subject: New Western Economic Policy: better Them Than Us. [print this page] After all the rhetoric and sound bytes of the last few G20 summits, it appears that the Im alright, Jack, pull up the ladder mentality that so many nations promised to eschew was lurking at the back of policymakers minds all along.
Just this week in the US, the House of Representatives Ways and Means Committee backed legislation that permits America to levy duties on imported goods from nations with fundamentally undervalued currencies. No doubt, the Chinese will be keeping a close eye on how this develops in the full house but according to analysts at Continental-Trade, the fact that events have reached this stage bodes ill for the global economic recovery.
One Continental-Trade spokesperson said, The worlds most powerful economies have all pinned their hopes of emerging from under the burden of colossal national debt on increasing exports. Many have announced and implemented austerity measures to cut public spending but the crux of the matter is that they believe they can grow their way out of trouble. The trouble is that if everyone wants to export their steel, their machinery, their timber and their defense contracts to the same customers, theyre going to have to make those goods attractive on price as well as suitability. So everyone is trying to make their currency weaker so that buyers can purchase those goods more cheaply when they convert their currencies into the vendor nations.
China has proven remarkably adept at this but the US is just as guilty of the offence given its propensity to print money and issue record levels of debt. Two weeks ago, Japan intervened in the forex markets to subdue the strength of the yen to ease the pressure on its export giants like Toyota and Hitachi. The euro has rallied against the dollar as has sterling so how long will it be until Jean Claude Trichet and Mervyn King tinker a little more with their currencies?
Not sure, the Continental-Trade analyst we spoke to said. Its a matter of when and not if because the alternative is too dreadful to countenance. People will only endure austerity for a finite period; once theyve had enough, there will almost certainly be an escalation in civil unrest which could see the grit displayed by some governments weaken somewhat. They may decide to ease their spending cuts or worse still, simply decide to restructure their debts; that means default to you and me.
So it looks as if we are all faced with earning our money in currencies that soon wont be able to buy very much in the shops or take us very far away on holiday. The price of gold hit a record high this week when it traded at $1300 per ounce but Continental-Trade suggest that the price has far, far higher to go because there simply is no other way out for the worlds biggest debtor nations other than the devaluation of their currencies.
