Neat graphic from Der Spiegel:

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click for larger graphic

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Source:
The Specter of Protectionism: World Faces New Wave of Currency Wars
Der Spiegel, 10/05/2010
http://www.spiegel.de/international/world/0,1518,721044,00.html

Category: Currency

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

17 Responses to “Currency Wars !”

  1. “…The postmedieval state acquired most of its eagerly sought revenues by taxation. But the state has always been attracted by the idea of creating its own money in addition to plundering directly the wealth of its subjects. Before the invention of paper money, however, the state was limited in money creation to occasional debasements of the coinage, of which it had long managed to secure a compulsory monopoly. For debasement was a one-shot process, and could not be used, as the state would always like, to create money continually and feed it into state coffers for use in building palaces, pyramids, and other consumption goods for the state apparatus and its power elite.

    The highly inflationary instrument of government paper money was first discovered in the Western world in French Quebec in 1685. Monsieur Meules, the governing intendant of Quebec, pressed as usual for funds, decided to augment them by dividing some playing cards into quarters, marking them with various denominations of French currency, and then using them to pay for wages and materials. This card money, later redeemed in actual specie, soon became repeatedly issued paper tickets…”
    http://www.lewrockwell.com/rothbard/rothbard227.html

    if one is in any doubt, remember, “Rothbard is Right~!.”

  2. HelicopterBen says:

    Currency Wars ! Is a dead end! Is not the solution, although China should revalue it’s currency max 10% but nobody is counting they do that overnight! Revaluing yuan surly will hit the bottom low of society but over the long term is a good thing. – for Chinese too, if they want to stably grow it’s economy otherwise US as well European consumer may say enough is enough to imports from biggest supplier/manufacturer in Asia!

  3. HelicopterBen says:

    And Chinese should really start working on protecting our intellectual property rights!

  4. wunsacon says:

    >> Revaluing yuan surly will hit the bottom low of society

    I hear this argument occasionally…

    So, do you support continuing welfare payments to the unemployed so they can buy these cheap goods which you fear would otherwise rise in price were we to introduce tariffs?

    Allowing “free trade” without requiring trading partners to float their currency has been a big contributor to the elimination of manufacturing jobs from this country. And China government’s recycling of dollars was one of the contributors to low interest rates. Our trade with China has been that “huge global imbalance” you keep reading about everywhere. And yet, now that this country has pretty followed the advice of the “free trade” proponents for 15 years and seen its poor become poorer, you worry about the bottom rung of society?

    After all I’ve seen from the “free trade and let’s ignore the obvious problems” crowd, I’m certainly not interested in listening to you now.

  5. wunsacon says:

    HelicopterBen, sorry, I misread your post and the article, which referred to “currency war” instead of “tariffs”. I inadvertently substituted terms probably because “currency devaluation” and “tariffs” are both “sticks” we can use to force a more equal playing field with China.

  6. Frwip says:

    The simplest approach would be to force China to register and pay taxes on its euro and dollar assets

    Tack on it a 100% confiscation of unregistered assets and a generous recovery sharing scheme for whistle-blowers and bounty hunters.

    China would have to move to other currencies (and face similar taxation) or to actually spend that cash.

  7. NormanB says:

    I know this graphic is meant to point out the trade imbalances with China but in the lower left hand corner there is the ‘purchasing power parity’ that either the IMF or the World Bank has calculated. It shows that the yuan is under-valued by 45% and thus the yuan/dollar should be 3.66 instead of 6.66.

    But remember that China’s trade surplus turns into capital purchases and its to the tune of $500B per year. Using the PPP figure its obvious that China is over paying for our Treasuries (and Europe’s) by a factor of two!!! Thus, they are losing about $250B per year on their ‘investments’ which is about 5% of their GDP. It has to be accounted for some way by somebody.

    Chinese trade arrogance is misplaced as they are being taken on their capital purchases which will eventually come home to roost.

    Also, remember, a command economy has never won out over a free market economy although in the begining stages, even as long as decades, they look good until the tide rolls out and all the garbage is exposed. It happened with the USSR (Kruschev: “We shall bury you.”) and the Japanese with their Japan Inc (“We will control the world’s economy”.) So, all of the flowers being thrown at the Chinese economy will become dust, too.

    They have much more to fear than we do about the world record dislocation they have foisted on the world’s economy

  8. machinehead says:

    China’s international reserves represent 50% of its GDP; by contrast, US international reserves are less than 1% of its GDP.

