The Beginning Of The End Ad
Gold Buying Guide: Golden Eagle Coins

Recent Posts

The Preppers Blueprint Economic Collapse Blog Get Prepared Now Ad

Enter your email to subscribe to The Economic Collapse Blog:

Delivered by FeedBurner

Currency War

Share on FacebookTweet about this on TwitterPin on PinterestShare on Google+Share on LinkedInShare on StumbleUponEmail this to someone

Are you ready for a currency war?  Well, buckle up, because things are about to get interesting.  This week Japan fired what is perhaps the opening salvo in a new round of currency wars by publicly intervening in the foreign exchange market for the first time since 2004.  Japan’s bold 12 billion dollar move to push down the value of the yen made headlines all over the world.  Japan’s economy is highly dependent on exports and the Japanese government was becoming increasingly alarmed by the recent surge in the value of the yen.  A stronger yen makes Japanese exports more expensive for other nations and thus would harm Japanese industry.  But Japan is not the only nation that is ready to go to battle over currency rates.  The governments of the U.S. and China continue to exchange increasingly heated rhetoric regarding currency policy.  In Europe, there is growing sentiment that the euro needs to be devalued in order to help European exports become more competitive.  In addition, exporters all over the world are already loudly complaining about the possibility that the Federal Reserve is about to unleash another round of quantitative easing.  Virtually all major exporting nations want the value of the U.S. dollar to remain high so that they can keep flooding us with lots of cheap goods.  The sad reality is that our current system of globalized trade rewards exporting nations that have weak currencies, and many nations have now shown that they are willing to take the gloves off to make certain that their national currencies do not appreciate in value by too much.

Some nations have been involved in open currency manipulation for some time now.  For example, Singapore is well known for intervening in the foreign exchange market in order to benefit exporters.  Also, the Swiss National Bank experienced losses equivalent to about 15 billion dollars trying to stop the rapid rise of the Swiss franc earlier this year.

But as we race toward the end of 2010, currency manipulation is becoming a major issue on the world stage.

Rumors that the Federal Reserve is considering a substantial new round of quantitative easing is already causing many major exporting nations around the world to howl in outrage. 


Well, quantitative easing by the Federal Reserve could put substantial downward pressure on the value of the dollar and that would make exports significantly more expensive in the United States.  The reality is that even a relatively small change in the value of the U.S. dollar can have a major impact on exporters.

But what could really set off a massive currency war is the ongoing dispute between the U.S. and China.

For years, China has kept the value of their currency artificially low.  Even though China has made a few small moves toward a more free-floating currency policy, at this point China’s currency is still pretty much pegged to the U.S. dollar.  It is estimated that the Chinese government is keeping China’s currency at a value about 40 percent lower than what it should be.  This is essentially a de facto subsidy to China’s exporters.

This has enabled China to flood the United States with cheap goods and it is killing entire industries in the United States.  Americans have loved rushing out to Wal-Mart to get super low prices on all kinds of stuff, but in the process we have slowly but surely been shipping our manufacturing base and our standard of living over to China.

In recent years both the Bush administration and the Obama administration have been whining about this currency manipulation by China, but both administrations have stopped short of taking any real action.

But are there now signs that the Obama administration is going to get serious and start a currency war? 

Well, last week Barack Obama did send the head of his national council of economic advisers, Larry Summers, to Beijing to discuss currency issues.

But what can we do other than whine at this point?

Are we willing to start a trade war?

Considering the fact that China holds nearly a trillion dollars worth of U.S. Treasuries, that probably would not go so well for us.

Even though China’s currency manipulation is absolutely raping the U.S. economy, China has so much leverage over us at this point that it isn’t even funny.

For example, China has almost a complete and total monopoly on rare earth elements.  If China totally cut off the supply of rare earth elements, we would have no hybrid car batteries, flat screen televisions, cell phones or iPods.  Not only that, but rare earth elements are used by the U.S. military in radar systems, missile-guidance systems, satellites and aircraft electronics.

But something has to be done.  Essentially we are caught between a rock and a hard place.

Today, the United States spends approximately $3.90 on Chinese goods for every $1 that the Chinese spend on goods from the United States. 

Last month, the monthly trade deficit with China was approximately 26 billion dollars.  For the year, the trade deficit with China will be somewhere in the neighborhood of 300 billion dollars or so.  The transfer of wealth to China that represents is absolutely mind blowing.

The U.S. economy is getting poorer and the Chinese economy is getting richer each and every month.

We are in decline and China is on the rise.  In fact, one prominent economist is projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040.

This would not have ever happened if we had not put up with China’s open and blatant currency manipulation all this time.

But now they have us over a barrel and standing up to China would be incredibly painful for the U.S. economy in the short-term.

So will we actually see a currency war break out soon?

Well, it seems almost a certainly that countries throughout the world will continue to manipulate their currencies in order to gain a competitive advantage, but if you are waiting for the Obama administration to truly stand up to China you are probably going to be waiting for a very, very long time.

