In the real and truly woebegone –
i.e. of an inferior or deplorable condition – world of monetary affairs,
central bankers and their finance ministry masters are engaged in a global race
to the bottom. It seems that each
country feels entitled to grow at the expense of its trading partners. Each wants a weaker currency. Each wants a trade surplus. Each feels above average; perhaps more
accurately each feels below average.
But weaker has no meaning without
stronger, nor exports without imports, nor surplus without deficit.
If time forgot Lake Wobegon, the
monetary authorities seem to have forgotten the lessons of our not so distant
history. The currency wars of the
1930s were very bit as destructive as the tariff wars that are universally
recognized as a major contributing cause of the global Great Depression and the
ensuring world war. Tariff wars
have been effectively inhibited by the GATT/WTO system, but the monetary
“system” – if that term can be fairly applied to the chaos that now reigns –
lacks clear rules and effective enforcement mechanisms. So, the destructive dynamic of
competitive currency depreciation rumbles on.
History and logic tell us that a
race to the bottom always ends in a crash. Some might lose less than others, but everyone loses in the
end. There is no salvation for a
single nation. Either we solve the
problem together, or market forces will chasten us all. Apparently, it takes an exceptional
individual or an exceptional government to put a stop to this real-world folly. Where are such people now that we need
them?
May 27,
2013
