Rickards’ s “Currency Wars”

The Making of the Next Global Crisis

Forward: Shortly after beginning this book I decided to adopt the following hypothesis at variance, I think, to the author’s: These ‘currency wars’ are like nothing more than merchants in a city in a continuing price war. We consider that good and why should we consider the events that the author reports bad? Wars, like WW II was mostly a huge dead loss. Price wars are annoying but with a slightly positive value! Bad metaphor!

[L 94] Even if inflation does not affect consumer prices, it can show up in asset prices leading to bubbles in stocks, commodities, land and other hard assets— bubbles that are prone to burst like tech stocks in 2000 or housing in 2007.

[L 118] Senior military and intelligence officials have now come to the realization that America’s unique military predominance can be maintained only with an equally unique and predominant role for the dollar. If the dollar falls, America’s national security falls with it.

L 200: I am enjoying the story of sovereign wealth funds.

L 263: I now begin to realize that the book is not about a war between U.S. political interests about printing money, but about skulduggery among other national interests.

L 452: I don’t know what real thing that “power” is supposed to model.

L 471: The big problem with the gold play described here is that the white cell has no model of what people will think of it. Perhaps the white cell thought that the war game would lack credibility if it chose any particular answer to the gold value estimate.

L 485: The book has not mentioned what I think is true: China’s gold is mostly in Fort Knox.

[L 731] The classical gold standard of 1870 to 1914 has a unique place in the history of gold as money. It was a period of almost no inflation— in fact, a benign deflation prevailed in the more advanced economies as the result of technological innovation that increased productivity and raised living standards without increasing unemployment.

L 763: I declare here that I think that currency manipulation is good and that tariffs are bad.

L 769: The author quotes several advantages of the gold standard. I agree with several of them and simplicity is almost always good. I do like to not worry about my bank deposits (FDIC) and I have never heard a counter to this value. I agree that there are costs and I suspect that it is a net win.

Regarding the government buying or selling gold in order to maintain the declared value of its currency:

[L 768] The process of buying and selling gold near a target price in order to maintain that price is known today as an open market operation. It can be performed by a central bank, but that is not strictly necessary; it can just as well be performed by a government operating directly or indirectly through fiscal agents such as banks or dealers. Each authorized dealer requires access to a reasonable supply of gold with the understanding that in a panic more gold could readily be obtained. Although government intervention is involved, it is conducted transparently and can be seen as stabilizing rather than manipulating.

Currency manipulation (I will use his term) is a tool to counter the problem of wage stickiness and similar infelicities in the economic culture. Printing more money is perhaps the least painful form of internal devaluation. It seems to be a psychological hangup beyond the immediate ken of economics.

[L 825] From 1836 to 1913, an almost eighty-year period of unprecedented prosperity, innovation and strong economic growth, the United States had no central bank.

I note that the author does not describe the nature of a real panic. The bankers say that almost everyone is hurt. Are they wrong? Are the gold bugs saying it is like castor oil; it is good because it tastes bad?

Is a ‘bail-out’ a gift or a loan? Is there a difference? There is always the “heads−I win; tails—you lose” conundrum. Without an ultimate lender is the fear of a panic the best business guide?

[L 872] The author recounts some history of the politics and origin of the Fed. I think he intends that at least some of his audience be appalled. Perhaps not. I am not appalled. Curiously I must credit the author for being fair in his descriptions, at least as far as I know.

The history of bank legislation given here is interesting.

[L 928] The author recounts post WW I currency manipulation almost as if it were a dead loss war. I see it as highly analogous to a bunch of shops adjusting their prices competitively, which is a slightly positively sum game.

[L 1933] In round after round of devaluation and default, the major economies of the world raced to the bottom, causing massive trade disruption, lost output and wealth destruction along the way.

[L 996] I think the description of the German hyperinflation is interesting with many interesting details. Many, perhaps all, of the dour results he ascribes to hyperinflation I would ascribe to the war and reparations. It would be good to imagine an alternate history based on a gold standard. Something had to give and it could not be pleasantly resolved. With hyperinflation it came out one way; with a gold standard it would have come out differently. I see no reason yet to prefer the latter.

[L 1037] This book covers financial history for the time between the wars. I have been looking for such a report.

[L 1058] Some real pitfalls of the ‘modified gold standard’.

[1914] If the euro were to collapse or members broke away from the euro and reverted to their old currencies at devalued levels, those markets might be lost.

[L 2007] “Let me put it simply . . . there may be a contradiction between the interests of the financial world and the interests of the political world.... We cannot keep constantly explaining to our voters and our citizens why the taxpayer should bear the cost of certain risks and not those people who have earned a lot of money from taking those risks.”

Angela Merkel,
Chancellor of Germany, at the G20 Summit,

The book has not yet mentioned those more numerous stake holders, the buyers of foreign goods, who get a better deal when their own money is worth more. I am suspicious of this omission. I have heard many non-sensical reasons not to be worried about these buyers.

[L 2028] All roads toward the resolution of the looming currency wars point in the direction of G20 as the principal forum.

I note here to begin reading again at L 2065: “The consumer is the problem.”.

[L 2093] All that needed to change was the consumption and export mix. China would dial up consumption and dial down net exports, while the United States did the opposite. Those new export sales to China would create jobs in the United States for good measure.

L 2233: I have never been a fan of Geithner. I am beginning to like him.

L 2261: At this point in Rickard’s history I would characterize the situation as the United States realizing that the status quo would eventually turn bad for us and the rest of the G20, while rest of the G20 wanted to temporize.

[L 2309] If you destroy the currency, you destroy all markets and the nation. This is why the currency itself is the ultimate target in any financial war.

[L 2398] When Russian leaders think of natural gas, they see not only export revenue but also a stranglehold on the industrial economy of Europe.

[L 2786] The Author seems to think that someone cares if the FED is solvent. I was unaware of that an institution able to print money at will could ever be insolvent.