech
in Washington. Read MarketWatch’s coverage of the IMF and World Bank meetings.

World Bank President Robert Zoellick echoed Strauss-Kahn’s comments
on Thursday, cautioning that currency tensions could undermine the
global economic recovery…

Essentially, Giethner is telling China to go along with our program
or else.  Anyone, who understands the history of China and of world
trade would have to at least admit the possibility that problems will
ensue from such a hard line stance.

In a separate piece, we see additional information on what is now underway [emphasis added]:

…Brazilian finance minister Guido Mantega said a
currency war has broken out, and the head of the IMF, Dominique
Strauss-Kahn, warned of the risk of one if governments try to use
exchange rates to solve domestic problems.

“There is clearly the idea beginning to circulate that currencies can
be used as a policy weapon,” Strauss-Kahn said in a Financial Times

Geithner and other developed country officials say the fast-growing,
reserve-rich emerging market economies need to let their currencies
strengthen but the leading emerging nation, China, has by and
large resisted efforts to allow its currency to strengthen. (Brazil too
has put up barriers.) In late June, China took steps to allow more
movement in its currency, the yuan, but the currency has only
appreciated about 2% vs. the dollar since then…

The yuan has appreciated 2% since June against the dollar, but that
is not enough for some.  As you could see from the comments thread on
the post I mentioned in the first paragraph, there are different points
of view on this issue.

However, I would hope that our central banks stop short of actually
inciting a currency war, which would almost certainly escalate into a
trade war.


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Fri, 10/08/2010 - 16:54 | 636585 bugs_
bugs_'s picture

It looks like World War Three (and a half)

Sat, 10/09/2010 - 10:22 | 637704 Popo
Popo's picture

Is a currency war coming?

Last January just called and wants it's story back.

Sat, 10/09/2010 - 15:11 | 638186 Lonewar
Lonewar's picture

Hey everyone,

Anytime you are having a conversation with someone and the conversation turns to money or finance, please ask them this question,


"Why does a private bank control the printing of the U.S. Dollar?"


That is all that I would request of you.

Sat, 10/09/2010 - 19:25 | 638509 cbxer55
cbxer55's picture

I junked ya. Your putting this same exact message, word-for-word, on every thread on the board.


The essence of JUNK.

Sat, 10/09/2010 - 11:30 | 637805 suckapump
suckapump's picture

"It’s a stimulus program. No, it’s currency manipulation. No kids, it’s both."

Well, sort of. It's currency manipulation and an "involuntary concentration of wealth" (i.e., theft of citizens' savings) disguised as a stimulus program.

WWIII might very well (literally) be on our own turf.

Fri, 10/08/2010 - 16:57 | 636593 Atomizer
Atomizer's picture

This is a socially engineered IMF agenda. I say, bring it on.

Fri, 10/08/2010 - 20:37 | 636977 Myzery
Myzery's picture

Pretty much.


1 IMF to rule them all.


I don't think TPTB in America want this NECESSARILY to happen, they just have no alternative. They'll still be given a pretty nice seat.


Who knows, the FED might look papable by comparison to the IMF.


We need a consitutional amendment to get our 8000 tons of gold back before the treasury uses it to 'settle.'



Fri, 10/08/2010 - 20:53 | 637002 Atomizer
Atomizer's picture

That indeed is the game play. The Marxist want us to revolt & comply with new system.

Bottom line, we can cancel out the FED by a pen stroke. Re-coin currency without the FED or IMF intervention.

We have US military toys in the air. Turning cities into glass is passé.

Sun, 10/10/2010 - 02:34 | 638974 ZackLo
ZackLo's picture

Well hasn't the IMF been selling  a lot of gold lately?


might already be to late..

Fri, 10/08/2010 - 17:26 | 636599 Oracle of Kypseli
Oracle of Kypseli's picture

Watch the yen pop to 84-85 level by Tuesday. You heard it here first

Fri, 10/08/2010 - 21:11 | 637033 doolittlegeorge
doolittlegeorge's picture

i'll be watchin'.  i'll also be watchin' "corn poppin'."  never told my Corn Pop story, did I?  Trust's a good one.

Fri, 10/08/2010 - 17:35 | 636607 Rasna
Rasna's picture

The poster appears to be late to the game...

"Is a currency war coming?", HUH??? We are engaged in a full fledged currency war taling place right now.

The Treasury/Fed DOES indeed want a weaker dollar.


What's next?

Fri, 10/08/2010 - 18:05 | 636702 SWRichmond
SWRichmond's picture

+1.  The war is merely undeclared.  The amount of paper you can buy with gold tells the story.

Fri, 10/08/2010 - 19:11 | 636754 cossack55
cossack55's picture

I think our last "Declared" war was in 1941.  Huh? That was also the last one we won, and obtained the Black Eagle Fund.

Fri, 10/08/2010 - 21:18 | 637047 doolittlegeorge
doolittlegeorge's picture

wait a minute here.  "Show me the money."  We still have a war going on--undeclared against Pakistan when last I checked. That is a real war.  They are a nuclear power with nuclear weapons by the way. There is nothing that prevents Ben Bernanke from raising rates, too.  It's been done before.  I must say I find the concept of an "atomizer" very disturbing as well.

Fri, 10/08/2010 - 17:37 | 636620 hugolp
hugolp's picture

Coming? Its already here.

Fri, 10/08/2010 - 17:43 | 636641 PeterB
PeterB's picture

The FED is nothing more than a synthetic debt pusher. Let's see if they eventually accept repayment by credit card or real future labour hours i.e. physical dollars.

Fri, 10/08/2010 - 17:44 | 636644 downrodeo
downrodeo's picture

OMFG, gold just flatlined


is everybody okay?

Fri, 10/08/2010 - 17:53 | 636668 RobD
RobD's picture

I was wondering about that, did the traders take off early for a long weekend or something?

