The Group of 20 nations must take the lead to prevent a global "currency war" in which each country tries to weaken its currency at the expense of others, South African Finance Minister Pravin Gordhan said. … "Everybody would want to depreciate their currency, everybody wants to export their way out of trouble," Gordhan told lawmakers in Cape Town today. Unless the G20 gets "the major players to sit around the table and find a spirit of cooperation and generosity and give and take," we are heading for a "currency war," he said. – Bloomberg
Dominant Social Theme: It is a spiral downward toward abject poverty and North-Korean style dirigisme.
Free-Market Analysis: We have watched the building "currency war" with interest. Warnings are certainly placing the onus of responsibility on the G20 and the International Monetary Fund, both of which have somehow emerged as key players in an effort to ameliorate the worst excesses of the "war" for the sake of the global community and the general prosperity of all. Sub dominant social theme: "Our prosperity is totally in the hands of the wise men populating the G20 and the IMF; these two institutions are, in fact, the last and best hope for humankind, which is gradually circling down the drain."
What is the "currency war" as we understand it? The United States, which owns the world's reserve currency, the dollar (rapidly fading) is continuing to print money by the bucket-load to try to stimulate its economy. The economy cannot be stimulated because after a century of central banking price-fixing (all that interest-rate setting, etc. really is) the American economy is terminally distorted.
Government itself is probably the largest bubble and after that comes the banking industry and then corporate America. By propping up certain industries with cash and not letting them fail, the American government has made it impossible for the private sector to figure out what is a viable company and business and what is not. Thus, banks are not lending and people are not borrowing even two years into the "financial crisis."
As we have pointed out endlessly the financial crisis is not merely another cyclical recession (or even depression). The current economic difficulties stem from the implosion of the current, unanchored fiat-money system of the late 20th and early 21st century. The system essentially ended in 2008 and only hyperactive central bank money printing and enormous cash infusions into ruined banking entities managed to prop it. (This goes for Europe as well as America.) Without the price fixing by central banks, the system would have fallen apart, literally. It has held together, but that does not mean it is healthy. It is like a terminally injured patient on life support. It will die. It just depends on when the plug is pulled.
Nonetheless, the United States continues to try to prop up what is essentially a moribund system. Because of the systemic distortion, no matter how much money the US prints, the economy itself will not respond. It cannot. This means that the money that does manage to circulate finds its way into the US stock market and speculation abroad as well. Other countries are printing too much money as well, and this has caused a generalized commodity boom.
Yes, despite the so-called bond bubble, individual investors may be most enthusiastic about certain stocks and in farmland, real estate, commodities and precious metals. Thus we can see that the endless money printing is causing a global speculative bubble while not helping with the "real" economy at all. What the US (and the West generally) needs to do is to allow governmental, banking and industrial bubbles to collapse, even if this means the end of the economic system as we know it.
This, unfortunately, the powers-that-be probably will not do. But this does not mean the collapse will not come. It will come, sooner or later. The free market itself is impossible to circumvent long term. What the Anglo-American power elite is fighting to do is to prolong the decline and fall of the current system so as to ease the West into a new system, presumably one based on SDRs, an IMF bancor, or even a controllable gold standard. This seems their hope, faint as it is.
The longer it takes, the angrier people get. This is why the power elite seems to be contemplating the possibility of civil violence and military control measures. But essentially this is a faint hope too. It is impossible to control an enraged and enlightened populace. People have been enraged by the failure of the current system and they have been enlightened (increasingly) by the truth-telling of the Internet. This is a noxious combination for the power elite and its continued short-term domination of the levers of wealth and power.
The leaders of other countries that have long enjoyed a wealth splurge courtesy of the US reserve dollar are getting upset too. Because the money being printed by the Fed is not circulating in the US's own terminally damaged economy, it is flowing abroad. Dollars are pouring into first and third world countries and this torrent of dollars is essentially a dollar-devaluation. Thus, countries like Brazil, India, Japan, etc. are faced with dollar inflation, which inevitably makes their own currencies more expensive.
These currencies, now ever-more expensive, make it increasingly more difficult to export goods and services, especially to the United States. Out of self-defense, countries like Japan have begun to buy dollars to sop up the excess liquidity. But this causes resentment too. It is expensive to buy dollars and once again the world is forced to dance to the tune of the United States. Only world leaders are well aware that in this case, buying dollars is not really the answer. The US economy may take another 10 years to readjust because the Anglo-American power elite show no inclination to allow the distortions of elite banking and industrial complexes to subside. They will be propped up no matter what.
This is indeed a recipe for a trade war. Other Western countries plus India, Japan, China and various "third-world" countries like Brazil are being asked to pay for Anglo-American determination to prop up the elite-enterprise system. These countries are basically subsidizing a bankrupt dollar-reserve system. If it were temporary, that would probably pass muster.
