Thursday, August 27, 2015 09:51pm
North Adams, MA now: 61 °   
Send news, tips, press releases and questions to info@iBerkshires.com
The Berkshires online guide to events, news and Berkshire County community information.
LOG 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

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
Triad Holds Annual Picnic at Greylock Club Pavilion
Adams Inviting Residents to Get Involved in Strategic Planning Process
Adams to Look Into Expanding Solid Waste Services
Mount Greylock Officials Make Case for School District
Economist Urges Berkshires To Build Around Strong Non-Profit Economy
North Adams Committee Reviewing Online Information Access
BRTA Details Regional Transit Plan
Williamstown Selectmen Debate Cost Saving Vs. 'Green' Action
Mercier Named Administrator of Mount Carmel Care Center in Lenox
The Classical Beat: Chamber Concerts Blossom Throughout Region

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 (177)
Independent Investor (241)
Archives:
August 2015 (5)
August 2014 (2)
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)
October 2014 (9)
September 2014 (5)
Tags:
Selloff Retirement Rally Fiscal Cliff Congress Debt Ceiling Federal Reserve Pullback Economy Election Stocks Jobs Oil Currency Greece Stimulus Metals Stock Market Commodities Banks Recession Taxes Deficit Markets Crisis Europe Europe Energy Bailout Japan Debt Fed Interest Rates Euro Housing
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: Why Are Interest Rates Rising?
The Independent Investor: How Will Wall Street II Play on Main Street?
Recent Entries:
@theMarket: Markets Are Supposed to Pullback
The Independent Investor: Not All Bonds Are the Same
The Independent Investor: The Risk of Rising Rates
The Independent Investor: Boomers' Kids Don't Want Your Stuff
@theMarket: Month-End Musings
The Independent Investor: Supermarkets Evolve to Survive
The Independent Investor: Are You Ready for El Niņo
@theMarket: O Ye of Little Faith
The Independent Investor: When 'No' Means 'Yes'
@theMarket: Global Markets Weather a Wild Week


Whitman's Wins Torchia League...
The Pat Torchia Women's Softball League playoffs concluded...
Berkshires Craft Beer Fest...
The 9th annual Western Mass beer festival drew hundreds of...
Pat Torchia Women's Softball...
Whitman's took the first game in the best two out of three...
Third Thursday August 2015
It was another beautiful night for 3rd Thursday on North...
Berkshire Chamber @ Darrow...
The Berkshire Chamber of Commerce held its monthly...
Shire City Sessions August...
Wild Adriatic performs at Monday's Shire City Sessions, a...
BYP Networking @WTF
The Berkshire Young Professionals held its networking event...
Softball: VFW Post vs Pizza...
VFW Post vs Pizza House at DiSanti field on Monday night.
Second Cheshire Block Party
Cheshire resident enjoyed good food and music by the...
Downtown Celebration 2015
The annual Downtown Celebration brought hundreds to Main...
Pittsfield Ethnic Fair
Pittsfield Ethnic Fair was held at the Pittsfield Common on...
Annual Cruz Nite And...
Cheshire residents enjoyed classic cars, good food, a BMX...
Adams National Night Out 2015
Adams recognized its first responders on Tuesday night...
National Night Out 2015
Neighborhoods in North Adams marked the annual National...
Adams Aggie Demo Derby 2015
Crash! Boom! Bang! The annual Aggie Fair demolition derby...
Blue Moon Rooftop Party
Partygoers danced under a blue moon atop Greylock Gardens...
Whitman's Wins Torchia League...
The Pat Torchia Women's Softball League playoffs concluded...
Berkshires Craft Beer Fest...
The 9th annual Western Mass beer festival drew hundreds of...
Pat Torchia Women's Softball...
Whitman's took the first game in the best two out of three...
Third Thursday August 2015
It was another beautiful night for 3rd Thursday on North...
Berkshire Chamber @ Darrow...
The Berkshire Chamber of Commerce held its monthly...
| Home | A & E | Business | Community News | Dining | Real Estate | Schools | Sports & Outdoors | Berkshires Weather | Weddings |
Advertise | Recommend This Page | Help Contact Us
iBerkshires.com 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