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Things That Make You Go Hmm - Such As Currency Wars

Tyler Durden's picture


Nobody ever really wins at Thumb Wars, which makes the whole thing rather pointless; and, as it turns out, the same can be said about the subject of Grant Williams discussion in this week's 'Things That Make You Go Hmmm...', - Currency Wars - which seem to be erupting across the globe; and, as they gain in intensity, these monetary conflicts are threatening to throw a major spanner in the works of a world that, until recently, seemed to have been operating under the assumption that it was possible for multiple countries to all devalue their currencies simultaneously in order to inflate their massive debts away.

Poor, misguided fools.

There are many parts of the current financial equation that puzzle me, from investors who are happy to accept guaranteed losses in their government-bond portfolios to governments that genuinely seem to think that increasing their spending by a tiny bit less than they had intended counts as a 'spending cut'; from yield-starved souls who feel that the appropriate return for dipping one’s toe into the junk bond market is sub-6% to business owners who, in a world sloshing in trillions of freshly printed funny money, are forced to pay double-digit interest rates for access to some of the magical bounty.

But beneath it all, at the wellspring of all the disconnects and false price signals that are making investing in today’s supposedly free markets an impossible task, lies the source of my greatest consternation: central banks.

I have one simple question for those august institutions, and it is this:

Do they really think it is possible for them all to devalue their currencies against each other simultaneously and achieve anything but rampant and universal inflation at some future point in time?

As we head into 2013, we find ourselves in a situation unlike any that has ever occurred in the history of global finance. The ability to simplify the complexity of that situation is something only the very brightest amongst us are able to do, and one such man is Raoul Pal of the Global Macro Investor put together a very simple list which, at the time he compiled it in late December, beautifully highlighted the utter absurdity of today's central banking folly.

The list was split into sections that grouped the 38 countries that had negative or zero real rates (yes: THIRTY. EIGHT.), as well as the countries that either had explicit QE programs in place or were actively intervening in or verbally manipulating their currencies:

Now, does it seem remotely possible that all these countries can have weak currencies at the same time? Of course it isn't possible. Not without rampant inflation, it isn't. But that doesn't appear to be a problem for the central bankers of the modern world, who are confident that inflation is 'contained'. Yes, 'contained'. Is anyone paying attention, I wonder?

The competitive devaluation merry-go-round will continue, because these buffoons have left themselves no other options.

Much more inside...




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Wed, 01/30/2013 - 19:32 | Link to Comment HANKREARDON

Um, the goal is inflation. Inlfation is the only 'solution' to the world's debt. There is no other option.

Wed, 01/30/2013 - 22:56 | Link to Comment Conman
Conman's picture

Inflation only wipes debt away when the world is deleveraging. Have we seen any sign of that? nope. If you increase your debt while inflating then your debt is also inflating.

Wed, 01/30/2013 - 23:14 | Link to Comment SafelyGraze
SafelyGraze's picture

"Inlfation is the only 'solution' to the world's debt. There is no other option."

Inflation and war. Those are the only solutions.

Inflation, war, and domestic confiscation. These three.

Inflation, war, domestic confiscation, and debt forgiveness. Four and only four.

Inflation, war, domestic confiscation, debt forgiveness, and further borrowing.

And a new monetary system.

There is no other option.

Thu, 01/31/2013 - 00:04 | Link to Comment Pool Shark
Pool Shark's picture



"Begun, the Currency War has..."



Thu, 01/31/2013 - 00:23 | Link to Comment sitenine
sitenine's picture

I can't really say that I understand why everyone keeps saying the currency wars are starting. We've been at war since the day Hank Paulson carried a bazooka and a two page ransom note to capital hill demanding $700B and threatened complete annihilation of the financial system as we knew it if he didn't get it.

Thu, 01/31/2013 - 08:01 | Link to Comment GetZeeGold
GetZeeGold's picture



It's all just paper to me.