Fri, 10/08/2010 - 17:57 | 636675 downrodeo
downrodeo's picture

I check this often. I've never seen the flatline last this long before. Somebody is asleep at the wheel, lol

Fri, 10/08/2010 - 20:38 | 636982 Myzery
Myzery's picture

Are you kidding me?

It's a 3-day weekend.

'They' set the PM fix that morning.


Fri, 10/08/2010 - 17:55 | 636672 groucho_marxist
groucho_marxist's picture

looking at the linked chart, this is the third day in a row its happened: is this indicative of some pattern happening at the close of NYGlobex, or a software glitch in the chart?

Fri, 10/08/2010 - 17:59 | 636686 Caviar Emptor
Caviar Emptor's picture

We're in a confirmed, early currency war because there already are countries that perceive themselves as "winners" and "losers". Japan's stock market plunged this week over concerns about the flying Yen. South Korea and Brazil are fighting the Fed's dollar devaluation policy. 

But that is the least sinister of what's really happening. The stakes are really, really big. 

At the very least, this outbreak will force a reaction by global financial oversight organizations. That is IF they can all agree and IF members actually comply. Those who view themselves as winners will have to restrain themselves and the losers will have to undergo pain. What are the chances of that?

Fri, 10/08/2010 - 18:01 | 636691 scaleindependent
scaleindependent's picture

I need help.


If everyone knows the US is trying to get out of this mess by monetizing, then why the hell is China going along with it. I mean, in a couple weeks the Fed will own more UST than China.

What is their game plan?

Hopium? Do they have an exit plan?

I sincerely do not get it.

Fri, 10/08/2010 - 18:05 | 636701 Caviar Emptor
Caviar Emptor's picture

I've said it before: no, there is no plan. Just feed the smack errr liquidity addiction over and over, on call 24/7 if needed and just hope for the best. Yeah right. Like it really helped Japan's economy. Guess they're still in the "Reagan proved that deficits don't matter" fantasy that 's quickly becoming a spooky carnival gone bad.

Fri, 10/08/2010 - 18:13 | 636719 scaleindependent
scaleindependent's picture

Correct, but China must know that all of their nation's hard work and savings will evaporate as per the machinations of a madman.

In the 70's-80's, when Japan realized the US was inflating, it required that future loans to the US be paid back in Japanese currency.


Fri, 10/08/2010 - 18:23 | 636742 Scarlo
Scarlo's picture

Of course they know. What are they to do with such a surplus though? They can plow megatons more into their own economy, threatening to create huge bubbles (check), they can start currency exchange programs with other nations (check), they can start stockpiling natural resources (check). The realize of course that they've been hornswaggled, but they've also benefitted from this in a huge way. Who's in a better position than they were 20 years ago, the US or China? Um, China! Who's relatively a lot worse off? U.S.!

So now China wakes up, smells the roast is fresh, and starts their own gold exchange so they can create a liquid market on their own soil. The lockdown resources flowing out, continue to import them, and work their way slowly towards using all their surpluses to acquire hard and/or productive assets. This is already obviously underway.

Fri, 10/08/2010 - 18:28 | 636762 scaleindependent
scaleindependent's picture



but if and when inflation and monetization  really takes off, then I'd think they would try to put a stop to it.

The best time to sell UST is with QE2, as the Fed artificially lowers yields.

Sell into strength

Fri, 10/08/2010 - 18:37 | 636774 kaiserhoff
kaiserhoff's picture

That's sure as hell what I would do.  Last best chance. 

This could get entertaining.


Sun, 10/10/2010 - 09:13 | 639138 Kobe Beef
Kobe Beef's picture

Guaranteed to be "entertaining". Quite possibly even involving. We live in "interesting" times.

It appears the longer term Chinese strategy is targeting resource-rich countries in Africa with "money diplomacy". Gotta spend those dollars somewhere, and they staff their infrastructure/resource extraction projects with Chinese laborers & engineers. Who knows, it might work out for the PRC.

Devalued as it is, and as it is prone to be, the dollar still goes a long way in Africa. I'd look for the Chinese to be offloading their dollars over there.




Fri, 10/08/2010 - 18:24 | 636747 PhattyBuoy
PhattyBuoy's picture

Dow 11K ...

J6pK is relishing the moment, and will go buy a new flat panel this weekend ...

JIT for the elections !

Fri, 10/08/2010 - 21:23 | 637024 goldsaver
goldsaver's picture

Have you seen the movie "Rollover"? In this movie, the Arabs had billions of dollars in US banks but recognized the risk to their future. They began secretly, with the cooperation of a US bank, moving their dollars to gold a few hundred million at a time. The gig was up when they panicked and demanded all their dollars from all US banks causing a bankrun and the destruction of international currencies. At that point they didnt care anymore. To quote the lead Arab: "It is the end of the world as you know it!.

The Chinese have been positioning for a few years now selling the products of their slave labor in the US for dollars and using those dollars to purchase hard assets (gold, silver, mines, oil, lumber and steel) They keep their reserves as a weapon of mass destruction. When they feel it is strategically advantageous they will sell their bonds and crash the US dollar. They will emerge on the other side as the sole super power without firing a shot and at a profit to boot. Not hard to understand.

"The supreme art of war is to subdue the enemy without fighting"


Fri, 10/08/2010 - 23:15 | 637223 trav7777
trav7777's picture

Total fucking nonsense.

You guys don't understand the reality of China's forex reserves and why they had to accumulate them.

China has nowhere to dump their bonds to.

Look what part of China buying the fucking yen and Brazil buying the dollar don't you get?

Sat, 10/09/2010 - 05:57 | 637464 Keri at Bankste...
Keri at Bankster Report's picture

Can you explain this more?

Sat, 10/09/2010 - 16:36 | 638324 Dollar Bill Hiccup
Dollar Bill Hiccup's picture


I don't think many people get it. To lend a hand, I'll repeat what I've posted on other threads.

