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The Currency War

One very perverse aspect of our global financial crisis hangover is the fact that many developed countries want to devalue their currencies.  By printing money at alarming rates, countries burdened with debt can make their exports look more attractive and also make their debt obligations smaller in real terms.  The problem is that there are many players in the game.  Japan, Europe, the United States, and any country that pegs its own currency to one of the three…  I can assure you that the Euro at $1.40 is not making politicians in the Eurozone happy.  Germany profited handsomely from a weak Euro earlier in the year and is most likely losing much of those gains.  With Bernanke stating that a weak dollar is a goal and the Bank of Japan intervening in the currency markets and lowering their interest rate from .1% to 0% (will that really do anything), it seems like we are in a race to the bottom.  Just remember that currency devaluation is a tax on citizens within those countries.  Savers are punished while debtors are rewarded.  This does not seem like a system that we want to live by and if it gets too out of hand we might see a renewed interest in pegging currencies to hard assets.  The fiat monetary system is showing just how ugly it can get.

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