Thu, 01/31/2013 - 00:42 | Link to Comment Black Swan 9
Black Swan 9's picture

Nicely done :)

Thu, 01/31/2013 - 09:44 | Link to Comment Reptil
Reptil's picture

"Inflation, war, domestic confiscation, debt forgiveness, and further borrowing.

And a new monetary system."

Don't forget good old depopulation (contamination, food, sickness, sterilisation).


Thu, 01/31/2013 - 12:06 | Link to Comment SafelyGraze
SafelyGraze's picture

reptil -

your arrow is disabled in my browser.

when I click your arrow, nothing changes.

mouse-hover doesn't result in a change of the arrow's shape.

are you in ZH detention?

can you activate your arrow?


Thu, 01/31/2013 - 18:47 | Link to Comment Ratscam
Ratscam's picture

you cannot use the arrows when you begin with " character

Thu, 01/31/2013 - 19:47 | Link to Comment SafelyGraze
SafelyGraze's picture

"you cannot use the arrows when you begin with " character"

testing .. testing ..

Wed, 01/30/2013 - 22:58 | Link to Comment TBT or not TBT
TBT or not TBT's picture

Anyway, what's driving the QE around the world is mostly domestic politics, domestic economics.    

The concurrent currency devaluation "war" is no such thing, at least concerning Japan, the USA, and the EC.   Smaller economies where trade is a bigger fraction of the overall GDP can't be so aloof to trading partners' QE, but the bigger blocks can, and do, because crisis-level domestic economic and political forces primarily cause the QE, not trade competition.

Thu, 01/31/2013 - 03:08 | Link to Comment lasvegaspersona
lasvegaspersona's picture

so devalue against physical gold and be done with it!

Wed, 01/30/2013 - 22:44 | Link to Comment knukles
knukles's picture

A very quick reminder of the reality of currency wars as lived through in Europe long ago before you youngins graced us, when a young rascal, free, crazy and the Who had just been born....

All the European countries with their own currencies, some tied to others, some not, would engage in round robins of periodic devaluations in order to "stimulate exports" and improve the balance of payments.  That was the official and I believe, the intended effort.  Make exports cheaper so people'd buy more of your shit, make imports more expensive so people'd buy less of their shit.
Simple, right?

Well lads and lassies, it didn't work that way.  What happened was that the balance of payments generally stood relatively still as everybody devalued their currency against the other guys who'd just devalued, so the entire trade cycle remained unbroken.

BUT, the round robins of devaluations made imports more expensive allowing domestic ggods prices to be likewise raised so the general level of structural prices went way the fungool up.

Ie, Badass Inflation was the only and Unintended Consequence.

Been there, lived through it.

Thu, 01/31/2013 - 03:42 | Link to Comment Ghordius
Ghordius's picture

+1 - and another reason why we were fed up of it and joined in the eurozone

Wed, 01/30/2013 - 22:51 | Link to Comment medium giraffe
medium giraffe's picture

Inflation is hardcoded into the pseudo-capitalist system at large and the fractional reserve system in particular. Every time money is 'created', ie, interest, that money has to be provided. When the new money is provided, the value of the new money is derived from the exisitng money supply, so you're naturally on the wrong side of the USD/BigMac trade at all times. Of course there's gonna be inflation...


Looks like Mr Global Macro Investor forgot about New Zealand in his awesome diagram.

Wed, 01/30/2013 - 23:35 | Link to Comment Everyman
Everyman's picture

Now I may be just a dumb motherfucker, however....

If the entire world "inflates" won't that keep everything "even" more or less?  I know it is a race to the bottom, but if everyone that counts is "printing" for inflation, and they are all inflating at the same rate, isn't atht just a "big zero" in the end?

PLEASE comment, I really do not understand how money has any value anymore.

Wed, 01/30/2013 - 23:43 | Link to Comment Orly
Orly's picture

knukles, above, pretty much nails it.

It is that simple, really.


Thu, 01/31/2013 - 00:13 | Link to Comment RSBriggs
RSBriggs's picture

However, YOU end up being the loser.  When you make $20 per hour - and your wages don't inflate along with the rest of it because you are a tax paying peon - and a loaf of bread ends up being the same everywhere, say, $2300 per loaf, it doesn't turn out to be a big zero to YOU.