A good synopsis recently was George Soros' piece in the FT.  If you want years of China observation covering the major trade and economic imbalances in China, how the reserves accumulated and different ways out for China, read Michael Pettis at . Pettis is now a Professor at Beijing University. Read Andy Xie, formerly of Morgan Stanley. Other good street research, like GaveKal in Hong Kong tend toward the apologist side since their business is investing in Asia. They contribute pieces to the FT. Steve Roach is also interesting but again, the apologist side since he is Chairman of MS Asia. Nothing wrong with talking your book, just understand when it is so.

Whining about the Federal Reserve on ZH can be solipsitic and self defeating. If you don't like your government you should become politically active. The FED is not beyond your reach in the end. If you don't believe in politics or your constitutional rights, don't exercize them. I'm not sure where that leaves you in the real world but it's an option that many seem to take. At least you have the right to free speech. In China paradoxically there are people who are willing to fight for the freedoms they don't enjoy and suffer harsh consequences, like Nobel Laureate Liu Xiaobo serving an 11 year sentence for merely suggesting that human freedom is a universal value ... Ok, the Nobel Prize is a bit of the dog and pony but the man really is in prison for espousing an idea.

The Chinese Communist Party is a dictatorship running a mercantilist export economy. The CCP is not your friend. Nor is the CCP the Chinese People. As I've said before, I think that their shelf life is limited and that the Chinese will be much better off having said good ridance.


Fri, 10/08/2010 - 21:28 | 637059 doolittlegeorge
doolittlegeorge's picture

this is a very interesting question.  you're getting into the subject of "ChiAmerica"--and I am recommending the book.  I would argue "you have inflation, you have deflation and you have starvation."  If you think feeding farmers is hard--try and feed people in a city.  The largest cities in the world are all in mainland China and they are growing rapidly--hence their "close cooperation with commodity producing nations and certain American Senators save for Chuck Shumer."  There is of course the interesting question about whether "we in the USA need the food, too."  Maybe that explains my humor:  I'm living in the USA and I'm going hungry. 

Sat, 10/09/2010 - 03:19 | 637427 AnAnonymous
AnAnonymous's picture

The largest cities in the world are all in mainland China and they are growing rapidly


Sure, buddy. The largest city in the world is by far Tokyo in Japan and it will take long for a Chinese city to catch up.

China has a long tradition of controlling internal migration, dating way before the Europeans came to instill communism.

Chinese cities are not among the largest cities in the world (top ten at least) You can find cities bigger on every other continent.

Sat, 10/09/2010 - 06:12 | 637469 TGR
TGR's picture

What are you talking about? Population of Tokyo is approx 13m, population of Beijing about 22m, Shanghai 20m...not being picky just pointing out facts.

Sat, 10/09/2010 - 06:40 | 637473 AnAnonymous
AnAnonymous's picture

Tokyo is around 30 M and Beijing around 10 M.

Still a long road to go.

Sat, 10/09/2010 - 15:52 | 638245 TGR
TGR's picture

What are you smoking? You are either totally naive or are going to weasel on some technicality.

For the record, you are wrong.

Shanghai has a metropolitan population of 20m plus (conservative estimate - real estimates put it 22m plus). Beijing has a confirmed, government-backed (and therefore conservative once more) population of 22 million.


China does not have any catching up to do. Already surpassed.


If you are talking about Tokyo the city, it has a population of 13 million. End of story.

You are wrong.

Yes, the Tokyo Government reins over a much wider area than Tokyo City itself, and therefore governs some 39 million. But millions of those live on islands, other citys, other areas, than metropolitan Tokyo.

It's like you are trying to say because Washington DC administers over the US, the population of Washington DC is 300 million odd.

Sun, 10/10/2010 - 03:32 | 639010 AnAnonymous
AnAnonymous's picture

I could find nowhere a source giving the numbers you quote about Chinese cities.

Dont ask what I smoke, ask them

Please explain. Entertain me.

Sun, 10/10/2010 - 04:44 | 639026 TGR
TGR's picture

Truly? You didn't look hard at all, seeing as every normal credible and semi-credible source concurs with the figures I gave.

It's simple really, you are quoting from a factually bankrupt site (anyone with a PC connection and some spare fiat can create one) whereas if you were to say go to you'd see the population of Tokyo is about 13m.

Beijing has a population exceeding 22m and 

Shanghai has a population of 20m

The dodgy site you quote from even says its figures may be wrong, and can include populations outside of the city borders.

Sun, 10/10/2010 - 08:11 | 639093 AnAnonymous
AnAnonymous's picture

Factually bankrupt site?Maybe.

What about this one?


Lets wait for the next round of entertainment. 



Sun, 10/10/2010 - 22:34 | 640095 TGR
TGR's picture

LOL – well, I’ll stick to the facts thanks and go with the census, the professional demographers and local government authorities findings, which is Tokyo=13m, Beijing=22m, and Shanghai=20m.

From the Tokyo Metropolitan Government website:

As of October 1, 2009, the population of Tokyo is estimated to be 12.989 million, or about 10% of Japan’s total population, and it has the largest population among all the 47 prefectures.

(I guess that extra '20million' people were all out of town at the census last October).

As someone who works in China too (and travels to Japan), I have been well aware of the population numbers for many years. But you can keep pushing errors on this site if you wish, I was only trying to help out with the facts. China’s key cities have huge problems with itinerant workers, and a constant flow of migrants (legal or not).

From China Daily earlier this year:

Beijing's total population has exceeded 22 million, a mark that is supposed to be surpassed a decade later, the China National Radio reported today.


According to Beijing's latest "overall plan", the city should control the number of population at 18 million by the end of 2020. However, the combined population of permanent and non-permanent residents currently already exceeds 22 million, with the latter standing at eight to nine million, the report said.
Fri, 10/08/2010 - 18:18 | 636731 Gloomy
Gloomy's picture

Currency Wars To Be Feared—Not Celebrated


By Comstock Partners

On Tuesday the market soared on the grounds that global efforts to engage in another round of monetary ease and devalue currencies would boost economies around the world. We think that the market’s initial reaction is a wrong-footed move that will soon be reversed upon further reflection. What we are actually facing is an all-out global currency war and old-fashioned "beggar-thy-neighbor" policies where every nation tries to devalue its currency to create more exports in order to boost its economy at the expense of every other nation.

