G7 Calm Currency War Fears

Marc To Market's picture

With currency war talk distracting investors and policy makers from the more serious and significant issues, the G7 issued a statement today reiterating its "longstanding commitment" to market determined foreign exchange rates. 

Fiscal and monetary policy is directed to domestic policy objectives and not a foreign exchange target.  At the same time, it recognizes that excess volatility can generate disorderly markets, which in turn, may have a negative feedback on the economies and financial market stability. 

It is true that some comments by senior Japanese government officials seemed to have violated these principles, but in the past few days, we argue, there has been a shift in the rhetoric, away from providing guidance for the dollar-yen exchange rate.


However, what ought not be lost in translation is that Japan's policy of reflation, dubbed Abenomics, has been effectively endorsed.  After years of calling for Japan to take stronger action, it is difficult now to be critical of its policy. 

The IMF and the US Treasury, through Brainard's comments yesterday, have seemed to offer positive endorsement for the stimulative policies.   Indeed, it appears to have been Brainard's comments that prompted the late-US afternoon dollar spike to JPY94.50 (new highs for the move) and a level that has not been seen again.  That said, new dollar and euro highs against the yen should be expected.  

De-emphasizing the currency war talk should be euro positive (as well as yen negative) as some observers read too much into Draghi's press conference remarks last week.  He had to acknowledge the French calls for action and reassure that the ECB was closely monitoring developments.  Some has thought the official pain threshold for the euro had been reached, but the G7 reaffirmation and Constancio's comments today suggest otherwise.  A move now above $1.3480-$1.3520 would help lift sentiment and begin repairing the technical damage inflicted last week.

On another front, the currency war theme obscures the importance of the debate within the euro area itself.  The fault line is familiar.  Northern Europe is more competitive and can be with a higher exchange rate than the less competitive South.  There is no doubt that France and Germany, the two pillars of Europe, are on different sides of the issue--not so much, we would argue, due to philosophical differences but concrete differences. 

Sterling and the dollar-bloc continue to have a rough ride, with new lows having been recorded for the Australian and Canadian dollars and sterling today.  After the yen, these are the three weakest major currencies thus far this year.  The yen has lost about 8%, sterling 4% and the Aussie and CAD are off about 1.5%. 

Sterling showed little reaction to the erosion in the RICS house price index (-4 from -1 in Dec), but sold-off in early Europe before the inflation report.  In January CPI remained, as it has through Q4 12, at 2.7%, which is the highest since last May.  Perhaps more concerning for investors was the PPI report that warned of a potential squeeze on profits.  Input prices rose 1.3%, half again as much as the consensus expected, with output prices rose a mere 0.2%.   Sterling bounced off the low near $1.5575, after the barriers thought to have been struck near $1.56 were taken out.  Resistance is now seen in the $1.5650-70 area.

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disabledvet's picture

whatever happened to "no comment" when it came to currencies? hell we don't even get the boilerplate "our currency value reflects economic fundamentals." now it's "we've got an equity price target in mind...and we're going to us our currency as a tool to achieve that goal." seems to me you start with what causes the "race to the bottom" to begin with. using your money to "influence the correct wealth distribution" seems to me the completely wrong way to go about that. it is "the simple way" of course...which is probably why it is done.

lindaamick's picture

The current fiat system used globally depends mainly on the issuance of debt for growth.  Debt requires that amount plus interest for repayment which, among other things is a drag on growth.  If growth does not occur, the system begins to collapse immediately. 

The one way to retard this collapse is to pay higher wages to workers.  This will cause more real money (or debt to companies paying the wage) into the system to buy real things.  Therefore, you either get growth OR in cases where the debt goes against corporations paying higher wages vs individuals going into more debt, you get redistribution of wealth but you have a better chance of stimulating growth absolutely than depending upon credit issuance to individuals. 

Our current system will not work without growth.  The growth being accomplished today is money printing by the central banks which goes to buy government treasuries/bonds which goes to printing money for the banks. 

What is required to create stability is more even wealth redistribution with a new system based upon sustainability instead of a growth model but that would bankrupt the capitalists.  The world would become more egalitarian.

The people getting rich off the current scheme must believe they can build fortresses to protect themselves, fully equipped with all items needed for lifetime sustenance, otherwise they are in trouble in the long term also.

suteibu's picture

"Our current system will not work without growth."

