BBC: Why you should care about the ‘currency wars’
The BBC’s economics editor Stephanie Flanders released this nice little 3-minute video which explains why the so-called currency wars are something you should care about. For me, it is quite significant that South Korea of all countries, the host of the G-20, has major political figures talking about capital controls on the eve of the G-20 summit.
While everyone is talking about the US and QE2, it isn’t axiomatic that the Greenback will actually fall against other major floating currencies because those economic areas also have weaknesses. And,regarding the flood of money, I should note that it is China, Japan and Germany which have the major capital account deficits i.e. are flooding the world with so-called excess savings. Why isn’t anyone talking about this?
My take on the American side of the story is that the US private sector needs to spend less and save more – full stop. But, after a massive bust it’s going to be hard for policy makers to accept this prescription because it spells slow growth and high unemployment. That’s why America is eager to get some aggregate demand by any means necessary.
(video embedded below)
“And, in regards to the flood of money, I should note that it is China, Japan and Germany which have the major capital account deficits i.e. are flooding the world with so-called excess savings. Why isn’t anyone talking about this?”
I don’t know the saving rate of China, but the private sector saving rate of germany is just EU average and the japanese saving rate will soon be negative…
https://www.economicthought.net/wp-content/uploads/2009/07/Household-savings-Japan-US-France-Canada-Germany.bmp
Flanders suggests that Israel has been unfairly penalized by US/Chinese monetary polices!? Good lord!
I support the Asian view on this. If the US had capital controls it would not have been able to run a deficit for so long. It would have meant that the Chinese could not have lowered their currency against the dollar by buying US assets without locking them in. The US would not have been able to export US jobs because of the problems repatriating profits. It would have maintained US corporation tax rates as tax evasion would have been a lot harder. So a return to capital controls is a lot more preferable to a trade war or protectionism. It would also mean that each country would have to rebalance their own economies.