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Mish/ Mike Shedlock – Currency Wars Heat Up:
Hollande Proposes Target For Euro; US Carmakers Want Obama To Punish
Japan: Warnings From China, Russia; Sheer Madness – 6 February 2013
Posted on February 6, 2013 by lucas2012infos | Leave a comment
With
the Yen sinking to new lows nearly every day, and with French President
Francois Hollande now in the act of pleading for a lower euro, it’s
time to step back and review the currency war madness of the past couple
of weeks. There is plenty of madness to review.
Hollande Calls for End of Euro Fluctuations
Please consider Hollande’s comments on euro fluctuations.
Mr Hollande called on government leaders to agree on a target for the
currency’s exchange rate over the medium-term, warning that the rising
currency may deepen the recession.
“The eurozone must, through its heads of state and government decide on a medium-term exchange rate,” he said.
“We can’t let the euro fluctuate according to the mood of the market.”
He added that the exchange rate should not be set artificially but
that the eurozone should act on global markets to protect its
interests.Hollande says “Governments must decide exchange rates”. Mish
says really? What if governments don’t agree with each other? Could that
possibly happen?
Japan Must Stick With Stimulus says Pimco’s El-Erian
Pimco co-CEO tossed his hat into the madness last week with his silly idea: Japan Must Stick With Stimulus.
Japan’s government has to follow through with plans for stimulus
spending, monetary easing and a doubled inflation target to sustain a
weakened yen, said Mohamed El-Erian, co-chief investment officer of bond
giant Pacific Investment Management Co.
Prime Minister Shinzo Abe needs to carry out stimulus spending while
Japanese consumers will have to accept rising prices for goods such as
oil as the yen depreciates, El-Erian said.El-Erian says “Japanese
consumers will have to accept rising prices”. Mish says really? If so,
it implies the US, Eurozone, China, UK, Brazil, and everyone else will
“have to” accept a higher exchange rate vs the Yen.
Even if everyone “accepted” the idea, is that a good thing? For who?
For aged Japanese consumers retired on fixed incomes invested in
Japanese bonds earning zero percent?
Questions abound. Here is another important one: What does the US
think about the plunge in the Yen? That question has an easy answer ….
U.S. Carmakers Urge Obama to Punish Japan for Weak Yen
Bloomberg reports U.S. Carmakers Urge Obama to Punish Japan for Weak Yen.
President Barack Obama should tell Japan’s new government that the U.S.
will retaliate for policies aimed at weakening the yen, a group
representing Ford Motor Co. (F), General Motors Co. (GM) and Chrysler
LLC said.
Japan’s Liberal Democratic Party, which reclaimed power last month,
has let the yen continue its slide against the dollar, making U.S. auto
exports relatively expensive, the American Automotive Policy Council
said yesterday in a statement.
“We urge the Obama administration to make it clear to Japan that such
policies are unacceptable and will be met by reciprocal measures,” Matt
Blunt, a former Republican governor of Missouri and president of the
Washington-based industry group, said in the statement.Toxic Parcels
While pondering the above circular mess that apparently everyone must accept (except they don’t), please consider Europe drawn into global currency wars as slump deepens by Ambrose Evans-Pritchard.
The world is edging closer to all out currency conflict as Europe’s
politicians join a chorus of policy-makers across the globe pushing for
devaluations to fight for market share.
Jean-Claude Juncker, EuroGroup chief, has signalled that Europe is no
longer willing to be the last economic player holding the toxic parcel
of an over-valued exchange rate, describing the euro as “dangerously
high” after its three-month surge against the dollar, yuan and yen.
The comments follow warnings by two French ministers this month that
the strong euro is holding back efforts to pull the France out of deep
industrial slump.
Alexei Ulyukayev, deputy head of Russia’s central bank, said the tilt
in EMU policy marks a new escalation as every major bloc of the global
economy tries to drive down its exchange rate at the same time. “We are
now on the threshold of very serious currency wars,” he said.
Korea has asked the G20 take a stand against beggar-thy-neighbour
policies in Moscow next month, accusing Japan and the West of covert
debasement through loose money.Once again Pritchard spoiled an otherwise
excellent article with a silly finish: “The underlying problem is a
global saving glut as the world saving rate hits a record 24pc of GDP”.
Good Grief. With global credit exceeding global GDP by many
multiples, and with the US credit market at $55 trillion vs. GDP of not
quite $16 trillion, it is preposterous to speak of a global saving gut.