  • Concerned Reader

    We will continue to take it on the chin until China finally surpasses us as a global economic and military super power.

  • Mel

    Unfortunately, there is nothing much Obama administration can do. US corporation is running the country now. They want Chinese Yuan low so that they can keep their cost low and maximize profit by outsourcing all their production there.

  • RedGypsy

    Bend over and kiss your … goodbye.

  • The writer of this article seems to be very biased that China is the only participant in currency manipulation. How about mentioning Nixon taking dollar off the gold standard and printing it freely as what they wanted it to be, “dollar backed by our economy?”……… Every country has just started to follow what the US has started. Flood paper money (dollar) to gain valuable resources in the rest of the world….. Hello? the federal reserve is a private bank that prints paper and puts US citizens into debt. Why don’t you write about that manipulation…..?????

    quote author “Even though China’s currency manipulation is absolutely raping the U.S. economy”…… oh please, how about the 60 year old chinese guy that is a millionarie but currently living in a shack, working his ass off to invest in US dollars…… While he slaves over to work in a factory….. we are using his money for our zero downpayment for our FAT homes & lexus…..but we’re going to tell him, sorry loser… you’ve invested in the wrong vehicle becuz we’re going to file for bankruptcy……

    come on. we’ve lived a FAB FAT life in the US…. take some responsibility & ownership….

  • mark mcbee

    Colombia joins Japan, Brazil and Peru in propping up the U.S. dollar. Chile is consider doing the same. Currency war is on. check out this link:

  • I think you hit it on the head: China has too much leverage at this point for the U.S. to effectively retaliate. For the short-term, China doesn’t want to sacrifice the U.S. market, but as the U.S. sinks further into second-class status, and the Chinese middle class grows, the Chinese won’t be dependent on the U.S. market as before. Just too much wealth, resources, and know-how accruing now in China. Can’t turn back the clock.

  • Joey

    If China was to become angry and start dumping our bonds,we’re in deep doodoo!

  • TnAndy

    In a race to see who can find the bottom, seems like gold will be one of the clear places to park some money.

    “Weeeeeeeeee…this investing stuff really IS easy” as the Mogambo says.

  • Maria

    “Fiat money has no place to go but gold.”
    the infamous Alan Greenspan

    I heard an analogy on a Greg McCoach Youtube audio that went something like this…

    Soon, all the fiat money attempting to go into bullion will be the equivalent of attempting to drain all the water behind the Hoover Dam through a garden hose.

    This Truman Show is about to get very real.

  • Something Wicked This Way Comes

    The end result of fiat currency and debt driven monetary systems is that they must collapse.

    This is historic fact.

    What bothers me is that Japan is the most bankrupt nation in the world. The yen is completely worthless. It should make heads turn when a bankrupt currency rises against the dollar.

    Fortunately for Japan, they do not possess the default world currency nor do they go outside their borders to sell debt. They have managed to keep the lid on their bankrupt world by keeping everything, “in-house.” That they have only suffered two lost decades is a credit. They cannot compete with the cheap labor provided by their southeastern neighbors. Japan is in the same boat as us- screwed.

    China is what America was. Get used to that new paradigm.

  • Jackson

    Having a higher Chinese currency would be bad for the economy also, countless jobs will be lost when cost of imported goods rise, companies will making cuts when that happens. You better hope the u.s economy can produce enough jobs to offset these loses.

  • Nostradamnthem

    Obama may be able or willing to do nothing about China, but citizens can.

    Face it folks, there is a reason most imported goods are shoddy and don’t last – and it isn’t because they make them crappy there and then try to sell them here. No, it’s US companies sending all their manufacturing there where they can get cheap labor, cheap prices and un-inspected crap products to sell here.

    WE are the stupid ones, and we are to blame for the export imbalance – buying that sh*t over and over every year because it’s broken or worn out – when we could spend maybe 100% more ONE TIME and get American made stuff that would last. IF, that is, there is still a company left in the US that is making what you want here at home.

    How many kitchen appliances do you want to buy in your lifetime? My mom had to save to buy hers, but then none of them ever needed to be replaced, and my siblings and I still have some of her home products 30 years after she died – stuff made in the ’50’s. Same deal with other household items – vacuums, irons, lamps, you name it. Buy ‘cheap’ and you get CHEAP. Try buying American-MADE (not American company name but made in china products) and you’ll have a lot more money in the long run. I promise. Downside – it won’t be at your local Wal-Mart, so you’ll have to shop around to find it.

  • Slavaja

    The problem is not fiat currency. fiat currency is actually a good thing. the Romans and England both used fiat currency as money but they didnt have interest and thats how the Romans and the English built such a huge empire during their times. One of the Reasons why Julius Caesar was killed is when he abolished the fiat currency which was made of brass and copper and declared that taxes was to be paid in gold. this caused the Roman people to enter into a period of depression since gold is scarce. During the 1100’s England’s gold reverses was running out due to the constant wars they were having. So King Henry the son of william the conquerer made a fiat currency called ‘tally sticks’ which he declared that they were good in payment of taxes. this is how they funded wars they were having it had NO INERESTED attached to it. The interest is what is destroying the US economy. So what the US needs to do to save the economy is take out the F**King Fed and let governments print money with NO INTEREST. Gold is a problem because it is so scarce it can be easily manipulated if it was to have a gold standard.

