The G-20 met this past week and issued statements warning against “currency wars.” But what is it that they are really saying? In reality they are warning against trade wars because we know what these ultimately lead to… real wars. But what is the alternative for countries like Japan? They have levered their economy to the hilt at the behest of U.S. and IMF rocket science economists and their market share has shrunk. If they don’t knock the legs out from under their currency they will watch deflation set in further and bury their economy and financial system.
This is really simple stuff and has gone on since the beginning of time. Whoever has the lower wage structure and “cheaper” currency will gain market share at the expense of others. The problem now is that the economies with generally higher costs (wages and currencies) are also the ones that have leveraged themselves too much. The U.S., Japan and Britain surely fit this description. If you think about it this sort of makes sense, Mother Nature will retard those ahead (overvalued) and aid those behind (undervalued)… but…
Yes there is always a “but” and this time the “but” is that those with (generally) overvalued currencies and weakening market share also sport debt ratios not ever seen by sovereign nations before. The “not ever seen” part is VERY true because in the good ole’ days the market would take funding of credit away from the guilty parties and bubbles could never grow as large as they are now. In any case, a real problem exists because the “pie” is only so large and no longer growing. The survival of some means the death of others.
But (there is that word again) there is a problem with this. The “death of others” now means the death of the entire system because everything is so interconnected through globalization. “Globalization” sounded like a wonderful concept and did in fact contribute initially to growth of the global pie. Now we will get to see how it works in reverse and I don’t think it’s going to be pretty. What used to be the strong dragging along the weak will now be seen as the weak pulling the strong under water with them.
While speaking of the economic “pie,” I would be remiss not to mention the e-mails within Walmart that came out Friday. Yes, “retail” is the pits here in the US (and globally). But what did you expect? Gas prices are up. Taxes have gone up. Prices of food and everything else necessary to sustain life have gone up. Incomes are not rising and employment is tough to come by so put those pieces together and what sort of buoyancy would you expect out of retail? I do want to also mention that next year we will see MASSIVE increases in health insurance premiums. I read last week where the average family of 4 will see close to $20,000 per year premiums, how many do you suppose will be able to afford this?
I’m just throwing these little “realities” out there because the “math” doesn’t add up. It doesn’t add up for individual budgets any more than it does for sovereign nations which is why the heads at the G-20 are screaming bloody murder. They are fighting over the crumbs of a pie that is no longer growing and the result is always the same, a transfer of wealth will occur. Her name is Mother Nature!