Living In A World Of Rigged Currencies

currency-manipulation01

Source: Bloomberg – Jobs Lost Hit 5 Million With Rigged Currencies: Cutting Research

Notable Excerpts:

More than 20 nations have increased reserves of currencies such as the dollar by an average of almost $1 trillion a year, economists C. Fred Bergsten and Joseph E. Gagnon said in a report published last month.

Unfortunately, governments want to inflate their own currencies to fight inflation from other money printing countries and to protect their export economies. At least this is the economic ‘wisdom’ we live in today.

By buying foreign currencies, countries reduce the value of their own and make their products cheaper on international markets. That squeezes out foreign competitors and pushes up trade deficits elsewhere, prompting job losses.

I hope the US is not pointing a finger at other countries because they themselves did the spectacular by doubling their nearly a century old money supply in a matter of weeks in the 2008 financial crisis.

The biggest loser is the U.S., where the trade and current account deficits have been $200 billion to $500 billion larger each year as a result, costing between one million and five million jobs, the economists’ calculations show.

It’s definitely strange that the US is not on the list. In fact, all countries today are currency manipulators as they have to weaken their currencies to soak up the inflation the US exports to them. None of them can stop the US from expanding their money supply and inflating their debt away. The least they could do to mitigate that is to devalue to stay competitive.

Among the 22 nations Bergsten and Gagnon deem currency manipulators, which they say account for almost a third of global output, are China, Denmark, Japan, Norway, Russia, Israel and Switzerland. Of these, China is the biggest intervener, amassing about $3.3 trillion of reserves by the end of 2011.

No wonder the politicians love this short term easy way out! But is it sustainable?

Bergsten and Gagnon asked Federal Reserve staff to simulate the effects of a 10 percent decline in the trade-weighted value of the U.S. dollar beginning in the first quarter of this year. Their calculations suggest that would boost gross domestic product by 1.5 percent in two to three years and raise employment by nearly 2 million jobs as the current account deficit declines by almost 1 percent of GDP.

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