Art Cashin On The Clandestine War Among Central Banks

Tyler Durden's picture

Nothing dramatic here, but the Chairman of the fermentation committee just has that unique flair in explaining things so simply, even an economics Ph.D., a caveman, or the other kind of 'Chairman', would understand...

The Not So Clandestine War Among The Central Banks - Back in Philosophy class in the 5th grade, the instructor in Epistemology used to have an interesting parable on problems of perception.

 

The thesis went something like this: Suppose you are an alien and have been told about the game of chess. Due to a technicality, however, your equipment would only allow you to see one square on the board. Over the course of the game any, or all, the pieces might arrive on your square.

 

You might see a Knight or a Bishop; a Rook or a Queen or a Pawn, but you would never know where it had come from nor where it had gone when it disappeared. You never got quite enough information to envision the entire board or the concept of the game.

 

I was reminded of the parable as I have watched the actions of some key central banks over the last few years.

 

According to the financial media, each central bank is easing aggressively to serve a need of the area it serves.

 

The Fed is easing to help employment and the housing market in the U.S. The ECB is easing to help it banks, sinking under sovereign debt problems. The People’s Bank of China is easing to avoid a hard landing. The Bank of Japan is easing to restart an economy that has been dormant for two decades.

 

Those may be the official lines but cynics think there may be more to the game than is seen through this telescope. Cynics think it’s all about the currencies.

 

The thinking is that each bank would like to see its currency weaken to make its exports more attractive. It doesn’t stop there. With Europe being China’s biggest trade partner, some believe the PBOC is the bid under the Euro at 1:30, keeping the Euro strong enough to make Chinese goods attractive.

 

The currency influences of the other central banks may be a bit more subtle but no less effective or intense. No trade war yet but lots of drilling and marching.

Actually that is not true. from Mercopress: "US and EU considering WTO actions against Argentine ‘protectionist practices"

The US and forty countries which formalized a joint statement before the World Trade Organization complaining about Argentina’s trade restrictions are considering moving a step further and begin a “disputes settlement” process which could lead to an open condemnation if the administration of President Cristina Kirchner does not lift the protectionist network.

 

According to Buenos Aires daily Clarin quoting WTO sources in Geneva, “expectations are that it will be the US that presents the “disputes settlement” process since the White House was the main sponsor of the joint statement. The process could end with a formal condemnation of Argentina opening the way for commercial reprisals”.

 

In the March joint statement presented by the US and forty other leading countries the main complaints against Argentina included the non automatic licences system; the previous sworn statement registry to obtain the approval of an imports operation and the policy forcing companies to apply the ‘dollar-to-dollar’ mechanism which means they have to export a dollar for each dollar import.

 

Once the disputes settlement begins there is a period of consultations in which in this case Argentina must prove it has not infringed WTO rules, and if no agreement is reached a three member panel is named, chosen by the litigants or WTO Director General Pascal Lamy.

Time for some blogger-cum-budding author (which is about 99% of all) to write a currency wars sequel: Trade Wars: The Final Frontier.