Goldman Charts the Currency Wars

[astonas]

Re: Goldman Charts the Currency Wars

Thanks EJ, Polish, and GRG55 for your views on this.

There are no currency wars but instead an unspoken policy of cooperative depreciation whereby the right to depreciate rotates from one major power to another as economic need and geopolitical horse trading dictate.

If you look at the number of units of currency in each currency required to purchase an ounce of gold since 2001 you can see the process clearly. In my next article I again debunk the idea of a currency war. We see that Japan was left out of the arrangement for geopolitical reasons and was recently let in as a stop-gap measure. As one country or currency block after another takes its turn, the price of gold in all currencies rises. The policy of cooperative depreciation is one of the reasons we invested in gold.

I now better understand the picture of a cooperative, managed depreciation. Thank you!

But I nevertheless wonder what the limits are for any international structure that even purports to act in the best interests of its citizenry. While no nation benefits from actually undergoing a global meltdown, each would surely welcome the opportunity of strain in the system to gain some smaller relative advantage in the process of heading off a meltdown. Unless the system is openly being run for the benefit of a narrow band of bankers, there must be at least a nod to the international aspirations and world-views of the nations participating in the fix.

If one were to peer into the head of central banker, for example, one might find a priority structure something like this:

1. Avert a global financial catastrophe
2. Seek advantage over specific rivals who may be particularly threatening (e.g. China vs. US rivalry)
3. Seek advantage over other nations generally, to be exploited when the current crisis mode fades
4. Seek leverage for those nations philosophically similar to oneself, who may prove friendly after the current crisis
5. Make sure that my friends at Goldman Sachs win no matter how things shake out (I've got a job lined up there when this is over!)

The detailed ranking of any of these is of course debatable.

Even if everyone at the table genuinely wants (1) as their first priority, there is nothing that precludes a friendly rivalry, or "soft currency war," concerning slanting the details of implementation based on 2-5. But unless central bankers are willing to come out and say that 1 and 5 are all that matter, their home countries will be asking some pointed questions about what they are doing regarding 2-4, if only in private. And if they respond by insisting that (1) is their only concern, they could well get more questions about (5) than they'd like.

So what are the limits to such friendliness? Is the very thought of a pre-Bretton-Woods era race-to-the-bottom so anathema that no nation would dare to exploit the current circumstances for individual or national gain? Are central bankers really "apolitical" in spite of Nixon's gaffe? Or are the specific responses to particular crises being carefully selected, with tacitly understood winners and losers being chosen each time along with them? And if the latter, doesn't this lead to a possibility that a key player will simply stop cooperating (though not publicly)?

The "currency war" idea is that nations are in a race to devalue.

EJ's more complex idea is that
they agree on the degree of devaluation each nation is allowed. Kind of like how OPEC used to work--each nation was only allowed to produce so much oil, so as not to crash the oil price.

Only now, each nation can only print so much currency, to avoid crashing the economies of all the others.

Great system!

But who is to say that China, for example, isn't "cheating" by printing a little extra? Didn't OPEC have issues with its cartel in a similar manner?

The central banks and legislatures of 43 countries coordinated $4 trillion in stimulus between Q4 2008 and Q1 2009.

...

Currency depreciation via similar measures, primarily monetary expansion and deficit spending, are also coordinated to permit an orderly reflation of over-indebted economies. I will argue that it was agreed subsequent to the emergency reflation measures of Q4 2008 and Q1 2009 that the U.S. was to go first; as the U.S. remains the most important economy in the world, the U.S. economy needs to lead the world out of the crisis, never mind that the crisis originated in the U.S. The USD was to depreciate against all currencies initially to allow the U.S. halt the deflationary impulse of a rising USD and later to boost exports to kick-start economic growth. Subsequently the euro took a turn depreciated against all the others, as seen in the gold price; from 2001 to 2008 gold in USD increased 250% vs 110% in EUR, but since the crisis 110% up in EUR and only 70% in USD.

Recently Japan took a turn with the YEN falling 19% in gold terms since early 2012 while the USD remained flat in gold terms.

...

If coordinated depreciations fail to produce sustained global growth, or another crisis occurs, coordinated stimulus will again be on the table.

You make a very compelling, even incontrovertible, case that this is what has happened, and is still happening. And I'm certainly bang alongside you when you suggest that it will continue to happen this way. My question runs more along the lines of: "Until when?" Do you believe that the process of setting up a new monetary system is "manageable" in this way, come what may? Or do you believe that there may be a limit to the ability of central bankers to keep a lid on things?