By the way, Austrian economists will correctly point out that it’s
impossible to ever have too much savings, in any circumstance. However,
it’s certainly possible to have too much debt (the opposite of savings).
Japan had massive savings, but the Japanese government foolishly
squandered all of it with misguided Keynesian stimulus, the same
measures that El-Erian now insists are needed.
Also note that Russia is in on the complaining act.
There are a few sane voices in the wilderness. Jens Weidmann at the German central bank is one of those voices.
Weidmann warns of currency war risk
The Financial Times reports Weidmann warns of currency war risk.
The erosion of central bank independence around the world threatens to
unleash a round of competitive exchange rate devaluations, which leading
economies have so far avoided during the financial crisis, the
president of Germany’s Bundesbank warned on Monday.
Jens Weidmann, whose institution’s own fierce independence from
political influence was the model for the European Central Bank when it
was founded, said Stephen King, the chief economist at HSBC, was
“perhaps right” in forecasting an end to the era of central bank
independence.
“It is already possible to observe alarming infringements, for
example in Hungary or in Japan, where the new government is massively
involving itself in the affairs of the central bank, is emphatically
demanding an even more aggressive monetary policy and is threatening an
end to central bank autonomy,” Mr Weidmann said in a speech in
Frankfurt.
“Whether intended or not, one consequence could be the increased
politicisation of the exchange rate,” he said, according to a text of
his speech provided by the Bundesbank. “Until now the international
monetary system got through the crisis without competitive devaluations
and I hope very much it stays that way.”Alarming Infringements
Weidmann commented on alarming infringements and increased
politicisation in Hungary and Japan. He failed to point out Switzerland.
Brazil is also complaining mightily, and of course French president
Hollande is in on the act? Anyone else?
Of course! Currency manipulation talk and China go hand in hand.
Recall that Republican candidate Mitt Romney stated many times that one
of the first things he would so would be to label China a currency
manipulator. What does China think?
Yi Warns on Currency Wars as Yuan Close to ‘Equilibrium’
About a week ago, the deputy governor of China’s central bank, Yi Gang Warns on Currency Wars as Yuan Close to ‘Equilibrium’
China’s foreign-exchange regulator urged Group of 20 nations to improve
collaboration to avoid any so-called currency wars while signaling he’s
comfortable with the value of the yuan.
Yi, who heads the State Administration of Foreign Exchange, said he’s
concerned about the potential fallout from expanded asset-purchases
programs and near-zero interest rates in the world’s advanced economies.
“Quantitative easing for developed economies is generating some
uncertainties in financial markets in terms of capital flows,” Yi, who
is also head of China’s foreign-exchange regulator, told reporters.
“Competitive devaluation is one aspect of it. If everyone is doing super
QE, which currency will depreciate?”Yen Policy Under Fire
Reuters reports Japan defends stimulus, yen policy under fire.
Japan’s economy minister rejected criticism on Saturday that his
country’s extraordinary fiscal and monetary stimulus program was aimed
at weakening the yen and undermined central bank independence.
“You might think there’s a deliberate policy to drive down the value
of the yen but we in government refrain from commenting on the exchange
rate of the yen,” Amari said in response to criticism of Japanese
action.Mish Translation “We have a deliberate policy to drive the Yen
lower. No other country supports that, so we don’t comment on exchange
rates.”
Dangerous Situation
The Reuters article continues …
A European Central Bank source, speaking on condition of anonymity, said
the ECB was “not very happy” at what was seen as a step towards
competitive devaluations and the Group of 20 major economies’ finance
ministers and central bankers should address the issue next month.
“It’s not a problem yet. But if they (Japan) continue in that
direction and we see also what’s happening with quantitative easing in
the United States and Britain, then we would be the only one who would
not follow suit.
“The risk is that this would indeed have an effect on the exchange
rate and that we would get into a dangerous situation,” the ECB source
said.Mish says “If you are following this discussion at all, you know
damn well that the situation is already far beyond dangerous”.
Beggar Thy Neighbour Tactics
Please consider this discussion on Wikipedia regarding Beggar Thy Neighbour tactics.
In economics, a beggar-thy-neighbour policy is an economic policy
through which one country attempts to remedy its economic problems by
means that tend to worsen the economic problems of other countries.
Beggar-thy-neighbour policies were widely adopted by major economies during the Great Depression of the 1930s.
Alan Deardorff has analyzed beggar-thy-neighbour policies as an
instance of the prisoner’s dilemma known from game theory: each country
individually has an incentive to follow such a policy, thereby making
everyone (including themselves) worse off.