But as we have pointed out, this is a situation that is likely to go on for the long term due to the power elite's stubbornness and determination to salvage its Western (American, mostly) commercial power base and central banking system. Thus we have a good deal of talk from the Western power elite about the discouraging possibility of a trade war and "economists" like Joseph Stiglitz continue to grace television screens echoing his supportive babble. The message: Trade wars are a bad thing. The idea is that times are tough but China, Japan, India and third-world countries will make things much tougher with a currency war that can turn into a trade war once "proctectionism" becomes the order of the day.
With its typical talent for turning disaster into further forced (global) centralization, the Western power elite is agitating for the IMF to mediate in this international currency war. The G20 as well (see article excerpt above) is also being urged (and no doubt being threatened) to do the "right thing" and negotiate currency differences rather than carry out individual rebalancing solutions. But as we have pointed out, the UN, the IMF and even the G20 are ultimately Anglo-American institutions. The British and Americans won the Second World War and everything since then, all the institutions and even the evolution of the EU has taken place under a "Pax Americana" – given that the US is the "muscle" of the Anglo-American power elite alliance.
This is a huge problem for the Anglo-American elite right now, in our view. We have stated before that the Anglo-American elite did not expect that the current economic crisis would be so deep and so protracted. We have also pointed out that the elite did not expect the Internet phenomenon to blow up and certainly has no real solution to its truth-telling which has put pressure on governments around the world.
Once upon a time, the rituals of the power elite and their global alliances were secret and within that secrecy, government leaders could plot and plan. Most of the time, the Anglo-American elite had its way. Not anymore. US military dominance is fading. The "post war" era has come to an end. Elite machinations, revealed by the Internet make it much more difficult for other governments to go along meekly with Anglo-American plans and institutions.
The Anglo-American power-situation has been complicated by the emergence of such powerful countries as India, Brazil, China and even Russia as economic powers on their own. The plan, from our point of view, to Westernize the economies of Muslim countries is failing as well, with the failure of the Afghanistan and Iraq wars of control. At a time of maximum economic stress, then, the Anglo-American power elite finds its financial dominance eroding and its military power less rather than more effective.
The problem faced by the world is not really a currency war. That's just rhetoric. What is going on is that the US especially is desperately printing money to try to avoid civil insurrection. The Anglo-American elite has to get from "here" to "there" and to do so without a civil uprising. We even think the elite is rethinking what was to be the next shoe to drop – a derivatives unraveling. Derivatives, for all their complexity may even be a controllable phenomenon, assuming the elite has control over the West's big banking institutions and can always work something out behind the scenes by printing money or creating new structures to hide the unraveling.
What the elite cannot do is put people back to work. The financial economy is controllable because the power elite virtually created it. But the real economy is hopelessly distorted with whole industries created out of the froth of central bank money printing. Lord knows what a "real" economy would look like, but it certainly wouldn't look like what today's scenario with basically one out of every four people out of work in Europe and America (our humble opinion of the reality of things – and it may be even worse).
What is to be the result of all this? The Anglo-American axis is no longer powerful enough to herd the rest of the world in one direction. The rest of the world cannot for a variety of social and political reasons continue to prop up America's terminally distorted "consumer" economy. Thus, there will be an "adjustment" no matter what. The facade perhaps will be maintained but behind the scenes there will indeed be some sort of parting of the ways between the Anglo-American axis and the countries that it has dominated throughout the post-war era. In this case, we think the behind-the-scenes unraveling will eventually spill over into an obvious schism between the "West and the rest."
The Anglo-American elite cannot probably dominate anymore via military authority and Western economies in our view will continue to collapse, inexorably. The only hope the West may have is to move to a new kind of economic basis, probably gold or a combination of both gold and silver. Of course, there are other scenarios as well. The elite may clamp down domestically and try to ride out internal dissent by getting a good deal more authoritarian – and indeed that process seems underway. (Beware the "boot!") These processes are of import to investors and concerned citizens of the West; we urge a maximum level of alertness. Look for clues, especially in the mainstream media.
Personally we welcome a trade war. Of course it won't really be a trade war but the final spasms of a dying system. The mainstream media, in its endless attempts to control the historical narrative, will no doubt do its best to promote a "trade war" as the proximate cause. If a currency war stimulates a trade war some of these noxious global agreements may begin to unravel and that dear reader would be a welcome change of direction.
The more that private enterprise drives the international economy (rather than government negotiated trade agreements) the better off people will be. The system in our humble view is so distorted and unmanageable that sooner or later it must collapse, partially or entirely, of its own weight. When it does, we hope that what ends up in its place will be driven as much as possible by the private market rather than further "grand solutions" of the elite negotiated at the "topmost levels" of government and commerce.
Those leading the way currently are obviously hoping that a controllable G20 and a Western-empowered IMF will lead the way to continued Anglo-American dominance. That is why the elite is currently offering so much additional power sharing at the UN, at the IMF, etc. The trouble is that the Anglo-American axis cannot give up ultimate control – without giving up the dream of an Anglo-American world government. This is why the Anglo-American vision of the past century is currently jeopardized – as "the best-laid schemes o' mice an' men gang aft agley."