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Currency wars, the victims and the perpetrators

March 16th, 2013 · No Comments

Who’s guilty? What are the consequences?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…)

We read dire warnings about coming, or already ongoing currency wars, in which countries supposedly embark on policies with the explicit aim of devaluing their currencies in the forex markets. There is a book, highly popular in some circles, by James Rickards called “Currency Wars: The Making of the Next Global Crisis.”

According to the author, these ‘wars’ have already begun:

Currency wars “have already begun,” according to Rickards, citing comments from Brazil’s finance minister in 2010. The Fed started this currency war with its initial response to the 2008 financial crisis and ongoing “extraordinary” measures. All the Fed’s efforts – from zero interest rate policy to quantitative easing – are largely designed to weaken the dollar, putting pressure on foreign central bankers to competitively devalue their own currencies, according to Rickards.

We’re not convinced (to put it mildly), so what’s the damage of these currency wars, who are the perpetrators and who are the victims? Well, the damage:

Historically, currency wars lead to trade wars, which often lead to hot wars. In 2009, Rickards participated in the Pentagon’s first-ever “financial” war games. While expressing confidence in America’s ability to defeat any other nation-state in battle, Rickards says the U.S. could get dragged into “asymmetric warfare,” if currency wars lead to rising inflation and global uncertainty. [Read on here]

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