Mitt Romney is not the only global figure to unleash allegations of currency manipulation. In fact, most of the allegations are aimed at America and the West.
Brazilian President Dilma Rousseff slammed rich nations on Thursday for unleashing a “tsunami” of cheap money that threatened to “cannibalize” poorer countries such as her own, forcing them to act to protect struggling local industries.
Rousseff’s words amounted to some of the highest-profile criticism to date of efforts by the European Central Bank, the Bank of Japan and others to spur their economies through low interest rates and cheap loans.
I just want to flag up Henry Kissinger’s words from his recent Foreign Affairs piece:
The current world order was built largely without Chinese participation, and hence China sometimes feels less bound than others by its rules. Where the order does not suit Chinese preferences, Beijing has set up alternative arrangements, such as in the separate currency channels being established with Brazil and Japan and other countries. If the pattern becomes routine and spreads into many spheres of activity, competing world orders could evolve. Absent common goals coupled with agreed rules of restraint, institutionalized rivalry is likely to escalate beyond the calculations and intentions of its advocates. In an era in which unprecedented offensive capabilities and intrusive technologies multiply, the penalties of such a course could be drastic and perhaps irrevocable.
Competing world orders could evolve? No; competing world orders are a reality, and it seems like Latin America — most obviously Argentina and Venezuela, but now also Brazil, and perhaps even Colombia and Mexico — are moving closer toward the emerging ASEAN bloc, and away from the West.
Ironically, the emerging currency war is as much as anything else a side-effect of Bernanke’s admitted preoccupation with fluffing and puffing up U.S. equities.
And it looks like he’s going to be getting a hand.
The Bank of Israel will begin today a pilot program to invest a portion of its foreign currency reserves in U.S. equities.
The investment, which in the initial phase will amount to 2 percent of the $77 billion reserves, or about $1.5 billion, will be made through UBS AG and BlackRock Inc., Bank of Israel spokesman Yossi Saadon said in a telephone interview today. At a later stage, the investment is expected to increase to 10 percent of the reserves.
In other words, while the Fed’s charter forbids it from buying US equities outright, it certainly can promise that it will bail out such bosom friends as the Bank of Israel, the Swiss National Bank, and soon everyone else, if and when their investment in Apple should sour.
Luckily, this means that the exponential phase in risk is approaching as everyone will now scramble to frontrun central bank purchases no longer in bonds, but in stocks outright, leading to epic surges in everything risk related, then collapse and force the Fed to print tens of trillions to bail everyone out all over again, rinse repeat. We say luckily, because it means that the long overdue systemic reset is finally approaching.
Developing nations have a legitimate concern: Western central banks will throw liquidity around to no end to save the status quo. And that means that developing nations will themselves feel they have to compete in order to remain competitive. It’s messy.
Brazil started complaining at least as early as septermber 2010.
I’m afraid I couldnt care less about their whining.
Under a “fair” system, nations with net exports would see their currencies rise to choke off those exports and replace them imports. Nations with net imports, would see their currencies fall, and imports with them, replaced by exports.
Brazil has been a net exporter for a decade, the rising Real is perfectly natural.
All it really has to complain about is that unlike China, it isnt big enough to hold its currency down against reality
The point is not really whether Rousseff and Mantega are right or wrong.
The point is about the emergent competing world order.
Messy is an understatement. As I believe you have said before, this is the complete failure of 40 years of US foreign policy.
Yes — for those who are interested:
Brazil should not be ignored. But, I feel the lure of cheap money from the West will corrupt them.
Brazil has a chance in the next 20 years to make a serious move in the world economy. Their country is full of natural resources, the citizens have virtually no debt and their businessmen understand how to operate in a fiat world. One minor problem (Its really the Latin American problem) is the socialist leaning governments still think business profits are theirs to redistrubute as they see fit.
An interesting side note on Brazil and hyperinflation, businessmen had to break the law daily in order to operate. It was the same in Weimar Republic and today in Argentina.
Most people break the law, all the freaking time.
We in the West are massively over-regulated.
Giselle Bunchen liked to be paid in Real. Why can’t we use her as the next reality TV star?
Yes there is too much regulation. The USA Industrial Giant died when people could not ride in the back of Pick Up Trucks. How can someone createa a new electric open air vehicle without having Volvoesque engineering team and support. Think back to the turn of the 20th century when there were hundreds of vehicle body builders. Try do that today!
I remember seeing a movie with the first foreign car in it. I think it was a Volvo, being a collector of USA cars I was most interested, as it obviously was a paid product placement.
People started accepting foreign cars. Ok, some US cars were low on quality, but this was Managements fault. They knew about Demming.
When you lose Manufacturing you lose jobs that even the lowest with an IQ can do. This pushes these people onto welfare. Depression becomes a health problem, then crime is a manifestation of poverty. “Children, don’t talk to daddy he is not in a good mood”, “shut up or he will take it out on me”
Funny you mention manufacturing, I’m just doing a spot on that right now.
Manufacturing moving to the asias is a natural (and unnavoidable) effect of globalization. And no, I don’t think that’s caused by CFR or some shady men in suits making things like NAFTA or the EU – I think globalization is due to the increases in technology like planes, faxes, telephones which have all made the world a smaller place.
You hint at product quality, and evil, greedy ignorants accepting foreign goods as the reason manufacturing left the US but i’d argue that there was no way in hell that the US could have maintained its manufacturing jobs. Asia has a commodity that the US doesn’t have (cheap labour) and north america simply can’t compete with that, short of closing it’s borders to any trade IE North Korea.
Protectionism can work for a little while but nothing would have saved the US’ manufacturing sector.
The United States involves itself in a huge program of subsidies which it does not fully understand.
We know that in a flat, accessible, globalised world, productivity, commerce and manufacturing will tend to agglomerate in the centres of highest population.
My point is that a flat, accessible, globalised world would not be possible without the United States expending huge quantities of its productive capital as the world’s policeman. My humble suggestion is that America should police the world less, thereby making American manufacturing more competitive, or at least shifting the load of policing the world onto other nations, thereby lessening America’s problem of debt accumulation.
In the long term, we are going toward a model of decentralised manufacture along the lines of 3-D printing. This will render the problems of economic geography (amongst many other things) significantly less relevant.
When I get a 3D Printer, I am going to print a bust of George W Bush, fix it in the middle of the park and feed bird seed to the pidgeons.
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