This morning's key headlines from
GenerationalDynamics.com
- Quantitative easing in U.S., Japan raises concerns of 'currency wars'
- Strengthened euro currency raises tensions
- Hugo Chávez devalues Venezuela's bolivar currency by 32%
Quantitative easing in U.S., Japan raises concerns of 'currency wars'
Venezuela's bolivar currency was devalued by 32%
Many historians believe that America's 1931 Smoot-Hawley Tariff Law,
designed to "save American jobs" by making it expensive to import
previously cheap goods from other countries, like Germany or Japan.
Instead of saving American jobs, the law triggered retaliatory tariff
wars around the world, dramatically reducing the amount of world trade
between countries, actually costing jobs.
Today's politicians are very well aware of what happened in the 1930s,
and, except for a few skirmishes, have avoided imposing trade tariffs
during the current financial crisis. However, human nature being what
it is, there's concern that countries are trying to do the same thing
in a different way, by devaluing their currencies. A central bank
does this by "turning on the printing presses" and using techniques
such as quantitative easing to make more money available. If one
country does this, then its currency will become cheaper relative to
the currencies of other countries, and this will improve exports,
since that country's manufactured goods will be cheaper in other
countries. For example, America's Federal Reserve has been flooding
the markets with $85 billion per month in new "printed" money, and
plans to continue doing so for a while. Japan's central bank has said
that it plans to do something similar. Of course, if all countries
devalue their currencies, then you have "currency wars," and no one
benefits. Bloomberg
Strengthened euro currency raises tensions
Talk of "currency wars" has been increasing because the euro currency
is gaining strength against other currencies. On Monday, the value of
a euro rose to $1.34, when it was close to $1.20 not too many months
ago. This is making European exports extremely expensive in America,
while making American exports cheap in Europe. It's also splitting
the euro zone countries down the middle, along the same lines as the
split over bailing out Greece and Spain. France and the southern
countries want the European Central Bank (ECB) to "print" a lot more
money to bail out countries that need it, devaluing the euro currency
at the same time. But Germany, the Netherlands, Austria and
Luxembourg and opposed to bigger bailouts and also to devaluing the
euro.
Reuters
Hugo Chávez devalues Venezuela's bolivar currency by 32%
Venezuela's President Hugo Chávez, who is recovering from cancer
surgery in Havana, ordered his government to weaken the exchange
rate for the bolivar currency to 6.3 bolivars per dollar from
4.3 bolivars per dollar. This is the fifth devaluation in nine
years, and it follows a spending spree last year that helped
Chávez win reelection, but also tripled the fiscal deficit and
increased inflation.
The devaluation, which was announced on Friday and is effective on
Wednesday, is already having dramatic effects. Venezuelans
experienced panic buying of televisions and airline tickets over the
weekend, and also stocked up on groceries for fear that
inflation-based food price increases. The weaker exchange rate will
give the central government an additional 84.5 billion bolivars ($13.4
billion) in revenue, mostly from oil sales done in dollars. On the
other hand, foreign companies that sell products in Venezuela can
expect a sharp decline in earnings, when their sales in bolivars are
converted back to dollars. This includes a wide range of companies,
including Avon Products, Coca-Cola, and Mexico-based Gruma SAB, the
world's largest tortilla maker. Analysts said that while the latest
devaluation was expected and necessary, it still did not bring the
official exchange rate anywhere close to the black market, meaning yet
another round of devaluations was likely before long. Bloomberg and Reuters
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