An early appearance of the term, which presumably originates from the
name of the Beggar-My-Neighbour card game, is seen in the title of a
work on economics from the early period of the Great Depression.Currency
War Idiocy
One voice of reason in midst of all this madness is my friend Pater Tenebrarum on the Acting Man Blog who writes about The Currency War Idiocy
Harvard University professor Martin Feldstein, long a critic of the
euro, said on Jan. 5 that European policy makers should consider a
coordinated approach to weaken the euro as a way to rally growth via
exports. “A lower euro would make each of the euro-zone countries more
competitive relative to the countries outside the euro zone,” Feldstein
said.”
There you have it. Even in Harvard they just know somehow that once
your money buys less, you’ve actually become richer. It seems to be the
modern-day version of the philosopher’s stone. Alchemists everywhere
recommend it!
Let us hypothetically assume that we have entered Orwell-land (‘war
is peace!’) and one can actually get richer by lowering the value of
one’s currency. One problem is obviously that not everybody can do it at
the same time. If one wants to cheapen one’s currency, other currencies
must by necessity increase in value. The next problem is how does one
go about it? How can one’s currency become worth less than that issued
by others? The only solution seems to be to increase its supply – at a
rate that exceeds that of the competition. This process is also known as
‘inflation’. So in other words, what the wise gentlemen listed above
are all advocating is that one should attempt to get rich by means of
inflation.
Pure genius! No-one has ever thought of that one! No, wait, a few
people have: …Please read the rest of the article because Russia,
Norway, South Korea, and the UK are all in on the act and Pater has some
humorous comments.
Bear in mind, a few years ago there was near-universal agreement the
US dollar needed to drop. Now the cat-calls are predominantly for the
euro to drop. In practice, nearly all the central bankers want their
respective currencies to drop.
What We Know
What We Also Know
That something else is a currency untouched by central bank and political madness.
That something else is gold.
Mike “Mish” Shedlock
www.globaleconomicanalysis.blogspot.com / link to original article
Thanks to: http://lucas2012infos.wordpress.com
Hollande Proposes Target For Euro; US Carmakers Want Obama To Punish
Japan: Warnings From China, Russia; Sheer Madness – 6 February 2013
Posted on February 6, 2013 by lucas2012infos | Leave a comment
Withthe Yen sinking to new lows nearly every day, and with French President
Francois Hollande now in the act of pleading for a lower euro, it’s
time to step back and review the currency war madness of the past couple
of weeks. There is plenty of madness to review.
Hollande Calls for End of Euro Fluctuations
Please consider Hollande’s comments on euro fluctuations.
Mr Hollande called on government leaders to agree on a target for the
currency’s exchange rate over the medium-term, warning that the rising
currency may deepen the recession.
“The eurozone must, through its heads of state and government decide on a medium-term exchange rate,” he said.
“We can’t let the euro fluctuate according to the mood of the market.”
He added that the exchange rate should not be set artificially but
that the eurozone should act on global markets to protect its
interests.Hollande says “Governments must decide exchange rates”. Mish
says really? What if governments don’t agree with each other? Could that
possibly happen?
Japan Must Stick With Stimulus says Pimco’s El-Erian
Pimco co-CEO tossed his hat into the madness last week with his silly idea: Japan Must Stick With Stimulus.
Japan’s government has to follow through with plans for stimulus
spending, monetary easing and a doubled inflation target to sustain a
weakened yen, said Mohamed El-Erian, co-chief investment officer of bond
giant Pacific Investment Management Co.
Prime Minister Shinzo Abe needs to carry out stimulus spending while
Japanese consumers will have to accept rising prices for goods such as
oil as the yen depreciates, El-Erian said.El-Erian says “Japanese
consumers will have to accept rising prices”. Mish says really? If so,
it implies the US, Eurozone, China, UK, Brazil, and everyone else will
“have to” accept a higher exchange rate vs the Yen.
Even if everyone “accepted” the idea, is that a good thing? For who?
For aged Japanese consumers retired on fixed incomes invested in
Japanese bonds earning zero percent?
Questions abound. Here is another important one: What does the US
think about the plunge in the Yen? That question has an easy answer ….
U.S. Carmakers Urge Obama to Punish Japan for Weak Yen
Bloomberg reports U.S. Carmakers Urge Obama to Punish Japan for Weak Yen.
