Sunday, April 19, 2015 06:59am
North Adams, MA now: 32 °   
Send news, tips, press releases and questions to info@iBerkshires.com
The Berkshires online guide to events, news and Berkshire County community information.
SIGN IN | REGISTER NOW   

Home About Archives RSS Feed
The Independent Investor: The Coming Currency War
By: Bill Schmick On: 11:15AM / Friday October 15, 2010
Important
0
Interesting
0
Funny
0
Awesome
0
Infuriating
0
Ridiculous
0

The International Monetary Fund and its members were in no mood to agree on a unified policy of currency movements at their weekend meeting in Toronto. Finger pointing and veiled threats of retaliation were hurled at China from both American and European members, among others. Underneath all the rhetoric, I fear we are in a race to the bottom as countries vie to reduce the value of their own currencies while demanding that others strengthen theirs.


Back in early 2009, in several columns, I speculated that just about every country in the world would try to export their way out of recession. In order to do that, each country would endeavor to keep their currency as cheap as they could, thereby reducing the prices of their exports. It’s also a fact that some countries (Brazil, India, China) weathered the world recession far better than others. Critics argue that part of the reason that occurred was that these countries contrived to keep their currencies artificially low and continued to export as much as they could.


Unfortunately, today the world still grabbles with high unemployment and an economic recovery that is anemic at best. As deficits mount and governments scramble to increase the pace of growth, each country is vying to take an increasing share of a shrinking global economic pie. It is the real cause of this war of words which could soon take on a much more concrete form of expression.


China, due to its size and economic prowess, has been singled out as the main culprit in this on-going currency manipulation. Over the weekend, the Chinese resisted demands to strengthen their currency. They argued that they were already beginning to do so, but “gradually”. They warned that if their currency, the yuan, did not remain stable, it would bring disaster to China and the world.


This was seen by the United States as just more stonewalling. Unfortunately, lawmakers are meeting this week to consider punitive measures against China for undervaluing their currency. Called the “Currency Reform for Fair Trade Act," the legislation is intended to make it harder for the Commerce Department to ignore taking retaliatory actions against Chinese exports that are judged to be benefiting from a weak currency.  The passage of such a bill could easily ignite a trade war where we levy duties or outright ban Chinese import A, while China retaliates by doing the same to U.S. import B.


To date, the White House has been able to short circuit any Commerce Department recommendations for any trade embargos that Congress has demanded. People such as U.S. Treasurer Tim Geithner have chosen a less strident approach in convincing other nations to compromise on the currency question. But if this bill passes the landscape could change quickly. It is just this kind of protectionist legislation that extended and prolonged our own Great Depression and that of the rest of the world in the 1930s.


However, before we cast all the blame on China, consider this: many other countries (including our own) are participating in this currency race to the bottom. The Japanese, for example, over the past month have continually intervened to slow the rise of the yen, which is hurting their exports. So far the price tag for that intervention has cost them 2 trillion yen.


Here at home, the Federal Reserve’s announcement in September that a second tranche of quantitative easing (QE II) is in the works has shaved 7 percent off the greenback’s value in less than three weeks. Last Friday, the Brazilians spent billions to weaken their own currency, the real, and over in Europe the Swiss have been doing the same for months. The euro, thanks to the PIGS (Portugal-Italy-Greece-Spain) crisis, has had its own ups and downs.

 
Since the dollar is still the world’s main reserve currency and it is dropping in value (as is every other currency at the same time) it makes sense that commodities have suddenly caught fire. Since commodities are denominated in U.S. dollars, their value continues to rise as the dollar declines. In a currency war where paper currencies become increasingly suspect and valueless, proxies will appear. This is what I believe is driving the price of gold to new highs. As long as world players insist on growing at the expense of their neighbors, you can expect commodities to continue to rise.