It is obvious, however, that it is impossible for all currencies to decline in relation to each other. The failure then leads to other desperate measures to increase protectionist barriers such as higher tariffs, quotas and various restrictions on international capital flows. The result is a collapse of world trade leading to depression and the dreaded deflation that nations are trying to avoid in the first place.

As such, the recent actions of Japan, the anticipated start of QE2 by the U.S. and general global currency devaluation moves are something to be feared rather than celebrated. We know because we’ve been there before and know how it all ends. (See the Great Depression, competitive devaluations and Smoot-Hawley tariffs.)

The currency wars started slowly, but have recently been stepped up. Don’t be fooled into thinking that this is merely further monetary easing. The world has already undergone the most massive round of easing in history and we are facing a liquidity trap where further easing will have minimal effect. The real goal of various nations is to devalue. The Fed has indicated its intention to institute QE2, and, in anticipation, Japan has announced its own quantitative easing program to protect any additional rise in the Yen. The U.S. has stepped up its pressure on China to let the Yuan rise by a significant amount. The House has passed legislation allowing economic sanctions on China and other countries that are manipulating their currencies to gain trade advantages. China is vigorously resisting the pressure out of fear that a substantially higher Yuan would slash exports, leading to domestic unemployment and social unrest that would threaten the regime.

Other nations that have engaged in various forms of quantitative easing are Brazil, South Korea, Taiwan, Peru, Argentina and Switzerland. The Brazilian Real has already appreciated 25% against the dollar this year, and the Brazilian Finance Minister has stated his willingness to buy unlimited amounts of Dollars. In just a small sign of what’s to come, Brazil has also implemented a 2% tax on financial transactions to slow down the amount of "hot" money coming into the country. Meanwhile the ECB is one of the few areas trying to actually withdraw its post-crisis support of the banking system, and also has no plans to reduce its 1% refinancing rate any further. However, the Euro has increased 17% against the Dollar and 7% against an average of its major trading partners. This could impact EU growth rates in the period ahead and also put even more pressure on the already fragile economies of their peripheral nations such as Greece, Portugal, Ireland and Spain.

The IMF and World Bank are meeting this weekend, and these issues are obviously on the agenda. Leaders of both organizations have warned that a currency war could destabilize global financial markets. World Bank President Robert Zoellick stated that tensions over currencies could undermine investor confidence at a time when the world needs the private sector to boost growth. We doubt, though, that anything of real significance will come out of the meeting other than a general statement of good intentions. What we fear is that every nation will be bound so much by its own domestic political considerations that compromise will prove to be too difficult. What we hope is that we are not on the same path that led to the Great Depression.

Fri, 10/08/2010 - 21:35 | 637069 doolittlegeorge
doolittlegeorge's picture

remember "this is America's currency war."  As the global reserve currency--eh, okay.  I mean you're girlfriend telling you "you better holster that thing cowboy" might be in order.  Having said that "refusing to cooperate at the IMF" I would not advise.  A "discussion" is definitely in order.  We as Americans should be good listeners because "we may have first dibs on the IMF bailout and World Bank public work loans."

Fri, 10/08/2010 - 18:26 | 636753 goldmiddelfinger
goldmiddelfinger's picture

Evening Jewel, Check The Label Top Queen Elizabeth II Challenge Cup Invitations


Evening Jewel, winner of this spring’s Central Bank Ashland (G1) and undefeated in three starts on the grass, and Check the Label, winner of this spring’s Appalachian (G3) here, top a list of 10 3-year-old fillies issued invitations to next Saturday’s 27th running of the $400,000 Queen Elizabeth II Challenge Cup (G1) at 1 1/8 miles on the Keeneland turf course.

Fri, 10/08/2010 - 18:27 | 636760 Buttcathead
Buttcathead's picture

I aint paying my house note but I am buying stocks.  I am gunna be rich.

Fri, 10/08/2010 - 18:38 | 636779 goldmiddelfinger
goldmiddelfinger's picture

Silver Medallion in the 9th at Keeneland tommorrow but only at 15-1 or better

Fri, 10/08/2010 - 18:37 | 636775 squidward
squidward's picture

Don't hate the player hate the game.  China is acting rationally in our messed up Bretton Woods system.  Why wouldn't they act in their best interest.   It's not like we don't exploit printing the worlds reserve currency. 

Scapegoating is the lowest common denominator in dealing with a crisis. 

Fri, 10/08/2010 - 18:55 | 636813 NoVolumeMeltup
NoVolumeMeltup's picture

Yes, but our shitty politicians aren't about to point the finger at themselves (where a fair portion of the blame rightfully resides), so I'm afraid you'll see more bashing to come.

Sun, 10/10/2010 - 12:54 | 639412 Hephasteus
Hephasteus's picture

But they are always yapping about how responsible they are.

Lying out your ass is a response isn't it?

Fri, 10/08/2010 - 23:23 | 637233 trav7777
trav7777's picture

will you people stop acting like a currency manipulator ponzi protectionist nation like China is a victim?

They have bought dollars for DECADES to keep the yuan artificially weak.  THEY have abused the dollar as much as anyone.  Our debt grew THEIR ECONOMY.

Fri, 10/08/2010 - 23:47 | 637254 three chord sloth
three chord sloth's picture

Thank you.

Sat, 10/09/2010 - 03:24 | 637432 AnAnonymous
AnAnonymous's picture

There is always a competitive edge difference between somebody implementing the rules of the game for its one benefits and other people managing to find holes to draw benefits for themselves.

It is impossible for China and any other countries in the world to abuse the USD as the US can and has.

That equalitarian in crime mindset is typical of US citizens.

Yet people living off junk and people releasing the junk are always two different sets of people. 