As GRG55 summarizes nicely:

I'll try to clarify my own views about it:

• Some genuinely think that Central Bankers can manipulate monetary policy indefinitely with impunity - "theory of Central Bankers as omnipotent" (I doubt there's many of those people visiting this site);
• Some think that Central Bankers think they can manipulate monetary policy indefinitely with impunity - "theory of Central Bankers as idiots" (perhaps some visiting this site have that low opinion of Bernanke et al);
• Some think that Central Bankers have to keep telling us they can manipulate monetary policy indefinitely (with implied impunity), but they actually know better - "theory of Central Bankers as intelligent human captives of The System" (that's the cohort I am in);

I tend to fall with him in the third category, but I go further when I assert that central bankers are not only human captives, but conflicted captives of The System, with more than one agenda. And for that reason, I wonder if their conflicts of interest could alter the balance of the whole depreciation process. Could it be compromised, and wrestled into a process more focused, for example, on dollar-decommissioning, than it otherwise would be?

[EJ]

Re: Goldman Charts the Currency Wars

Thanks EJ, Polish, and GRG55 for your views on this.




I now better understand the picture of a cooperative, managed depreciation. Thank you!

But I nevertheless wonder what the limits are for any international structure that even purports to act in the best interests of its citizenry. While no nation benefits from actually undergoing a global meltdown, each would surely welcome the opportunity of strain in the system to gain some smaller relative advantage in the process of heading off a meltdown. Unless the system is openly being run for the benefit of a narrow band of bankers, there must be at least a nod to the international aspirations and world-views of the nations participating in the fix.

If one were to peer into the head of central banker, for example, one might find a priority structure something like this:

1. Avert a global financial catastrophe
2. Seek advantage over specific rivals who may be particularly threatening (e.g. China vs. US rivalry)
3. Seek advantage over other nations generally, to be exploited when the current crisis mode fades
4. Seek leverage for those nations philosophically similar to oneself, who may prove friendly after the current crisis
5. Make sure that my friends at Goldman Sachs win no matter how things shake out (I've got a job lined up there when this is over!)

The detailed ranking of any of these is of course debatable.

Even if everyone at the table genuinely wants (1) as their first priority, there is nothing that precludes a friendly rivalry, or "soft currency war," concerning slanting the details of implementation based on 2-5. But unless central bankers are willing to come out and say that 1 and 5 are all that matter, their home countries will be asking some pointed questions about what they are doing regarding 2-4, if only in private. And if they respond by insisting that (1) is their only concern, they could well get more questions about (5) than they'd like.

So what are the limits to such friendliness? Is the very thought of a pre-Bretton-Woods era race-to-the-bottom so anathema that no nation would dare to exploit the current circumstances for individual or national gain? Are central bankers really "apolitical" in spite of Nixon's gaffe? Or are the specific responses to particular crises being carefully selected, with tacitly understood winners and losers being chosen each time along with them? And if the latter, doesn't this lead to a possibility that a key player will simply stop cooperating (though not publicly)?

Nations don't have friends, they have interests. In this case the interest is in keeping the system functioning. The strong dictate to the weak. Those countries that attempt to operate completely outside the "community" such as Iran and N. Korea are punished. Those to only partially cooperate, such as Russia and Venezuela, suffer the consequences.

But who is to say that China, for example, isn't "cheating" by printing a little extra? Didn't OPEC have issues with its cartel in a similar manner?

China, the one nation closest to economic and geopolitical power parity with the U.S., plays by a special version of the rules. For example it is the only country that gets to peg its currency to the USD.

You make a very compelling, even incontrovertible, case that this is what has happened, and is still happening. And I'm certainly bang alongside you when you suggest that it will continue to happen this way. My question runs more along the lines of: "Until when?" Do you believe that the process of setting up a new monetary system is "manageable" in this way, come what may? Or do you believe that there may be a limit to the ability of central bankers to keep a lid on things?

Until PCO derails it.

As GRG55 summarizes nicely:

I tend to fall with him in the third category, but I go further when I assert that central bankers are not only human captives, but conflicted captives of The System, with more than one agenda. And for that reason, I wonder if their conflicts of interest could alter the balance of the whole depreciation process. Could it be compromised, and wrestled into a process more focused, for example, on dollar-decommissioning, than it otherwise would be?