    I have argued that instead of QE II (buying Treasuries), the US should seek to acquire additional international reserves, including Chinese securities. In other words, play China’s own game in reverse, by selling dollars and purchasing Asian currencies.

    If China won’t open its yuan securities market, then buy HK$ securities en masse, creating a headache for the Hong Kong currency board. There’s more than one way to skin a cat.

    Long term, the US needs to get out of the ‘dominant reserve currency’ business. The currency of a chronic current account deficit nation such as the US is not suited as a central reserve currency. If this necessary transition doesn’t occur in an orderly fashion, then it will happen in chaotic, disorderly fashion.

    And gold may emerge de facto as the only sound, unindebted, riskless vehicle for global capital transfers. Too bad — delinking the dollar from gold in August 1971 was done for the usual senseless reasons — to keep financing a lost war in Vietnam. It’s no coincidence that another lost war — Afghanistan — is sinking the dollar today.

    Let’s face it — Uncle Sam is a heavily armed, formerly wealthy, truculent retard, who’s passing bad checks all over town. This bellicose, irresponsible deviant needs to be in institutional custody, before somebody gets hurt.

  9. machinehead says:

    ‘Also, remember, a command economy has never won out over a free market economy although in the begining stages, even as long as decades, they look good until the tide rolls out and all the garbage is exposed. It happened with the USSR (Kruschev: “We shall bury you.”) and the Japanese with their Japan Inc (“We will control the world’s economy”.) So, all of the flowers being thrown at the Chinese economy will become dust, too.’ — NormanB

    This statement has a lovely ring to it, which I applaud. But to what extent has the US itself become a command economy?

    We certainly have centrally planned interest rates, which are creating havoc for savers for the sake of rescuing the financial sector. Earlier this year, the US government asserted control over health care, another 14% of GDP.

    China’s government spending as a percentage of GDP is not much different than that of the US. This is really more of a contest between two mixed-socialist, financial command economies. I would bet on China, because it doesn’t suffer from the King Midas handicap of issuing an international reserve currency.

    A limitless supply of unredeemable dollars appeared to be a magical gift, but in fact has hollowed out the US economy to the point that although we can still feed ourselves, we can no longer fuel or clothe ourselves, or manufacture the necessities of daily life. Too many dollars, not enough productivity!

    Federal Reserve Notes are weapons of mass destruction.

  10. beaufou says:

    “Not surprisingly, there are increasing calls for a second Bretton Woods and a new world economic system with established rules. This is a recurring topic at G-20 summits.”

    I think it is inevitable, all the austerity measures in the world won’t reduce the massive amount of debt generated by a fundamentally flawed system.
    Even regular Americans have lost faith in the dollar, turd polishing and flag wrapping bs is not going to work for very much longer.
    We’ll see Tea Partying in the name of freedom but reality gets in the way, it isn’t too little freedom that allowed public debt and the madness of Wall Street, it is too much.
    Advocates for no regulations at all on markets should ask themselves why so many people can’t even afford food while the crowd they are supporting are speculating on those prices all day making billions.
    The dollar is toast and so are other currencies, welcome to the bancor.

    “The pressure on Japan also failed to bring the US much relief. American industries, particularly in the automotive sector, still couldn’t effectively compete with manufacturers like Toyota and Honda.”

    It didn’t because corporations are paying politicians to make the average American think he is the most productive, competitive human being on the planet, wave that little flag.

  11. DeDude says:

    So if measured in purchasing power the Chinese GDP is not that far behind us. Probably will pass us in 5-8 years. I guess not being subjected to right wing BS economic experiments, and having an effective system for making policy is worth something.

  12. gordo365 says:

    Looks like Europe is selling more stuff to China than US. What gives? They don’t like our stuff?

  13. wunsacon says:

    >> They don’t like our stuff?

    Maybe they get more for their money by giving it to Mercedes and Siemens than Goldman Squid.

  14. wunsacon says:

    …than Goldman Squid or, its [affiliate/parent/subsidiary?] the US Treasury.

  15. MikeW says:

    Great chart.

    Looks like the Chinese outfit our entire lives from cradle to grave now, and in return we send a few boatloads of soy beans and a mountain of treasury debt.

    One cannot but wonder how it will all resolve itself.

  16. fundaman says:

    The US doesn’t need foreign currency reserves. It can print the currency any time!

    Same with Europe.

  17. [...] this month, we showed the Der Spiegel map of currency wars;  Today, we have the FT’s interactive [...]