And, thus, a Ponzi.  But we all know that here.  The discussions are more for comedic relief and to vent frustrations and not to try to figure out what's going on.  Unfortunately, not enough people are having the discussion to make a difference.

Downtoolong's picture

I wish I had a warm feeling from this, other than the one running down my pant leg.


Setarcos's picture

"market determined exchange rates".

How can anyone, any longer write such BS without at least some mention that so-called 'markets' are manipulated to the hilt?

But Marc to Market ploughs on as if the world has not changed during the past forty years, during which capitalism and tangible assets have been buried by financialism and intangible derivatives.

There is nothing to mark to market any more, a prime example being sub-prime mortgages.

Everything is now bankster manipulated and no 'market' exists beyond HFT and Fed dumpings of digital cash into the TBTFs.


matrix2012's picture

Dude, its rating explains its "Mark to Market" hollow proposition... unfortunately there ain't choice less than 1 :-)

fonzannoon's picture

I don't know about you guys but I feel a lot better now.

fonzannoon's picture

I did. It was interesting on a few levels. I also know from checking online that the guy seems to have bounced back and kept that house and biz seems to be booming. My main takeaways were more interesting on a personal level. By the end of the flick I really found David Siegel to be a waste of life and it reinforced why I think this country is structurally doomed. Here is a guy who made a massive fortune. At the core of things, his older son does not know him. He does not really like his wife. His younger kids are all disasters, and when things get rough he ends up resenting them all. He is an empty can.

You in some ways have described your Dad to be somewhat of a microcosm of this guy. But it seems like you have learned from him and you guys are better off for it. Where as in this case I think it just exposed the rot that this guy has allowed to grow. I don't honestly know which is more of the norm. That is not my upbringing so I would take your word.

As for the economics of it....I think this guy is like a Robert Kiyosaki on steriods. Borrow a ton of money when it is cheap and leverage the shit out of it. If you build everything on credit, and credit dries up, you are toast. I found it funny that he blames the bankers for everything.

Whiteshadowmovement's picture

Cool man. Listen here's why I love the film- in many ways I think if you had to pick a single analogy for the American system, this is it. But first just to note, my dad is nothing like this guy lol, the only real parallel is I know the feeling of living in a big mansion where all of a sudden the power might go out because nobody can pay the astronomical bill from one day to the next. My dad was simply fleeced by his naivete about how things work in America, but we learned fast. Anyway, here is where I think the film is truly brilliant (and one of those once in a lifetime kind of things- I doubt any documentarian will ever get this up close and personal at such a time again), it really shows how every aspect of the American dream, from top to bottom is based on paper. He made all his money because at first Disneyworld happened to open next door to suck money out of families. Then his proximity to this allowed him to profit and launch a timeshare business. Since then he has built this giant house of cards building something nobody really needs (timeshares) in dozens of places, all predicated on the same concept of scamming money out of people through sales pitches, who cant really afford it and pay for their dreams with a loan. "we sell 100% of timeshares on the 1st day- get them to buy TODAY!" God how great is that scene where the black couple tours the LV building and their salesman stops by pics of Siegel shaking hands and makes sure to note about his philanthropy "that's a good thing". Everyone in David Siegels world seems live only for an addiction to consumption. His fuckin chauffeur estimates he was once a paper multimillionaire...

Then for a brief period we get the crisis and suddenly it all falls away, beneath all the layers of paper promises he isnt actually worth anything, in fact almost nobody is. All his assets are simple more collateral for the timeshare biz. Everything hes built personally is literally a monument to malinvestment. Chinese ghost cities dont have shit on this guy. Look at his wife- thats the American dream, shes in all honesty just a peg above white trash and married this guy for the happiness his money would bring, but since she raised herself up in purchasing power, this marriage was a great success.She has children like dogs have litters (at one point she even says she didnt know she would have so many until all the nannies made it so easy for her). She is literally addicted to consumption, she is just a giant vaccuum that takes money from one place and pumps it right back into the economy (her toy buying spree, lol). Its funny the first time I saw this movie I was certain it was a mockumentary and wed see Fred Willard pop put next to her stuffed dead poodles, but no they really do live like this.