Fri, 10/08/2010 - 18:51 | 636808 Gloomy
Gloomy's picture
Wanted: Chinese Leadership on Currencies


George Soros

WASHINGTON, DC – I share the growing concern around the world about the misalignment of currencies. Brazil’s finance minister speaks of a latent currency war, and he is not far off the mark: it is in the currency markets that different economic policies and different economic and political systems interact and clash.

The prevailing exchange-rate system is lopsided. China has essentially pegged its currency to the dollar, while most other currencies fluctuate more or less freely. China has a two-tier system in which the capital account is strictly controlled; most other currencies don’t distinguish between current and capital accounts. This makes the renminbi chronically undervalued and assures China of a persistent large trade surplus.

Most importantly, this arrangement allows the Chinese government to skim off a significant slice from the value of Chinese exports without interfering with the incentives that make people work so hard and make their labor so productive. It has the same effect as taxation, but it works much better.

This secret of China’s success gives the country the upper hand in its dealings with other countries, because the government has discretion over the use of the surplus. And it has protected China from the financial crisis, which shook the developed world to its core. For China, the crisis was an extraneous event that was experienced mainly as a temporary decline in exports.

It is no exaggeration to say that since the financial crisis, China has been in the driver’s seat of the world economy. Its currency moves have had a decisive influence on exchange rates.

Earlier this year, when the euro got into trouble, China adopted a wait-and-see policy. Its absence as a buyer contributed to the euro’s decline. When the euro fell to $1.20, China finally stepped in to preserve the euro as an international currency. Chinese buying reversed the euro’s decline.

More recently, when the United States Congress threatened legislation against Chinese currency manipulation, China allowed the renminbi to appreciate against the dollar by a couple of percentage points. Yet the rise in the euro, yen, and other currencies compensated for the fall in the dollar, preserving China’s advantage.

China’s dominant position is now endangered by both external and internal factors. The impending global slowdown has intensified protectionist pressures. Countries such as Japan, South Korea, and Brazil are intervening unilaterally in currency markets. If they start imitating China by imposing restrictions on capital transfers, China will lose some of its current advantages. Moreover, global currency markets would be disrupted, and the global economy would deteriorate.

China expert Michael Pettis has shown that consumption as a percentage of Chinese GDP has fallen from an already low 46% in 2000 to 35.6% in 2009. Additional investments in capital goods offer very low returns. From now on, consumption must grow much faster than GDP.

External considerations, too, cry out for allowing the renminbi to appreciate. But currency adjustments must be part of an internationally coordinated plan to reduce global imbalances.

The imbalances in the US are the mirror image of China’s. Whereas China is threatened by inflation, the US faces the risk of deflation. At nearly 70% of GDP, consumption in the US is too high. The US needs fiscal stimulus to enhance competitiveness, rather than so-called “quantitative easing” in monetary policy, which puts upward pressure on all currencies other than the renminbi.

The US also needs the renminbi to rise in order to reduce the trade deficit and alleviate the burden of accumulated debt. China, in turn, could accept a stronger renminbi and a lower overall growth rate as long as the share of consumption in its economy was rising and the improvement in living standards continued. The public in China would be satisfied; only exporters would suffer, and the surplus accruing to the Chinese government would diminish. A large appreciation would be disastrous, as Premier Wen Jiabao says, but 10% a year should be tolerable.

Since the Chinese government is the direct beneficiary of the currency surplus, it would need to have remarkable foresight to accept this diminution in its power and recognize the advantages of coordinating its economic policies with the rest of the world. China’s leaders need to recognize that their country cannot continue rising without paying more attention to the interests of its trading partners.

Only China is in a position to initiate a process of international cooperation, because it can offer the enticement of renminbi appreciation. China has already developed an elaborate mechanism for building consensus at home. Now it must go a step further and engage in consensus-building internationally. The reward would be acceptance by the rest of the world of China’s rise.

Whether it recognizes it or not, China has emerged as a world leader. If it fails to live up to the responsibilities of leadership, the global currency system is liable to break down and take the world economy with it. Either way, the Chinese trade surplus is bound to shrink, but it would be much better for China if that happened as a result of rising living standards rather than global economic decline.

The chances of a positive outcome are not good, yet we must strive for it, because, in the absence of international cooperation, the world is headed for a period of great turbulence and disruption.

Fri, 10/08/2010 - 18:58 | 636818 Gloomy
Gloomy's picture

Key statements:

1."The impending global slowdown has intensified protectionist pressures." i.e., yes, a double dip recession is coming. 

2. "Whether it recognizes it or not, China has emerged as a world leader. If it fails to live up to the responsibilities of leadership, the global currency system is liable to break down and take the world economy with it." What is the chance China would do anything to weaken its position-zilch. i.e., all hell is going to break loose.

Fri, 10/08/2010 - 20:22 | 636957 StarvingLion
StarvingLion's picture

China has emerged as a world leader.

Leader in what, shipping bicycles to the western world?  EROI (Energy Return on Investment) is the only thing that matters and they have no solutions to prevent that from dropping further.  The Limits-to-Growth computer models have been accurate so far and bulldozing the suburbs to create ObamaPlantation aint gonna prevent a population die-off.

Fri, 10/08/2010 - 21:18 | 637044 goldsaver
goldsaver's picture

Do you truly believe they care if a few hundred million peasants die in the transition period? It would actually help them become stronger. Once they destroy the US market and arise as the world's only super power, the Europeans will be groveling at their feet.

Fri, 10/08/2010 - 21:42 | 637078 doolittlegeorge
doolittlegeorge's picture

peasants?  no.  knowledge workers in Shanghai.  Yeeeeeessssss they do.

Fri, 10/08/2010 - 23:15 | 637222 RockyRacoon
RockyRacoon's picture

So, our elite class is bankers and their lackey politicians.  China's elites are educated people who can actually produce something.  Let's change the word from "elite" to coddled class. Somehow there is a dichotomy that will be difficult to balance.   We have a nation indebted to the hilt and they have the hand on that throttle.

