Currency War

We seem to be headed for a currency war between the world’s big economies. The USA has a big trade deficit, so they want to export more and import less. A weaker USA dollar would promote that.  High labor costs in the USA are going to render the Trump plan of rebuilding the domestic manufacturing industry impractical. The exception would be if the manufacturing is almost all done by robots with artificial intelligence, but that doesn’t create jobs.

The European Central Bank is creating money to try to liquefy Europe’s economy. Germany, with its racial memory of hyper-inflation, isn’t eager for that, but for now, the ECB is pursuing Quantitative Easing.

Japan, with its extremely heavy and quickly growing government debt load (see http://www.nationaldebtclocks.org/debtclock/japan) needs a cheaper Yen so that the debt can be partly inflated away. If they can pay this debt with cheaper yen. Japan benefits.

We also see China tending towards pushing down the Yuan.

We can’t have every major currency depreciating relative to every other major currency. It is impossible. So they sort of take turns. But the time comes when some countries no longer want to wait their turn. That’s when we have a currency war.