But funnywise, I find it tough to hate her, or even David Siegel for that matter, I certainly dont like him and dont want to know him, but I cant blame him. He and his family and his business are simply the real expression of the American dream. He is an empty can, (lol, no he doesnt draw strength from his marriage, its like having another child) and you can see in certain ways he doesnt care about his possessions, he only wants to keep going, his addiction is to the pursuit of the dream itself. Thats whats so fucked up about it. This whole system is just set up by the tptb that the 'process' of consumption, not the goods themselves, is the be all and end all of American life. 

Now here is where I found the film to be truly brilliant. What it really revealed to me is that we let a perfectly good crisis go totally to waste. When we were deep in the abyss, there was no soul searching, no real efforts to restructure or examine a better way, no it was just a brief dunk in a shark tank where those banksters that were still solvent tried to seize as many assets as they could before the inevitable bailout came. Then comes the bailouts, the banks can have all the free money they want, and we go right back to the way things were. We just didnt have it in us to change, and it wont come anytime soon, the wherewithal just isnt there. Nobody has any solutions, its either this or eating scorpion meat. There is no option other than perpetuating this system. And how great was that closing shot when you finally see those Disney fireworks outside their tacky mansion! That says everything you ever need to know. Every night- Disney fireworks. That IS the American dream. And as youve probably read, Siegel has taken his replica of Uday Husseins palace of the market and resumed construction... we are nowhere close to a collapse fonz....



Renfield's picture

<<Cool man. Listen here's why I love the film>>

Sorry about breaking into a private conversation, but +1 for your review of this film.

(Actually I felt sorry for the wife, who seemed to want to be more than a "trophy", to be a good wife and mother, but obviously never had the character or the training to be either. Kind of a symbol for so much wasted human potential these days. If she were only a gold-digger at heart she would have walked as soon as things went south, taking as much loot as she could carry with her.)

Anyway. Glad you commented on that here; otherwise reading the posted article would have been a complete waste of time.

Whiteshadowmovement's picture

renfield, is it just incidental or does your avatar name have any connection to the motorcycle maker?

Renfield's picture

No, it's connected to the old lunatic of "Dracula" fame, who kept shouting about the power of an invisible, enslaving, ancient and utterly evil master, a master who had already enslaved him and who was out to enslave the whole modern world - for which poor Renfield got shut up in a loony bin. His habit of eating flies was not seen as attempts for greater life, however small, but as disgusting evidence of his madness.

Before seeing the evil and going mad, he had once been a normal guy with a job, sort of an accountant.

"God will not damn a poor lunatic's soul. He knows that the powers of evil are too great for those with weak minds." (from the 1931 film)

Whiteshadowmovement's picture

Oh cool, thanks a lot, Im a bit of a cinephile myself so I will make it a point to check it out. Ive seen Murnaus Nosferatu but not the 1931 version. Actually I was just discussing HG Wells review of Metropolis the other day here.




Are you a fan of Roger Ebert's reviews by chance?

Renfield's picture

Holy shit, Metropolis!! I've only seen it twice so far, and again it's been far too long, but all I can say is it was a goddamn prophecy then, and I think it is now, AGAIN. The fury and anarchy of that mob were unforgettable, what a contrast to the marching rows of workers at the beginning, and so was the symbolism of the 10-hour ("metric"?) clock.

I have to admit I don't read many reviews. I sort of use them only to figure out if I should risk my (very limited) time on viewing a film or not. I'm just a person who likes not to waste valuable film-viewing time on duds. Someday it would be fun to study properly.

Why would you say (in the post you linked) that Metropolis missed the mark? Doesn't it successfully portray the spirit of Marxism? And, the anarchy of revolution?

I don't know much about these films, and especially ones I have only seen once or twice so far. I don't really think about a film much until I have taken it in completely. Takes me a very long time. Alas, I have only a little more leisure time than those workers in the film did, and I cannot be sure that I too would not be part of the mob, neglecting my children to unleash revenge.

But that's all I can think of off the top of my head. Kind of an injustice to talk about it that way. Because of you I now have a lot of review time this weekend, and I have to say I welcome the assignments! I will have a look at the review of Metropolis you linked in the other post, maybe I will learn something.