Fri, 10/08/2010 - 23:27 | 637238 trav7777
trav7777's picture

Sorass is categorically correct.

CHINA has abused the BW system to the detriment of the ENTIRE globe.  THEY and their incessant need for ponzi growth are at the CENTER of this.  THEY are the nation that invested in dramatic everything.

This is all that superior chinese GO thinking bullshit huh?  They can't permit their export ponzi to normalize because the CCP's gravy train might end.

Sat, 10/09/2010 - 03:26 | 637433 AnAnonymous
AnAnonymous's picture

The US has  not abused the BW system? How so?

Best denial comment so far.

Sat, 10/09/2010 - 09:25 | 637535 SWRichmond
SWRichmond's picture

Sorry Trav. Most of the interactions that we have with others on the planet are economic.  The ability to manipulate the value of "money" is the ability to control life itself.  The whole fiat regime of central bank manipulated currencies is corrupt and unjustifiable.  China has simply used a Western-imposed phony system to beat the West.  And now western bankers cry "Hey! You're a currency manipulator!"  It's complete crap.  The problem is not China.  The problem is the existence of central banks and people clinging to the notion of a currency board of wise men deciding who wins and who loses.

Fri, 10/08/2010 - 19:23 | 636869 gwar5
gwar5's picture

The Fed should buy the gold still on the books at $42/oz in the Treas which will back the dollar and raise the price of gold to around $8200./oz and puts all currencies on de facto gold standard again.

There, that should do it (hey, not me, that's Rickards and others now repeatedly saying that)

Fri, 10/08/2010 - 20:33 | 636971 masterinchancery
masterinchancery's picture

I recommend $20000/oz, better safe than sorry.

Fri, 10/08/2010 - 21:43 | 637079 doolittlegeorge
doolittlegeorge's picture

like I said "we're not even in Woodrow Wilson territory yet."

Sat, 10/09/2010 - 17:12 | 638367 A_MacLaren
A_MacLaren's picture

That is Nucking Futs, the PRIVATELY OWNED FED buying the gold of the US Treasury.  No way, absolutely intolerable.  The People of the United States of America  exchanging Their Gold for FRNs?  That's Fucking Nuts.

The FED should be ended.  The Treasury should reclaim the Monetary Authority to print, destroy, create and otherwise regulate the currency of the United States of America.

Fuck the FED.  Audit the FED, then End the FED.

If the U.S.A. wants to be back on a gold exchange or gold convertability standard, then it should be so enacted in legislative branches and approved by the executive branch.

Rickards is a very sharp man (and who ever others are similarly espousing that view), but that makes them all Central Bankster supporters.  Just say No to Central Banksters, World Banksters, and Int'l. Global Monetary Authoritarians.

Fri, 10/08/2010 - 19:28 | 636880 MacedonianGlory
MacedonianGlory's picture

It's a multi-leveled power game beyond reason

What is coming is beyond imagination

Fri, 10/08/2010 - 19:47 | 636910 zen0
zen0's picture

A good summary of all of known history. Well done.

Fri, 10/08/2010 - 20:21 | 636954 Silversinner
Silversinner's picture

Only see one currency war between paper digital currency and good old gold

guess who wil win??

Fri, 10/08/2010 - 20:24 | 636961 Atomizer
Atomizer's picture
FIAT EMPIRE - Why the Federal Reserve Violates the U.S. Constitution
Fri, 10/08/2010 - 21:44 | 637083 doolittlegeorge
doolittlegeorge's picture

and much more.  I look forward to Ben dressing in drag and "steppin' out."  He's such a baddddy.

Fri, 10/08/2010 - 20:30 | 636967 Atomizer
Atomizer's picture
McDonough: The Importance of Central Bank Independence in Achieving Price Stability

July 2, 2002


What has changed?

Fri, 10/08/2010 - 20:35 | 636975 Poofter Priest
Poofter Priest's picture

I mentioned this [quietly] last week.


I think we started a currency war in 2000. That is when Greenspan suddenly started taking up residency on Capitol Hill. More than ever in his tenure or more than any other chairman in the history of the FED.

I believe we ran over two decades trying to get China to let their currency float free and they refused.

I think in 1999 they decided to take it downtown.

Look at it. Way back in the early 80s many people were warning about China's potential. And I read one thesis that easily pointed out the risk to global trade if a large trade imbalance between China and the U.S. went too far or too long.

I don't think Greenspan is stupid. I don't think Bernanke is stupid. I think they wanted to devalue the buck to force China's hand. The best way (and most covert in a psy ops manner) was to pump excess money into the economy.

I've seen all sorts of credible actions that would support this theory.

You CAN predict a bubble if you are the one pumping money into [it]

This article is a wake up call 10 years late.

Sat, 10/09/2010 - 01:15 | 637340 sweet ebony diamond
sweet ebony diamond's picture

If this is true, it is the stupidest plan ever. These Central Bankers have way over-reached.

Sat, 10/09/2010 - 13:43 | 638029 Poofter Priest
Poofter Priest's picture

This would beg the question why is it "stupid"?

[If] the theory is valid, now else would they be able to fight the ongoing artificial devaluation of a powerhouse economy?

I'm trying to find holes in this theory and as of yet there has been no actual argument against it.

Fri, 10/08/2010 - 20:40 | 636984 Silversinner
Silversinner's picture

just about 1 in 100 have real gold

only 1 in 10.000 are all in,we will be the ones who will gain

most purchasing power.Our anchisters would have figgerd this

out allready much faster then most of us!!When banks starts

collepsing change your paper promisis for real money(gold and silver)

It is really that simpel.Even a morron like me knows this.

Good luck

Fri, 10/08/2010 - 20:51 | 636988 wgpitts
wgpitts's picture

If the Chinese and Japanese want to see a flight to safety and appreciation in the dollar - just sell off $100 billion of equities - and if that doesn't work sell $100 billion more and if that doesn't work, sell $100 Billion more until Uncle Ben says Uncle....