Central bankers think the job of global economic downside risk management is too important to leave to governments. Legislatures and heads of state and finance ministers can do as they do, but in the minds of central bankers if they are not cooperating then all the diplomacy in the world will not repair the damage.

The currency wars crowd finds the idea of close cooperation among central banks far more unnerving than the idea of divisive conflicts among them. It smacks of One World Government. But it is plain for all to see.

[bart]

Re: Goldman Charts the Currency Wars

Currency wars are the tariffs of finance capitalism.

"Currency wars" and the associated PR games are what helps keep central bankers from being totally bored. ;-)

CBs have been cooperating partnerships behind the scenes since at least the turn of the last century.

[Polish_Silver]

CB behavior

Central bankers think the job of global economic downside risk management is too important to leave to governments. Legislatures and heads of state and finance ministers can do as they do, but in the minds of central bankers if they are not cooperating then all the diplomacy in the world will not repair the damage.

The currency wars crowd finds the idea of close cooperation among central banks far more unnerving than the idea of divisive conflicts among them. It smacks of One World Government. But it is plain for all to see..

I'll only add that there is ample evidence that Central bankers are somewhat incompetent. For example, the complete failure to prevent the housing bubbles in multiple nations. Unless you think they wanted it that way . . .

[bart]

Re: Goldman Charts the Currency Wars

[EJ]

Re: CB behavior

I'll only add that there is ample evidence that Central bankers are somewhat incompetent. For example, the complete failure to prevent the housing bubbles in multiple nations. Unless you think they wanted it that way . . .

Of course they wanted it that way. Preventing finance interests from making money is not in the job description. Preventing them from going out of business en masse is.

[bart]

Re: CB behavior

Big *grunt* of agreement. :-)

[astonas]

Re: Goldman Charts the Currency Wars

Thanks for going all through this again. I know it must be tedious for you to revisit the same ideas so many times, but every time I feel that I'm peeling back another layer of the onion.

The currency wars crowd finds the idea of close cooperation among central banks far more unnerving than the idea of divisive conflicts among them. It smacks of One World Government. But it is plain for all to see.

Unnerving indeed!

Until PCO derails it.

So, this is where things start to get muddled again for me.

It was just explained to me again in another thread that PCO is...:

A little more subtle than that

Petroleum increasingly more expensive to find and develop;
Inevitable price increases result in slowly increasing conservation and gradual elimination of low value consumption (petroleum reallocated to higher value uses);
Higher prices lead to increasing efforts to add supply, but also mis-allocations of capital into uneconomic energy investments (e.g. shale gas bubble);
Price volatility increases;
Periodic price collapses cause increasing consumption, which sets the stage for the more rapid onset of the next phase of PCO as the cheapest sources are consumed even faster;
Periodic price spikes cause recessions;
Recessions cause more rapid and disruptive reductions in consumption;
Rinse and recycle...

If PCO is more of a cyclical process of dashed hopes than a sudden event, how exactly does this work to thwart the grand plans of central bankers? There will be intermittent economic pressures, certainly, but not a single cataclysmic collapse. Yes, average oil prices will slowly rise as well, and the world economy will certainly be worse off, but I'm not sure why this would undermine central bankers, per se, or even their plans.

Don't get me wrong, I understand the basic message that when people lose faith en masse in the very concept of banking, gold is a refuge. And I've had mine for a while. But we here on iTulip are following gold, in the thought that people will one day be outraged.

What causes us to believe that this outrage will necessarily go mainstream? Why won't most people just shrug, take what is handed out, and go on believing, not in banks, but in the idea that this is the best they can do in an essentially unchangeable system? It wouldn't exactly be their fault; most people are busy enough just trying to make ends meet. And the media today isn't exactly a force for enlightening people, is it?

And so a part of me wonders: wouldn't the increasing price swings make it easier for bankers to misdirect blame toward cyclical variations, rather than their own policies? And wouldn't the increasing concern make the world more, not less, pliable to their control? I would imagine that if there was any species on earth that was well suited to thrive in a panicked environment, it would be a central banker, who functions at a level at-or-above the state. So far, the greater the panic there was, the more influence they've had to transfer vast wealth to whatever segments of society they saw fit, with minimal outrage outside our little corner of the world.

How exactly does PCO derail, rather than reinforce, the central banker's plans?

