Friday, October 09, 2015 12:02pm
North Adams, MA now: 61 °   
Send news, tips, press releases and questions to
The Berkshires online guide to events, news and Berkshire County community information.

Home About Archives RSS Feed
The Independent Investor: The Coming Currency War
By: Bill Schmick On: 11:15AM / Friday October 15, 2010

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.

Tags: currency      
News Headlines
'The Martian': Houston, We Have a Hit
Colegrove Park School Project Overseers Rebut Safety Concerns
Adams-Cheshire District Pledges Better Communication With Cheshire
Tyer, Bianchi Set Priorities in West Side Initiative Debate
SABIC to Leave Pittsfield; 300 Area Jobs to Be Lost
Cheshire Fire Department Treasurer Accused of Larceny
Pittsfield Housing Authority: Worcester's Program Not A Fit Here
Lanesborough FinCom Continues Discussion On School Funding
North Adams Fire Department Opens Doors To Public
Clarksburg Voters to Decide School Feasibility Funding

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 Visit for more of Bill’s insights.




@theMarket (182)
Independent Investor (248)
October 2015 (3)
October 2014 (7)
September 2015 (7)
August 2015 (7)
July 2015 (6)
June 2015 (8)
May 2015 (6)
April 2015 (8)
March 2015 (6)
February 2015 (7)
January 2015 (9)
December 2014 (7)
November 2014 (4)
Selloff Fed Debt Ceiling Housing Markets Jobs Stimulus Greece Election Interest Rates Retirement Debt Energy Banks Crisis Currency Euro Bailout Europe Recession Oil Japan Metals Rally Stock Market Economy Fiscal Cliff Federal Reserve Deficit Congress Europe Stocks Taxes Commodities Pullback
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
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Will the Municipal Bond Massacre Continue?
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: How Will Wall Street II Play on Main Street?
Recent Entries:
Independent Investor: Millennials The Misunderstood Generation
@theMarket: October Should Be the Bottom
The Independent Investor: The Stock Market & You
The Independent Investor: How Cell Phones Hurt Your Productivity
@theMarket: Back to the Future
The Independent Investor: Mind the Gap, Please
@theMarket: All or Nothing
The Independent Investor: The Economics of European Migration
@theMarket: U.S. Jobs Data Sink Markets
The Independent Investor: Senior Housing Set to Soar

B Soccer: Lenox at Hoosac...
After suffering a 6-0 defeat against Lenox on Oct. 2, the...
Girls X Country: at Wahconah
The Lenox girls dominated their race with the top four...
Boys X Country: at Wahconah
Drury junior Connor Meehan ran a time of 16 minutes, 25...
Girls Volleyball: Lee at...
The Lee volleyball team won its 12th straight match...
B Soccer: Mount Everett at...
On Tuesday, the Crusaders played Mount Everett to a 1-1...
B Soccer: Mount Greylock at...
Naka O'Connor scored twice, and Sam Dils had a goal and an...
B Soccer: Putnam at McCann...
The McCann Tech boys soccer team earned a 1-1 tie Monday...
2015 Berktoberfest
The eighth annual Berktoberfest was held in Pittsfield.
Fall Foliage Parade 2015
The 60th annual Fall Foliage Parade stepped off Sunday...
Fall Foliage Road Race 2015
The annual Fall Foliage 5K takes off from Monument Square...
Football: Pathfinder at...
FINAL: McCann Tech wins 20-0 over Pathfinder Saturday...
Football: Hoosac Valley at...
The Hoosac Valley football team looked to their third...
Football: Wahconah at...
Wahconah beat Monument Mountain 57-12 Friday night.
Football: Taconic at Lee
Taconic to third straight win, 50-13 over Lee to improve to...
Fall Foliage Dog Parade 2015
The 6th annual Fall Foliage Dog Parade brought out a host...
Fall Foliage Children's...
The annual Children's Parade on Friday night celebrated...
B Soccer: Lenox at Hoosac...
After suffering a 6-0 defeat against Lenox on Oct. 2, the...
Girls X Country: at Wahconah
The Lenox girls dominated their race with the top four...
Boys X Country: at Wahconah
Drury junior Connor Meehan ran a time of 16 minutes, 25...
Girls Volleyball: Lee at...
The Lee volleyball team won its 12th straight match...
B Soccer: Mount Everett at...
On Tuesday, the Crusaders played Mount Everett to a 1-1...
| Home | A & E | Business | Community News | Dining | Real Estate | Schools | Sports & Outdoors | Berkshires Weather | Weddings |
Advertise | Recommend This Page | Help Contact Us is owned and operated by: Boxcar Media 102 Main Street, North Adams, MA 01247 -- T. 413-663-3384 F.413-664-4251
© 2012 Boxcar Media LLC - All rights reserved

Privacy Policy| User Agreement