"On Thursday Sept 15, 2008 at roughly 11 AM The Federal Reserve noticed a tremendous draw down of money market accounts in the USA to the tune of $550 Billion dollars in a matter of an hour or two." - Rep. Kanjorski

Rep. Kanjorski: $550 Billion Disappeared in "Electronic Run On the Banks"


Fri, 10/08/2010 - 21:17 | 637043 Poofter Priest
Poofter Priest's picture

How would selling off the all the equities appreciate the dollar???

I'm assuming you are talking about the U.S. equities right?

That would flood the market and drive the dollar lower.

Fri, 10/08/2010 - 23:53 | 637262 wgpitts
wgpitts's picture

I was thinking we may see some headlines like this:

ETF Trends: U.S. Dollar Attracts Flight to Safety Capital

Dollar gains as AIG news sparks flight to safety

Dollar rallies on flight to safety

Fri, 10/08/2010 - 21:16 | 637041 Atomizer
Atomizer's picture

Tyler & Marla, after 9/11 I became actively involved in how the financial system works.

Meet the Federal Reserve - forward to 2:50m

Again, I cannot stress how corruption has caused these problems. Society (J6P) has no grasp to the problems mounting.

I do not want global governance to emerge out of the ashes. As stated, the event is all socially engineered.

Joseph tainter; The Collapse of complex Civilisations

Above link all ties into the austerity plans on a global plane.

Fri, 10/08/2010 - 21:21 | 637051 Atomizer
Atomizer's picture

Thank you Tyler and staff. You did a hell of a job in exposing the obvious this week. Keep up the good work.


Fri, 10/08/2010 - 21:51 | 637092 gnomon
gnomon's picture

The Currency War is a proxy for the Resource War.  Which country STARTED the Currency War MANY years back?  And which country, (which has the highest population in the world), is in dire need of Resources?

And which country will have your guts for garters, (to be sold on the open market), if you become a political prisoner?

Which country, in fact, makes almost no pretense in regards to human INDIVIDUAL rights.

If  there is to be a dystopia in our future, which country would you least like to have running the show?  One of totalitarian heritage or one with a heritage of individual rights and the rule of law, (however much abused AT THE MOMENT).                                                      

 And there is NO moral equivalence between the two, however much anyone tries to spin it.


Fri, 10/08/2010 - 22:15 | 637128 Poofter Priest
Poofter Priest's picture

Uh....if you are referring to my post, there was no question or issues about who is right. So there is no spin.

It was about understanding the possibly 'why' of what has happened over the last decade.

Fri, 10/08/2010 - 21:55 | 637101 doolittlegeorge
doolittlegeorge's picture

So is it "time to start Atomizing" atomizer?  Hit us with "the LASER" beam? Whatever happened to "Hi.  I like you and you like me.  Let's go out on a date"?  I mean--if we all have to worry about food and food stamps--is this our victory in the war on terror?

Fri, 10/08/2010 - 23:37 | 637246 trav7777
trav7777's picture

A world power famous for poisoned dog food, baby toys, counterfeit luxury goods and IP theft.  Any legitimate power would be embarrassed to have that going for them.

China is for China by any means necessary.

Sat, 10/09/2010 - 18:35 | 638445 Goldenballs
Goldenballs's picture

Totally agree Trav,never renounced communism and use the capitalist system to break the capitalist system,while huge profits have been made the elites ignored the danger.China looks more menacing everyday,only good thing is it might implode from within before it starts to expand its borders.However it disguises its intentions the monster within is becoming more capable and if it needs to strike to keep itself unified and stop revolution fermenting with regards to job loss and the workers demanding freedoms it will not think twice.I am sure very interesting stories will emerge in  the future with regards a workforce who are treated like slaves,paid a pittance and who disappear if they cause too much trouble.Interesting times ahead with China seeing how far it can push other nations.

Sun, 10/10/2010 - 00:42 | 638887 snowball777
snowball777's picture

You forgot human rights abuses...they're aces at that too, not that we have much room to wag fingers.

Fri, 10/08/2010 - 23:48 | 637255 carbonmutant
carbonmutant's picture

OK, I'm face down in the mud and some ass**** is shooting at me and the idiot with a microphone is asking, "Are we in a war yet?"

That's what's wrong with this country, Baghdad Bob has the microphone...

Fri, 10/08/2010 - 23:57 | 637260 wgpitts
wgpitts's picture

There are 2 likely outcomes from our current economic condition: 1. A collapse of the equity markets back to 1985 levels (Dow 3000 S&P 200) or No. 2 A collapse of the Federal Reserve Note a/k/a US Dollar / Treasury Market. China, Japan are now calling Bernanke’s hand. However No. 1 will be a Cat 5 Hurricane on the Economy and will preserve save No. 2 But No. 2 is nuclear devastation

Sat, 10/09/2010 - 02:48 | 637404 LOL123
LOL123's picture

The article by Benn Steil  (Foreign Affairs, May/June 2007)"The end of national currency" is interesting in light of the above article. In summary: Global financial instability has sparked a surge in "monetary nationalism"--the idea that countries must make and control their own currencies. But globalization and monetary nationalism are a dangerous combination, a cause of financial crises and geopolitical tension. The world needs to abandon unwanted currencies, replacing them with dollars, euros, and multinational currencies as yet unborn." .....interesting wouldn't you say? The wheels of Government move slooooooooowwwwwwwww.


Sat, 10/09/2010 - 04:51 | 637455 chistletoe
chistletoe's picture

I still don't see anybody else even noticed

that a Pearl Harbor attack occured yesterday

over at CME.

I am expecting that this was only the first round.

within weeks, both grocery prices and gasoline prices

are going to be spiralling out of control in the US.

Now, how long do you all think it is going to take

for some of these tea-party types to break out their heavy artillary

declare "revolution", and start blowing up gas stations and supermarkets?


Methinks the USA has already lost this war, and no one even noticed ....