Thu, 01/31/2013 - 12:49 | Link to Comment Sanksion
Sanksion's picture

"I really do not understand how money has any value anymore."

No one here does.

Wed, 01/30/2013 - 23:52 | Link to Comment Abuses-n-Usurpations
Abuses-n-Usurpations's picture

Where is the best place to buy physical PMs?  Is this type of question allowed here?  Send me a private msg please.

Thu, 01/31/2013 - 06:15 | Link to Comment Cap Matifou
Cap Matifou's picture

A little late, but miles ahead of the mass.

Thu, 01/31/2013 - 00:29 | Link to Comment Dr. Engali
Dr. Engali's picture

The whole western world is desperately looking for inflation to take care of their debts. However everybody is doing it at the same time and they aren't achieving the results they are looking for. If you add to that the fact that debt keeps getting destroyed (deflationary) and the wage deflation due to globalization, it makes it harder to achieve the inflation western governments are looking for. So they will continue to devalue, because that is all they know how to do, until somebody's currency blows up.

Thu, 01/31/2013 - 00:32 | Link to Comment Everyman
Everyman's picture

So that means my M&M and Crunchy Cheetos addiction will cost more?

Thu, 01/31/2013 - 00:54 | Link to Comment knukles
knukles's picture

You could always tell them you found a handful of pubes in the box and maybe get a refund after a long civil trial.

Thu, 01/31/2013 - 01:13 | Link to Comment Dr. Engali
Dr. Engali's picture

Whenever I found a handful of pubes around a box the last thing I wanted was a refund.

Thu, 01/31/2013 - 02:00 | Link to Comment rlouis
rlouis's picture

When I read the Miami Dade bond article I noted the increase in the cost of track between 2005 and now - almost 10% per year:


"For instance, in 2005 one mile of track for the county’s Metro Rail line was estimated at $77 million for one mile. Now it’s $140 million a mile, he said."

Thu, 01/31/2013 - 03:28 | Link to Comment simo.smo
simo.smo's picture

I would add Bulgaria to the list of Quantitative easers too - we are pegged to the EURO. When they print, we print.


Also recently it became obviouse that Canada is doing stealth QE too.

Thu, 01/31/2013 - 10:02 | Link to Comment daccord
daccord's picture

SHHHH, we're sneaking... 

Thu, 01/31/2013 - 04:08 | Link to Comment dojufitz
dojufitz's picture

I'm sick of this shite....when does Godzilla turn up and rip this whole joint apart?

Thu, 01/31/2013 - 04:15 | Link to Comment unirealist
unirealist's picture

Bernanke now is saying (in the newest Fed minutes) that ZIRP will continue until inflation reaches 2.5%.

When it gets to 3%, he will say it's still okay because it's "transient.  And when it gets to 3.5%, it will "bear close watching."

But by then the TRUE rate of inflation will be 25%.  Hell, it's close to 10% now.

Look, Ben is already getting his inflation.  Unfortunately, in spite of the inflation, the GDP is shrinking.  The new GDP figure uses a NEGATIVE deflator rate.  If you plug in a more accurate number, GDP actually fell by 2%.

This shouldn't happen.  The inflation is there, but instead of overheating the economy is collapsing.  So Ben has to keep lying and understating the inflation while overstating economic growth.  Hoping that the world returns to its axis...


Thu, 01/31/2013 - 04:29 | Link to Comment Tom Green Swedish
Tom Green Swedish's picture

Makes absolutey no sense to me.  Forex and speculation is a scam.

Thu, 01/31/2013 - 06:12 | Link to Comment tradewithdave
tradewithdave's picture

Things that make you go yummm.  Jim Rickards launching Twitter currency war credibility salvos at ZH over buttered popcorn.