Whiteshadowmovement's picture

Here is the problem in a nutshell with Metropolis, it totally fails to anticipate the future in a meaningful way, which is a total shame because if it did it really has the potential to be the quintissential great film. Check out Wells' comments:

"One is asked to believe that these machines are engaged quite furiously in the mass production of nothing that is ever used, and that Masterman grows richer and richer in the process. This is the essential nonsense of it all. Unless the mass of the population has the spending power there is no possibility of wealth in a mechanical civilization. A vast, penniless slave population may be necessary for wealth where there are no mass production machines, but it is preposterous with mass production machines. You find such a real proletariat in China still; it existed in the great cities of the ancient world; but you do not find it in America, which has gone furtherest in the direction of mechanical industry, and there is no grain of reason in supposing it will exist in the future. Masterman's watchword is 'Efficiency,' and you are given to understand it is a very dreadful word, and the contrivers of this idiotic spectacle are so hopelessly ignorant of all the work that has been done upon industrial efficiency that they represent him as working his machine-minders to the point of exhaustion, so that they faint and machines explode and people are scalded to death. You get machine-minders in torment turning levers in response to signals - work that could be done far more effectively by automata. Much stress is laid on the fact that the workers are spiritless, hopeless drudges, working reluctantly and mechanically. But a mechanical civilization has no use for mere drudges; the more efficient its machinery the less need there is for the quasi-mechanical minder. It is the inefficient factory that needs slaves; the ill-organized mine that kills men. The hopeless drudge stage of human labour lies behind us. With a sort of malignant stupidity this film contradicts these facts."


And I think wells is right, thats not where humanity is headed and he rightly called it out at the time. No, we are putting ourselves entirely in the hands of automation to achieve a beautiful welfare state whose best case scenario is (to cite another film) the crusie ship "Axiom" from Wall-E



Dude head over to Rpger Eberts list of great films, pick out a few of your favorites and read his reviews, I promise they will blow you away. Going through his entire list is a great way to begin a home course as a film connoisseur, its a great way to make good use of limited time:


Just saw the 31 Dracula on there as well, I still havent wound my way throu the whole list, so ill get to dracula next


Whiteshadowmovement's picture

By the way fonz, I think 99% of people who arent deluding themselves would rather be on the cruise ship than preparing to eat scorpions like my good friend francis sawyer, I really dont think anybody is ready to let the chips fall

Whiteshadowmovement's picture

hey renfield, not at all, thanks for jumping in. I also kind of felt sorry for the wife, I found it impossible to hate her. Funny how even in her early days she wanted to work for IBM rather than be a secretary there. She does seem to want to be a good mother, and is extremely compassionate and loyal to her husband and the kids, no matter the circumstances, and so I think is really shows herself to be a decent human being. The amazing thing about it is how this concept of the dream life she was living completely and utterly obscured any potential she had for being a good wife and mother, I mean that statement about just continuing to have kids because the nannies made it so easy for her is such a trip. In a way she really does have an addiction to consuming, and even bearing children that way, its just a nice bundle of joy and no consequences as long as you can hire Filipina nannies to live in the doll house. What a fucked up world to encourage an essentially decent human being to squander her life that way. What a great film right, was that Disney fireworks scene at the end not awesome?

Renfield's picture

I thought it was excellent. Not used to seeing that level of truth in a documentary on something so relevant and topical. I couldn't see evidence of the film-makers trying to grab control of the narrative to swing it toward any agenda either. The fireworks were symbolic all right - the fantasy, the huge conglomerate putting on a show for us overgrown children. It's been awhile since I saw it and my memory is a bit fuzzy - now I'm going to have to refresh it and see it again this weekend. Mostly all I remember at this point is the impressions left on me by the film.

I thought the daughter seemed frigheningly indifferent, almost unaware of what was going on. I guess teenagers don't generally wear their hearts on their sleeves, but I wondered at times if that girl really noticed or cared about anything.

It was billed as I recall as "schadenfreude" but it was so much greater than that, because these are real people and their sincere and failed attempts to better themselves hit my compassion. Especially the wife - what came to my mind was "hubris". The husband, isolated throughout the film, but at the low point obviously, physically isolated. The wife unable to control her appetites, both "smart" by today's standards and yet so obviously carried along by forces outside their control or their understanding. Thinking they have control, their despair at seeing they don't, their flight into self-destruction, and then the dive headfirst back into the same delusion when the "market" turns again. I guess my favourite moment was the nadir, when the man was shut in his room and the wife was tiptoing around the door, trying to decide how to support him, how to communicate him, what she could possibly do.