Sat, 10/09/2010 - 08:54 | 637527 imapopulistnow
imapopulistnow's picture

The Central Bank 2fer:

1) Liquidity raises financial asset values, commodity investments.  Very good for the wealthy.

2) The lower dollar increases import prices and further increases food and energy costs.  Essentially a hefty tax on the limited incomes of the lower middle class and unemployed.

The wealthy will do quite well.

Sat, 10/09/2010 - 09:06 | 637539 jm
jm's picture

I think that BOJ is going to intervene soon.  When they do, it will shake everyone out.  A 10% move will be nothing on this sandpile.

Sat, 10/09/2010 - 09:31 | 637560 Quinvarius
Quinvarius's picture

Countries are going to start ending FOREX crosses with each other in the endgame.  It only takes one bad player to ruin the system, and China is it.  It is absurd to think soverign nations are going to allow China or any other nation to dictate the success of their economies through the manipulation of their own currency.

Sat, 10/09/2010 - 09:44 | 637582 imapopulistnow
imapopulistnow's picture

I currency war is needed.  We have tried to negotiate nad cajole for the past 30 years without success. 

Print dollars and drive up currencies around the world until the mercantilists say "no mas".  Then and only then will they be willing to negotiate.

Sat, 10/09/2010 - 13:44 | 638035 Poofter Priest
Poofter Priest's picture

That is what I'm betting has been going on.

Sat, 10/09/2010 - 09:56 | 637615 mcarthur
mcarthur's picture

Like Maggie Thatcher once said, you can't make the poor rich by making the rich poor but this is precisely the card played by countless nations for a generation.  I think the US allowed this in order to bookend communism but there is no need now. Time to throw up the temporary import tarrifs cloaked under a fancy name.

Sat, 10/09/2010 - 10:22 | 637702 mcarthur
mcarthur's picture

Tongue in cheek, the entire world financial crisis can be blamed on Malcom McLean from Maxton, North Carolina.  He was the inventor of the commercial intermodal container.  Over 100 years ago the Chinese were relegated to building railways and doing laundry in North America since they were willing to do your job for one tenth the salary.  They have effectively accomplished this feat thanks to Malcom.  

Sat, 10/09/2010 - 10:44 | 637727 Oh regional Indian
Oh regional Indian's picture

Simply awesome comment thread.

It's why I keep coming back, checking in. 



Sat, 10/09/2010 - 11:49 | 637828 potatomafia
potatomafia's picture

Want to slow down China's currency manipulation?  STOP SELLING SO MUCH DEBT!!!

Sat, 10/09/2010 - 13:09 | 637957 Chappaquiddick
Chappaquiddick's picture

If the Fed were to become the sole owner of all US debt - could it forgive the debt?

I mean if you owe yourself $10Tr is there a debt at all - especially one on which you need to pay interest?

I was thinking that if they forgave the debt, removed the Feds power to print indiscriminately (the flaw in Bretton Woods) and re-established the gold standard on the dollar - that could be a solution.  The debt is gone, the reserve currency status is maintained and the rigour of a gold standard re-established.  Also they recharge their dwindling stockpiles at Fort Knox and elsewhere.  (Obviously they'd seize all gold and silver, no historical prescident there.)


Sat, 10/09/2010 - 14:18 | 638096 plongka10
plongka10's picture

Why would the privately owned Federal Reserve want to forgive the debt? They would own your arse.

Sat, 10/09/2010 - 23:05 | 638795 Chappaquiddick
Chappaquiddick's picture

Because it would allow the maintenance of the current power structures and stop the world falling apart.  But more to the point COULD they act like this - is there anything to stop them?  What would the consequences be if they did?

Sat, 10/09/2010 - 16:37 | 638328 BeeTee
BeeTee's picture

Just remember, over the last decade the good olde US has given China $2.5 trillion.

Never before in history has one superpower (stupidly) given so much to any another ( competitor) in such a short time frame.

Sat, 10/09/2010 - 16:48 | 638340 Madhouse
Madhouse's picture

I really cannot keep score as to which one of them is dumber, Pelosi or Boehner.

Sat, 10/09/2010 - 19:35 | 638520 99er
99er's picture

Timmy Can You Hear Me

(Reuters) - Japanese Finance Minister Yoshihiko Noda said Treasury Secretary Timothy Geithner did not make any specific comments about Tokyo's currency intervention when they met on Saturday.

"I explained that issue quite elaborately (at the Group of Seven dinner meeting) yesterday, so I didn't explain it again today," Noda told reporters after the bilateral talks held on the sidelines of the IMF meetings.

Sat, 10/09/2010 - 21:55 | 638694 99er
99er's picture

(Reuters) - Emerging powers won a battle on Saturday for heightened IMF scrutiny of rich countries' economic policies as world financial leaders sought to defuse mounting tensions over currencies. | Video

Sun, 10/10/2010 - 02:48 | 638989 gwar5
gwar5's picture

Ok, so what if China calls the bluff and says they'll raise the value of the Yuan? Is BB going to say nevermind on the QE II?

I don't think so. I think China is just the scapegoat here so BB and the banksters can deflect blame for the consequences of the disaster they are embarking upon.



Sun, 10/10/2010 - 08:16 | 639098 AnAnonymous
AnAnonymous's picture

There is an attempt to deflect blame.

Raising the value of the Yuan would definitively help to point fingers at China, as it might translate in more consumption from the Chinese and less consumption in the West.


People want to conserve their standards of consumption.


Sun, 10/10/2010 - 13:15 | 639447 Poofter Priest
Poofter Priest's picture

For one...that is a BIG  'what if'. China has already admitted that were they to allow the yuan to rise by 20% it would destroy their industry and create political unstability. In spite of all the rosey numbers you hear out of China remember that there is a lot of spin on their numbers.

That said, if China does raise the value of the yuan, this is a large ship that would have to be turned around and it would take time. So there would not be any immediate halt to the ongoing mess.

Wed, 10/27/2010 - 08:30 | 680065 daniel
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