President Barack Obama should tell Japan’s new government that the U.S.
will retaliate for policies aimed at weakening the yen, a group
representing Ford Motor Co. (F), General Motors Co. (GM) and Chrysler
LLC said.
Japan’s Liberal Democratic Party, which reclaimed power last month,
has let the yen continue its slide against the dollar, making U.S. auto
exports relatively expensive, the American Automotive Policy Council
said yesterday in a statement.
“We urge the Obama administration to make it clear to Japan that such
policies are unacceptable and will be met by reciprocal measures,” Matt
Blunt, a former Republican governor of Missouri and president of the
Washington-based industry group, said in the statement.Toxic Parcels
While pondering the above circular mess that apparently everyone must accept (except they don’t), please consider Europe drawn into global currency wars as slump deepens by Ambrose Evans-Pritchard.
The world is edging closer to all out currency conflict as Europe’s
politicians join a chorus of policy-makers across the globe pushing for
devaluations to fight for market share.
Jean-Claude Juncker, EuroGroup chief, has signalled that Europe is no
longer willing to be the last economic player holding the toxic parcel
of an over-valued exchange rate, describing the euro as “dangerously
high” after its three-month surge against the dollar, yuan and yen.
The comments follow warnings by two French ministers this month that
the strong euro is holding back efforts to pull the France out of deep
industrial slump.
Alexei Ulyukayev, deputy head of Russia’s central bank, said the tilt
in EMU policy marks a new escalation as every major bloc of the global
economy tries to drive down its exchange rate at the same time. “We are
now on the threshold of very serious currency wars,” he said.
Korea has asked the G20 take a stand against beggar-thy-neighbour
policies in Moscow next month, accusing Japan and the West of covert
debasement through loose money.Once again Pritchard spoiled an otherwise
excellent article with a silly finish: “The underlying problem is a
global saving glut as the world saving rate hits a record 24pc of GDP”.
Good Grief. With global credit exceeding global GDP by many
multiples, and with the US credit market at $55 trillion vs. GDP of not
quite $16 trillion, it is preposterous to speak of a global saving gut.
By the way, Austrian economists will correctly point out that it’s
impossible to ever have too much savings, in any circumstance. However,
it’s certainly possible to have too much debt (the opposite of savings).
Japan had massive savings, but the Japanese government foolishly
squandered all of it with misguided Keynesian stimulus, the same
measures that El-Erian now insists are needed.
Also note that Russia is in on the complaining act.
There are a few sane voices in the wilderness. Jens Weidmann at the German central bank is one of those voices.
Weidmann warns of currency war risk
The Financial Times reports Weidmann warns of currency war risk.
The erosion of central bank independence around the world threatens to
unleash a round of competitive exchange rate devaluations, which leading
economies have so far avoided during the financial crisis, the
president of Germany’s Bundesbank warned on Monday.
Jens Weidmann, whose institution’s own fierce independence from
political influence was the model for the European Central Bank when it
was founded, said Stephen King, the chief economist at HSBC, was
“perhaps right” in forecasting an end to the era of central bank
independence.
“It is already possible to observe alarming infringements, for
example in Hungary or in Japan, where the new government is massively
involving itself in the affairs of the central bank, is emphatically
demanding an even more aggressive monetary policy and is threatening an
end to central bank autonomy,” Mr Weidmann said in a speech in
Frankfurt.
“Whether intended or not, one consequence could be the increased
politicisation of the exchange rate,” he said, according to a text of
his speech provided by the Bundesbank. “Until now the international
monetary system got through the crisis without competitive devaluations
and I hope very much it stays that way.”Alarming Infringements
Weidmann commented on alarming infringements and increased
politicisation in Hungary and Japan. He failed to point out Switzerland.
Brazil is also complaining mightily, and of course French president
Hollande is in on the act? Anyone else?
Of course! Currency manipulation talk and China go hand in hand.
Recall that Republican candidate Mitt Romney stated many times that one
of the first things he would so would be to label China a currency
manipulator. What does China think?
Yi Warns on Currency Wars as Yuan Close to ‘Equilibrium’
About a week ago, the deputy governor of China’s central bank, Yi Gang Warns on Currency Wars as Yuan Close to ‘Equilibrium’
China’s foreign-exchange regulator urged Group of 20 nations to improve
collaboration to avoid any so-called currency wars while signaling he’s
comfortable with the value of the yuan.
Yi, who heads the State Administration of Foreign Exchange, said he’s
concerned about the potential fallout from expanded asset-purchases
programs and near-zero interest rates in the world’s advanced economies.