Thu, 01/31/2013 - 06:23 | Link to Comment Oldrepublic
Oldrepublic's picture

It sure worked out fine for Japanese Finance Minister Takahashi Korekiyo

until he was killed on 2/26/36. called beggar thy neighbors back then, used to export unemployment

Thu, 01/31/2013 - 08:43 | Link to Comment Waterman Jim
Waterman Jim's picture

Its really a war on deflation. 


Thu, 01/31/2013 - 10:21 | Link to Comment Shizzmoney
Shizzmoney's picture

And a war on free markets

Thu, 01/31/2013 - 08:57 | Link to Comment El_Puerco
El_Puerco's picture

Hey!… To everybody, stop  chatting and see this….It's the news for weeks to come!…


You!..Hey!…Where are you?!..



Thu, 01/31/2013 - 09:27 | Link to Comment thisandthat
thisandthat's picture

Everyone inflates equally, but some more equally than others:

Thu, 01/31/2013 - 10:23 | Link to Comment Shizzmoney
Shizzmoney's picture

Want to see hyperinflation in action?  Check out the rents in the Boston area over a 2 year period:

Crazy "heat" map of apartment rents skyrocketing, this time for Boston

Thu, 01/31/2013 - 10:26 | Link to Comment W74
W74's picture

Wow, Boston looks cheap. Here in the Baltimore area we have what's called a "safety premium".

Thu, 01/31/2013 - 11:20 | Link to Comment sessinpo
sessinpo's picture

That isn't anything. Try 22 LR going up 300% in just a matter of days - not weeks, months or years.

Thu, 01/31/2013 - 11:00 | Link to Comment sessinpo
sessinpo's picture

I am finding it amazing tha that after I make a post that opens such discussion, a thread appears that touches on my points I have made. It's almost as if the contributors and even ZH, itself, are taking my points and running with them.


As an example: On the thread "China Threatens Currency War if the FED Doesn't Stop Printing."

And by the way, I got lots of thumbs down and I love it, because soon afterwards, a thread or news article supports ME and my libertarian, freedom, free market thinking. Just like our politics, our US Congress, ZH has to many people that think they know freedom, self responsibility and individual rights - against corrupt government - yet they post and act the opposite. Yea, that's all YOU that give me down arrows, so keep them coming. I laugh as my investment fatten, and my posts get confirmed. And this thread now confirms  the above comment. LOL.

And yet, NONE of the replies contain messages of substance.

For example:

Poster Whiner: "Don't leave us Sesspool. Your insights (basic knowledge) are invalueable to us s dat jes rolled offs' the turnip truck."

Wonderful response Asswipe. It really contributed to the debate. What great incite. What FACTS, what logical argument you provided against my post.


Ghordius also made some statements that I presented argument against - using reason and logic.

However, Ghordius responded in a way trying to explain his point. That is something I can respect.


Ghordius also asked a GREAT question.

Ghordius "Then only two questions: who destroys the USD?
And who holds them (in trillions, as FX reserves)?"


Awesome! Now that is a person of intelligence and someone that can help us all make it through these times. Whiner, YOU are a PURE asswipe and could learn from Ghordius. I don't have all the answers. I have never professed to. I want debate and discussion and people like Whiner are the problem in America. The ones that must have their ass kicked intellectually (which is easily to do) and eventually physicially (which comes when  the SHTF. And if history is any guide, that will be the case.

Thu, 01/31/2013 - 12:29 | Link to Comment edifice
edifice's picture

Thanks, Grant Williams. He has an excellent series of videos on YouTube.

Thu, 01/31/2013 - 14:18 | Link to Comment TraderTimm
TraderTimm's picture

BTC +59.351% Jan. 2013


Thu, 01/31/2013 - 15:37 | Link to Comment dadichris
dadichris's picture

the fact that you are asking the question of the central banks tells volumes about their real, unstated objective: "rampant and universal inflation"

Thu, 01/31/2013 - 21:16 | Link to Comment BubbleBobble
BubbleBobble's picture

thank you T. to remind me I just turned that schedule into wallpaper for my phone, PC, and bathroom

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