No currency war... granted by politics

When all politicians are talking against "currency wars" you must be very careful and look at what exactly they are doing. Today the G-7 group declared that no currency war is going, but at the same time it is clear that Japan is printing Yens in accelerated manner. Also today it became clear that ECB is ready to compensate the decrease in money supply that is coming from preliminary returning of some of LTRO loans given during the peak of the financial crisis. I.e. the printing machine is ready. Formally the reason of eventual flooding the markets with new money is the risk of increase of interest rates on some government bonds (including German ones). But in fact such an intervention will devalue the Euro.

A few days ago another verbal intervention by ECB Chairman Mario Draghi has pressed the Euro down. Although Draghi criticized the French President Francois Hollande on his plead for a weaker Euro, in fact ECB is working for weakening the Euro.

In this situation the position of FED is most honest and clear. They are keeping almost 0 interest rates and have a promise of printing 85 billion per month.

In fact, you can not expect at any moment any politician to acknowledge that there is a currency war. You can't expect a formal declaration or a legislative decree. It is the same as to expect politicians to acknowledge there will be inflation. Inflation is never declared, it is even hidden when existing. The same is with the currency war. The effect of these policies is while they are implemented unofficially. Otherwise people will react and this reaction will change the situation.

Recognizing the currency war as an official policy will mean that everyone wil know that the market will be blown by a wave of useless pieces of paper. It is not the idea. The idea is no one to know :)
It is funny to hear how politicians say: "There is no currency war" and at the same time they say: "We have to improve our economy by devaluing the currency and stimulating the export".

But it is not possible to happen for everyone at once. So one will succeed and other will not succeed. Meanwhile both will fight. And that exactly is the currency war :)

The currency war is a type of a nuclear war. This is so because everyone has an unlimited quantity of weapons, i.e. everyone has enough power to destroy itself while shooting at the others. So at the end we will have the economic and financial equivalent of a post nuclear war world.

The only survivors will be in bunkers armored with gold :)

Feb 12th 2013

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