0 Comments
Tags: currency      
News Headlines
North Adams Little Leaguers to Appear on NESN Broadcast
State Secretary Ash Preps Berkshire Leaders For Baker's Economic Plans
Clark Art Unveils Super Bowl Prize
BFAIR Speaker Example in Overcoming Challenges
Business, Education, Political Officials Eye Growth Of Innovation Economy
Cultural Pittsfield This Week: April 17-23
Pittsfield Food For Fines Program Ends April 18
Casting, Opening Dates Set for Shakespeare & Company’s 38th Season
Pittsfield Woman Tapped as New Executive Director at Snow Farm
Downing Named One of the 'Good Guys' by Massachusetts Women's Political Caucus

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (166)
Independent Investor (222)
Archives:
April 2015 (3)
April 2014 (2)
March 2015 (6)
February 2015 (7)
January 2015 (9)
December 2014 (7)
November 2014 (4)
October 2014 (9)
September 2014 (5)
August 2014 (7)
July 2014 (2)
June 2014 (6)
May 2014 (9)
Tags:
Bailout Stimulus Fed Congress Pullback Euro Japan Economy Europe Recession Commodities Stocks Energy Federal Reserve Election Housing Debt Ceiling Debt Currency Markets Greece Stock Market Metals Banks Taxes Crisis Rally Selloff Deficit Jobs Retirement Interest Rates Oil Europe Fiscal Cliff
Popular Entries:
The Independent Investor: Don't Fight the Fed
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: QE II Supports the Markets
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
Recent Entries:
@theMarket: Earnings on Deck
@theMarket: Will the Second Quarter Be Like the First?
The Independent Investor: How to Teach Your Kid to Become the Next Warren Buffet
@theMarket: The Fed Does It Again
The Independent Investor: Financial Challenges Facing Single Parents
@theMarket: Pay Attention to Diverging Markets
The Independent Investor: Kids & Money
@theMarket: Home on the Range
The Independent Investor: Rise of the Smoothie
@The Market: Full Steam Ahead


View All
STEM, Industry Forum
U.S. Rep. Richard Neal and the Berkshire Chamber of...
BFAIR Annual Meeting 2015
BFAIR holds its annual breakfast meeting at the Williams...
3rd Thursday Events 2015
Director of Cultural Development Jen Glockner and Mayor...
Berkshire Chamber Nite @...
The Berkshire Chamber of Commerce held a networking event...
Tennis: MM Girls @ PHS
Monument Mountain girls tennis team won 5-0 over Pittsfield...
Tennis: MM Boys @ PHS
Monument Mountain boys tennis team won 4-1 over Pittsfield...
IS183 Versace Tchotchke Gala
IS183 Art School of the Berkshires' annual over-the-top...
Tennis: MG @ Lenox
Cami Sachetti and Emily Czelusnick battled to a 7-5, 6-4...
St. Joseph High School Play
Students at St. Joseph High School are putting their own...
Wahconah Spring Musical '9 to...
Wahconah Regional High School students rehearse for the...
Pittsfield Eggstravaganza...
Youngsters scrambled for treats on Sunday morning at...
Girls Lacrosse: PHS vs MG
Spring has slightly sprung in Williamstown as the Mount...
Schantz Exhibit at Berkshire...
Attendees mingle at a reception Thursday for the opening of...
Freeman Center Sex Assault...
The Elizabeth Freeman Center held a rally to raise...
Tyer Announces for Mayor
Linda Tyer, Pittsfield city clerk, announced her candidacy...
Pittsfield Vietnam Memorial
A memorial service was held in Park Square for those killed...
STEM, Industry Forum
U.S. Rep. Richard Neal and the Berkshire Chamber of...
BFAIR Annual Meeting 2015
BFAIR holds its annual breakfast meeting at the Williams...
3rd Thursday Events 2015
Director of Cultural Development Jen Glockner and Mayor...
Berkshire Chamber Nite @...
The Berkshire Chamber of Commerce held a networking event...
Tennis: MM Girls @ PHS
Monument Mountain girls tennis team won 5-0 over Pittsfield...
| Home | A & E | Business | Community News | Dining | Real Estate | Schools | Sports & Outdoors | Berkshires Weather | Weddings
Advertise | Recommend This Page | Help Contact Us | Privacy Policy| User Agreement
iBerkshires.com is owned and operated by: Boxcar Media 102 Main Street, North Adams, MA 01247 -- T. 413-663-3384 F.413-664-4251
© 2000 Boxcar Media LLC - All rights reserved