  • mbabsit

    Take responsibility… has pretty much nailed it. He mentions Nixon “closing the gold window,” although he does not mention FDR illegally seizing and banning private ownership of gold coins, so that FDR could inflate the currency to pay for his failed programs. Not mentioned in the article is the flight to REAL MONEY, gold and silver, as well as the manipulation by George Soros, darling of the communists, socialists, and the liberal left. Soros, who owns a lot of gold and who has yet to spread HIS wealth around, it trying to create a “gold bubble,” so that when it pops, the “lower classes” will sell theirs and he can buy gold at lower prices. Sorry Georgy-girl, I’ve stayed with gold through thick and thin, I’ll NEVER sell mine! But, a selfish jerk such as yourself can spread your near-useless dollars around!

  • Sammyone

    The US economy is twice as large as the Chinese economy. The US has twice the m
    manufacturing base as China. The US citizen has an income ten times that of a Chinese.

    Why are all of you commenters cringing at the Chinese? Most of them still live in the middle ages. They have huge problems. Their nation is precarious,

    But they won’t have to beat us, you are all a bunch of whipped puppies. Such defeatism is shameful and I cannot imagine any American kneeling down and conceding defeat to such a backward people.

    The Chinese government has a tenuous hold on power. Hundreds of street protests go on there every day. There nation is desertifying at an accelerating rate. Water availability is becoming a critical factor. They are polluting large swaths of their country in an effort to compete with us. Their military is third rate compared with us.

    Where’s all the defeatism coming from? It comes from sites like this that gain viewership by pounding the drum of American decline instead of trying to give a full picture of reality. It comes from dolts and drones that choose to lay down and die rather than remember the history of America and its transcendence of adversity time and again.

    Valley Forge.
    Pearl Harbor.

    We have just begun to fight. Get off you lazy
    pleasure-addicted rumps and start winning!


  • Something Wicked This Way Comes

    View this 5 minute video and tell me if you didn’t just feel like you got punched in the gut.

  • TnAndy

    Valley Forge ? Just cause….right of self determination of form of govt.

    Gettysburg ? Exact opposite. Northern aggression to keep their tax base, and prevent a group of people from the right to determine their form of govt.

    Pearl Harbor ? Bait by FDR ( we broke the Jap codes in 1938 and knew in advance everything they had planned ) to force the US into war.

    ( Same play book used in Vietnam, and current war-without-end in the middle east….seems to work well with flag waving, head-up-ass goobers )

  • lostinmissouri

    America does not have a problem…China, Japan, and Oil rich Arab nations have the problem.

    America can flat out default, just like every nation in world, has done to us, at one time or another.

    Don’t think for a moment, that China and Japan and Oil sellers wouldn’t go right back to trading with the USA, because as much as they might not like it, the USA is still the world’s biggest market.

    If USA would default, then all nations would default likewise; the debt would be flushed, and world trade would resume, like it didn’t happen.

    Just push the re-set button and let’s get this world economy flying again. After all, it’s just paper.

  • Sammyone


    Education is the best cure for you delusion.

    It must be frightening to see a bogeyman behind every tree.

    Do you love America, Tennessee? How miserable you must be otherwise.

  • Currencies are heavily manipulated. Example: Yen. One could have not gotten a clearer example of market manipulation.

  • Michael

    What can China really do? It is already a net seller of US debt.

    If China wanted to sell its Treasury holdings, who would buy them?

  • Ignatz deFyre

    Stop blaming China. Whining about China, who no one but China can control, is retarded. Einstein said that the definition of insanity is doing the same thing repeatedly but expecting a different result.

    The solution is to control the things that are within your power to control. This means controlling the export of capital from the USA to China. But, before that can be done, the Corporate Whore has to be removed from the Bed of Washington.

    • Michael Kaye

      if that is the definetion of insanity…. why do we keep electing repubes into office?

  • FedUP

    Devaluing China’s currency is just a smokescreen that takes the focus off of ending the severe exploitation of Chinese workers that is the real problem causing our jobs to be outsourced to China. This is not fair trade, and this is not free trade when the Chinese workers have no economic freedom.

    It is getting more and more difficult to live on wages of $10 – $20/hour with health benefits in the U.S.

    The average Chinese migrant facory worker is making $0.50 – $1.00/hour with no benefits and has to work 12 hours/day, 7 days/week just to survive.

    Do the math – the Chinese currency would need to be devalued by a factor of 20 for American workers to compete. This just won’t happen.

Finca Bayano

Panama Relocation Tours



Facebook Twitter More...