Could their story be any more descriptive of the human condition? I did some soul-searching after seeing it, trying to work out why I identified with the woman so strongly. I guess it's because I was like her, "smart" but never in control, wanting to be so much more than I was. A good, decent person, but weak, and wasting so much of my youth chasing delusions.

Well. It's been too long since I saw it and I don't remember very much specific any more. Thank you for reminding me of this film, and I will most definitely enjoy experiencing it again this weekend. Even the title is perfect - "The Queen of Versailles" - in a literal, metaphorical, and satirical sense.

heh - I recommended it at work after seeing it, and now I will have to follow up and see if any of my co-workers actually did as I suggested.

Whiteshadowmovement's picture

Awesome comments man, seriously, thanks for chiming in. I too felt the film was deeply poignant in ways and cut very deep. In my own way, as I mentioned to fonz, my childhood was a bit similar, my father made and lost fortunes several times in his life (nothing on the scale of Siegel though), but in our case it was because my father was unfamiliar with the American system, rather than a product of it.

I too thought it was very interesting the way the film was far deeper than it was ever billed. I was just looking at the youtube trailer to see whether to include it in my recommendation to fonz, but it doesnt even come close to doing the film justice. I actually saw the film for the first time based on the reviews and I would have to say that I walked away thinking this was the deepest insight into the financial crisis specifically because of the comprehensive and balanced approach it took. Other films try to vilify and expose fraud but this simply holds up a mirror to the most interesting private situation in the world, one in which we learn something about ourselves and the way the world works. I really thought it was great how they did balance that- they interviewed everyone including the housekeepers and the chauffeur and Jacky's mom. The only time when I sort of felt any contempt for these people at all was when you do see the heartbreak of the nannies, who in the one situation are expected to love Jacky's children as her own (all the while realizing that the feeling may not be reciprocated) while leaving her own family in the Phillipines, while the other breaks down into tears while she recounts how her own father never realized his dream of living in a brick house as she expresses her gratitude for Jacky letting her make use of the novelty oversized doll house. However, I forgive Jacky later in the film when she is just utterly daunted by tackling a little light housework herself. The Versailles analogy is indeed apt, its not that she is indifferent to the plight of her housekeepers, she simply cant imagine it. In spite of her own humble origins no less!! 

The scene you describe was very deep, the sort of depth reality shows often try to fake. Amazing, the way he was locked in his tiny room (almost structured as though it was a shoebox apartment to escape the horrors of his possessions) and his wife tried everything she could to soothe his despair by reminding him of his kids and the loving family etc. but in the end it was her naive of her to try to reach him at all, his comeback to him is more important than the air he breathes. He is the system, he cant allow himself to be cut off from it. 

Yeah the delusion that the market 'turned' was stunning- there was no catharsis at all for them, they didnt learn a thing. I love how they are the domino effect of TBTF. If the lights go out for David Siegel, then they also go out everywhere he has been spreading his wealth effect. That is really the most brilliant aspect of this film, it says so much about human psychology, and why we really can't ever hope to reform a system with this foundation.

fonzannoon's picture

if the lights go out for him the people well below him eventually will have a higher standard of living as they are the ones who actually produce real goods and perform real services. He is a glorified pizza the hut and the people who have reaped rewards leaching on to him will be sent scrambling.

I wish they would go back and visit that family now. I would like to see the dynamic now that the wife and kids know their dad and husband sees them as a nuisance at best.

The funny thing to me is watching (as you said) the wife trying to perform the most basic chores. That whole family would not make it a half hour if their underlings ever pulled the plug on them. Lucky for them, that will probably never happen.

Whiteshadowmovement's picture

PS- I would love to see the Siegels now, the humiliation of it must be something. They were blindsided by it though so they couldnt do anything about the release. lol, but with their mansion back on schedule (construction jobs!) Jacky and the kids are probably too busy walking through this labyrinth to notice David much as he goes back to flying in his airplane and running his imaginary timeshare empire

Whiteshadowmovement's picture

Yeah but think of it fonz, really stand back, the domino effect from the lights going out for David Siegel would be huge. Not only unemployment (although I agree with you, nobody is going to shed a tear that there is one chauffeur less in the world), but think of it, they are a giant spending machine. Jackys sole purpose in life is to take her husbands 'fortune' and recycle that back to corporate america. Think of all the contributions they make to the bottom line- fuel for their limousines and airplane, splurges at Toys R Us, 100 Mcnuggets so theres some for everyone in the salon etc. etc. 

