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Navios Maritime Acquisition Corporation Message Board

  • winomaster winomaster Dec 12, 2012 2:21 PM Flag

    Currency Wars

    The Fed has just announced additional Quantitative Easing. In reading a book by the name "Currency Wars" I learned that nations don't engage in "Easing" only to stimulate their economy. They do it to de-value their currency relative to nations that are currently holding down the value of their own currency to an extreme degree. When we run the printing presses in this country, the dollars don't just bounce around in our economy. No, these dollars are dis-proportionatly attracted to the countries that suppress the value of their currency. So lots of it goes to China, where it increases the rate of inflation and forcing in effect a re-valuation of their currency upward. During one of the earlier QE's lots of dollars were flooding into various Arab countries and that caused the inflation in food prices that triggered what we called the "Arab Spring." So these QE's can have unpredictable results. We were not really aiming our currency action at the Arab states. They were small players that just got caught in the crossfire.

    We are engaged in a currency war with China because they undervalue their currency and gain an unfair advantage in international trade. Were they to spend the dollars they get in this trade, all would be fine. But they prefer to instead to hold these dollars and recycle them into US government bonds. Their motives here are various, the most innocent is that they want to build the economic power of their nation. But when they use these dollars to buy US govt bonds they drive down interest rates in the US and thereby cause things like real-estate bubbles, soaring gas prices, soaring food prices. All negative things for our economy.

    China's holding down the value of their currency and then refusing to buy our goods in exchange was at the root of the economic meltdown in the US and in Europe. The trade imbalance became unsustainable. Expect to see more of this "Quantitative Easing" until China's currency comes into better alignment with the dollar and the Euro.

 
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