“Quantitative easing for developed economies is generating some
uncertainties in financial markets in terms of capital flows,” Yi, who
is also head of China’s foreign-exchange regulator, told reporters.
“Competitive devaluation is one aspect of it. If everyone is doing super
QE, which currency will depreciate?”Yen Policy Under Fire
Reuters reports Japan defends stimulus, yen policy under fire.
Japan’s economy minister rejected criticism on Saturday that his
country’s extraordinary fiscal and monetary stimulus program was aimed
at weakening the yen and undermined central bank independence.
“You might think there’s a deliberate policy to drive down the value
of the yen but we in government refrain from commenting on the exchange
rate of the yen,” Amari said in response to criticism of Japanese
action.Mish Translation “We have a deliberate policy to drive the Yen
lower. No other country supports that, so we don’t comment on exchange
rates.”
Dangerous Situation
The Reuters article continues …
A European Central Bank source, speaking on condition of anonymity, said
the ECB was “not very happy” at what was seen as a step towards
competitive devaluations and the Group of 20 major economies’ finance
ministers and central bankers should address the issue next month.
“It’s not a problem yet. But if they (Japan) continue in that
direction and we see also what’s happening with quantitative easing in
the United States and Britain, then we would be the only one who would
not follow suit.
“The risk is that this would indeed have an effect on the exchange
rate and that we would get into a dangerous situation,” the ECB source
said.Mish says “If you are following this discussion at all, you know
damn well that the situation is already far beyond dangerous”.
Beggar Thy Neighbour Tactics
Please consider this discussion on Wikipedia regarding Beggar Thy Neighbour tactics.
In economics, a beggar-thy-neighbour policy is an economic policy
through which one country attempts to remedy its economic problems by
means that tend to worsen the economic problems of other countries.
Beggar-thy-neighbour policies were widely adopted by major economies during the Great Depression of the 1930s.
Alan Deardorff has analyzed beggar-thy-neighbour policies as an
instance of the prisoner’s dilemma known from game theory: each country
individually has an incentive to follow such a policy, thereby making
everyone (including themselves) worse off.
An early appearance of the term, which presumably originates from the
name of the Beggar-My-Neighbour card game, is seen in the title of a
work on economics from the early period of the Great Depression.Currency
War Idiocy
One voice of reason in midst of all this madness is my friend Pater Tenebrarum on the Acting Man Blog who writes about The Currency War Idiocy
Harvard University professor Martin Feldstein, long a critic of the
euro, said on Jan. 5 that European policy makers should consider a
coordinated approach to weaken the euro as a way to rally growth via
exports. “A lower euro would make each of the euro-zone countries more
competitive relative to the countries outside the euro zone,” Feldstein
said.”
There you have it. Even in Harvard they just know somehow that once
your money buys less, you’ve actually become richer. It seems to be the
modern-day version of the philosopher’s stone. Alchemists everywhere
recommend it!
Let us hypothetically assume that we have entered Orwell-land (‘war
is peace!’) and one can actually get richer by lowering the value of
one’s currency. One problem is obviously that not everybody can do it at
the same time. If one wants to cheapen one’s currency, other currencies
must by necessity increase in value. The next problem is how does one
go about it? How can one’s currency become worth less than that issued
by others? The only solution seems to be to increase its supply – at a
rate that exceeds that of the competition. This process is also known as
‘inflation’. So in other words, what the wise gentlemen listed above
are all advocating is that one should attempt to get rich by means of
inflation.
Pure genius! No-one has ever thought of that one! No, wait, a few
people have: …Please read the rest of the article because Russia,
Norway, South Korea, and the UK are all in on the act and Pater has some
humorous comments.
Bear in mind, a few years ago there was near-universal agreement the
US dollar needed to drop. Now the cat-calls are predominantly for the
euro to drop. In practice, nearly all the central bankers want their
respective currencies to drop.
What We Know
- The US wants a lower Dollar
- Eurozone ministers want a lower Euro
- Japan wants a lower Yen
- The UK wants a lower British Pound
- Norway wants a lower Krone
- Brazil wants a lower Real
- China wants a lower Yuan
What We Also Know
- The above is mathematically impossible in relation to each other
- The above is mathematically possible in relation to something else
That something else is a currency untouched by central bank and political madness.
That something else is gold.
Mike “Mish” Shedlock
www.globaleconomicanalysis.blogspot.com / link to original article
Thanks to: http://lucas2012infos.wordpress.com
