Posts filed under “Currency”
EVERY Market Is Rigged Bloomberg reports today: Traders at some of the world’s biggest banks manipulated benchmark foreign-exchange rates used to set the value of trillions of dollars of investments, according to five dealers with knowledge of the practice. Employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and…Read More
United States $10 Banknote, Legal Tender, Series of 1901 Hat tip boingboing, National Numismatic Collection (NNC) of the Smithsonian Institution Back in the day, US currency did not have Presidents on it, but rather, consisted of “animals and symbolic statuary” as well as landscapes.
Euro: Requiem or Renewal?
David R. Kotok
March 30, 2013
In the last several weeks, a sequence of events involving Cyprus has triggered serious questions about the sustainability of the European Monetary Union (EMU). The events surrounding the finance ministers’ decision to levy taxes (i.e., partially confiscate deposits) on depositors in a Euro-system bank led to a sequence of blunders that have been well-recited in the press. There is no need to repeat the details here.
For readers who missed it, I do want to add this link to the personal observation of Edward Scicluna, finance minister of Malta, who was appointed by his country’s prime minister on March 13. His first action was to participate in the notorious Eurogroup meeting on Cyprus. See: http://www.timesofmalta.com/articles/view/20130319/opinion/cyprus-a-lesson-for-life.462258 . Source: www.timesofmalta.com , March 19.
In the Cyprus affair, we observe a defeat of the concept behind the Eurozone and the original European Union. It took half a century to create the European Union after WWII. The driving force was what the French call a “rapprochement” between formerly antagonistic parties. To put it simply, the Germans and French decided to stop killing each other after a thousand years of war. An economic union seemed the right way to go about attaining peace and prosperity. After centuries of destructive inflation outcomes, they realized credible money was absolutely necessary for this peaceful outcome to succeed.
Charle Hugh Smith is an author. He blogs at Of Two Minds.
If we shed our fixation with the Fed and look at global supply and demand, we get a clearer understanding of the tailwinds driving the U.S. dollar higher.
I know this is as welcome in many circles as a flashbang tossed on the table in a swank dinner party, but the U.S. dollar is going a lot higher over the next few years. For a variety of reasons, many observers expect the dollar to decline against other currencies and gold, the one apples-to-apples measure of a currency’s international purchasing power.
The tailwinds pushing the dollar higher are less intuitively appealing than the reasons given for its coming decline:
1. The Federal Reserve printing another trillion dollars (expanding its balance sheet) will devalue the dollar because money supply is expanding faster than the real economy.
2. The Fed is printing money with the intent of devaluing the dollar to make U.S. exports more competitive globally and thereby boost the domestic economy.
Let’s examine each point.
1A. If much of the Fed’s new money ends up as bank reserves, it is “dead money” and not a factor in the real economy. Fact: money velocity is tanking:
1B. Money is being destroyed by deleveraging and writedowns. This is taking money out of the real economy while the Fed’s new money flows to banks.
1C. The purchasing power of the dollar is set by international supply and demand, not the Fed’s balance sheet or the domestic money supply.
February 11, 2013
“Currency War” is the latest hot title. It’s now on the front pages, triggered by the policy change in Japan. In only two months the Japanese yen has weakened about 15% against the US dollar.
Let’s reflect on this important development.
First, a simple case study. Suppose there were just two countries and just two currencies. Suppose country A decided to try to weaken its currency so it could sell more stuff at cheaper prices to country B, thus undercutting B’s domestic producers. B could resist by raising a tariff on the incoming stuff that A was trying to sell. Or it could retaliate by cheapening its own currency to counter the price differential. The first form of retaliation is a trade war; the second is a classic currency war. The economic history of the 1930s is replete with examples of each and combinations of both. History shows us that the results were disastrous for the global economy and led to a world war.
But is there a third alternative? What about the role of interest rates?