On Thursday we looked at the impact that the dollar's strength was having on the rest of the world. Liam Halligan adds to that analysis with a very trenchant observation.
The reality, of course, is that the Fed’s successive doses of QE since late 2008 have been designed to keep the lid on the dollar, deliberately reining in the greenback in a bid to boost US competitiveness and limit the value of the vast debts America now owes its foreign creditors – not least China.
. . .
The perpetually moribund eurozone economy of recent years ... to say nothing of a currency union that stumbles from crisis to systemic crisis, means euro-QE is now, apparently, OK. In other words, the eurozone can finally get its own back on the US and Britain by attempting to print its way to a cheaper currency, winning back some competitiveness. That’s the theory, anyway.
What we’re seeing, then, is the West’s very own version of “currency wars”. For almost half a decade, the big emerging markets have complained bitterly – and often publicly–- about mass money-printing by the world’s “leading economies”. The likes of Brazil and China have highlighted, rightly, that Western QE has lowered the relative value of their carefully accumulated dollar and sterling reserves (and debts) against local, emergent currencies such as the yuan and the real.
Now, with eurozone leaders engaging in fully blown QE, and rejoicing at the euro’s fall against the dollar, currency wars are taking place not just between the developed world and the emerging markets but between the developed nations themselves. Japan, of course, is also part of this intra-G7 currency conflict, having lately launched an astonishingly extreme QE programme designed to pump up the Bank of Japan’s balance sheet from just over 20pc to no less than 75pc of annual output within three years.
As such, the world’s leading economies have reduced themselves to blatantly competing less on the quality of what they produce, than on the speed with which they can depreciate their currencies against one another.
There's more at the link. It's worth your time to read it in full.
Do note the last line of the excerpt above. It's true. The question is, what happens when everyone finds out that in a race to the bottom, it's very hard to stop the decline and climb back up again?