[bart]

Re: Goldman Charts the Currency Wars

...
What causes us to believe that this outrage will necessarily go mainstream? Why won't most people just shrug, take what is handed out, and go on believing, not in banks, but in the idea that this is the best they can do in an essentially unchangeable system? It wouldn't exactly be their fault; most people are busy enough just trying to make ends meet. And the media today isn't exactly a force for enlightening people, is it?
...

Sites like this are one major reason.

Four years ago, only a very very few had a clue about the real unemployment rate being over 20%. Just last weekend at a large dinner with friends, someone that I didn't know brought up that she had read an article on msnbc about it and was lamenting about all the lies and some darkness ahead.

When the stuff gets deep enough to get close to their lips, stuff happens.

[GRG55]

Re: CB behavior

I'll only add that there is ample evidence that Central bankers are somewhat incompetent. For example, the complete failure to prevent the housing bubbles in multiple nations. Unless you think they wanted it that way . . .

You would fit more or less into this category:

...Some think that Central Bankers think they can manipulate monetary policy indefinitely with impunity - "theory of Central Bankers as idiots" (perhaps some visiting this site have that low opinion of Bernanke et al);

...

[astonas]

Re: Goldman Charts the Currency Wars

Sites like this are one major reason.

Four years ago, only a very very few had a clue about the real unemployment rate being over 20%. Just last weekend at a large dinner with friends, someone that I didn't know brought up that she had read an article on msnbc about it and was lamenting about all the lies and some darkness ahead.

When the stuff gets deep enough to get close to their lips, stuff happens.

Yeah. You're right. It just gets me down sometimes, and that can cloud the judgement.

I was talking the other day to one of the other ones. The ones who really have no idea, and no bandwidth to handle the information if it landed on them.

She had come to a board meeting of the nonprofit daycare facility for which I volunteer advice, and was making a plea concerning the increasing rates, in the face of her own wage freezes. She was a single mom (not by choice, her husband took off) and when I mentioned the word "sequester" as though it was common knowledge, the look on her face made it clear that the 2 jobs she was working did not leave her 5 minutes to catch the news, let alone ruminate on its meaning, or protect herself with whatever scant information it might have. In spite of that, she was offering to come do work in the facility in exchange for a rate reduction. Inflation has been hitting people like that very hard. And there's a lot more people like that than there are people who enjoy the luxury of a forum like this one.

What happens when you throw a revolution, and no one has the time, or energy, to show up? Is that what happened to OWS?

[don]

Re: Goldman Charts the Currency Wars

Sites like this are one major reason.

Four years ago, only a very very few had a clue about the real unemployment rate being over 20%. Just last weekend at a large dinner with friends, someone that I didn't know brought up that she had read an article on msnbc about it and was lamenting about all the lies and some darkness ahead.

When the stuff gets deep enough to get close to their lips, stuff happens.

Historically countries and individuals respond more nationalistically during economic crisis, not more globally.

[bart]

Re: Goldman Charts the Currency Wars

Historically countries and individuals respond more nationalistically during economic crisis, not more globally.

Astute and true, although there are exceptions like the late 1960s when the movement was almost global.

[bart]

Re: Goldman Charts the Currency Wars

Yeah. You're right. It just gets me down sometimes, and that can cloud the judgement.

Indeed... and join the club.

I was talking the other day to one of the other ones. The ones who really have no idea, and no bandwidth to handle the information if it landed on them.

She had come to a board meeting of the nonprofit daycare facility for which I volunteer advice, and was making a plea concerning the increasing rates, in the face of her own wage freezes. She was a single mom (not by choice, her husband took off) and when I mentioned the word "sequester" as though it was common knowledge, the look on her face made it clear that the 2 jobs she was working did not leave her 5 minutes to catch the news, let alone ruminate on its meaning, or protect herself with whatever scant information it might have. In spite of that, she was offering to come do work in the facility in exchange for a rate reduction. Inflation has been hitting people like that very hard. And there's a lot more people like that than there are people who enjoy the luxury of a forum like this one.

Sad but true... but also do recall that it's virtually always a very small group that actually does create positive changes. Under 500 were the kernal of the American revolution, same with Xerox PARC.

What happens when you throw a revolution, and no one has the time, or energy, to show up? Is that what happened to OWS?

Lots of folk showed up for OWS, but very very few actually understood what was arrayed against them. Many learned...

The fat lady is far from singing.

[don]

Re: Goldman Charts the Currency Wars

Astute and true, although there are exceptions like the late 1960s when the movement was almost global.

1968 - some feel preventive measures to this day continue . . .