Thats not just them, thats essentially everyone, the Siegels are just the worlds most leveraged people. They are the system, theres no alternative to this game of musical chairs other than keeping the music going as long as the radio is plugged in...

fonzannoon's picture

that seems to be the core of your message on here and why you hit so much resistance. given the choice of perpetuating the ponzi as it is or pulling the plug and letting the chips fall where they may, most on here would choose door number 2. you can make a great case that this is the way it is, and will be. But you won't convince too many that this is the way it has to be. especially the people who produce real goods and perform real services. 

Whiteshadowmovement's picture

Yeah I guess you could put it at way, and this is one reason I really wanted to show you this film, as it is sort of the best example I can think of for illustrating the way things are and where they are going. Unfortunately for most here, I dont think they will get to see the plug pulled in their lifetimes. Its not only the question of leadership vaccuum as neither the retiring boomers nor my generation of oblivious young people- remember 70's punk counter culture? They invented the term" poseur" and ironically their disparaging remark is todays ethos for the young.

Its just not there, there is no pulling the plug, there is nowhere to go, its why I honestly think if the plug was pulled, eventually we'd just end up right back here...humans are unfortunately too predictable that way.

By the way, how hilarious was it that the realtor who was supposed to sell the house kept pronouncing it as "Vehr-SIZE" in her tampa accent, it just put such a nice bow on the whole package.

It really is like Roman times, ever take Latin fonz, you are lucky if you did, it is the one aspect of my formal education I really think was worth spending time on and which I would repeat. Ever read the Satyricon?

Siegel is Trimalchio, lol


fonzannoon's picture

The parallel of the maid was interesting too. She lived in her 10 sq ft mini looking mansion and was so incredibly thankful for it. Her dad always wanted a concrete house and ended up settling for a concrete casket.

Renfield's picture

Oh yeah! Forgot about her until your comment. She wrung my heart, and man, I have known so many people just like her. The innocents, I guess.

fonzannoon's picture

Unless the people buying the time shares can put them on their black ebt card the ponzi will crumble again, slowly from the bottom up. If they can afford them on their black ebt cards then the middle class is toast and you end up with a shitload of poor people and a few very very rich people. I am sure that is the plan. I can only hope at that point that before they go, what is left of the middle class gets together and starts beheading some people.

The bubbles seem to pop now about every 5-6 years. I will be curious to see if we get far past that this time.

Whiteshadowmovement's picture

Yeah, but think of it on a grander scale, this ponzi has been going on for the entire course of Siegel's life. Its what got him started. If there were any logic to human actions, Siegel would never have gotten anywhere. We simply dont really know what else to do. Like if everyone got to start over and we really did wipe the slate clean (a la fight club ending) I am convinced it would turn back into this within a few decades, know what I mean? Its just so depressing that human psychology (nobody is any different in this film from the very poor to the very rich) can be so easily exploited. Thats why the house always wins. Sure we have a shake up every few years or so, but there is just nothing else and nature abhors a vacuum. 

Besides, even if we dont get black EBT cards (though we will), it doesnt matter, the Fed will keep funding the banks and the banks will keep funding Siegel, and everybody along the way will write down assets at mark to market.

fonzannoon's picture

On a grander scale I see Rome. Let's pick this up later I gotta jam.

Whiteshadowmovement's picture

Looks like your setup's in KO today, all the best...

Whiteshadowmovement's picture

yea sure, but psychology was no different there either- bread and circus. its whats always powered civilization and seemingly always will. empires come and go, people stay the same. besides if the US is Rome, then going by military supremacy that would put us around 200 AD, a long time left on the clock...

MFLTucson's picture

The clown act is about to finish their meeting so that they can issue a global statement laced with more lies and deception!

Al Gorerhythm's picture

The clowns are usually fully supported by the following dwarf act. This is like comparing levels of empathy by rapists towards their victims.