FX Monetary Policies
have been less inclined to adopt the worst option, direct trade controls, since 2008 than they were in the 1930s. Te existence of international trade agreements and organisations like the WTO and IMF has clearly helped. Companies are much more dependent on global supply chains, so the political pressure for import controls has been much less. And the lessons of the 1930s, taught in many economics
classes
around the world, have been r e m e mb e r e d by our political leaders.
Tere is no room for
complacency.
Currency wars could still develop into direct trade wars. Even if they do not, they could lead to other
like commodity inflation
problems, and
Aggressive monetary easing supporters’ reasoning, in this case, goes more or less like this. Expanding the money supply is a win-win strategy which boosts the world economy. Tat is because currency is not just something you can use to buy other currencies with. You can trade dollars for yen, but you can also trade dollars for refrigerators. When currency gets
more stuff, thereby employing those extra workers. Tat is why even though not every country can simultaneously increase its net exports, we can all increase our exports. If we all adopt more expansionary policy, America will export more airplanes and Japan will export more cars and Europe will export more machine tools. Everyone gets more jobs, higher incomes, and more stuff. It’s not a war, it’s a party! Instead of complaining about Japan’s initiatives in this regard, Western g o v er nmen t s should be hopping on the bandwagon.
Tat is the enthusiasts take. None of this implies
that It’s not a war, it’s a (dangerous) game!
asset price bubbles in the emerging economies. But we are not seeing a repeat of the 1930s, so far at least.”
More than Competitive Devaluations, Competitive Easing and its drawbacks
Now that a repeat of the 1930s doom seems less likely, it is worth looking at how this could evolve in a completely different story with its own dangers and threats.
50 FX TRADER MAGAZINE April - June 2013
less valuable, stuff becomes more valuable. Households become more inclined to buy durable goods, and firms become more inclined to invest in production equipment. If your economy is facing tight supply- side constraints - you’re out of workers and your factories are already running full- tilt - that just means inflation. But an economy with plenty of extra workers, empty offices, and idle factories will benefit from higher prices because it will be an encouragement to produce
the
monetary easing in question is appropriate or riskless. In our
view this requires distinct judgments regarding the degree of spare capacity, financial and credit market frictions, and
potentially adverse long-term
supply-side considerations. Tat said, given the current view that many advanced economies, including Japan, the UK and Switzerland, have still significant output gaps, expansionary policy is probably appropriate in those places.
Potentially, the most adverse
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