Monday, March 12, 2012

Currency Wars

The Making of the Next Global Crisis

James Rickards

Finished Reading: 03.2012

While not as well known as the World Wars, James Rickards sheds light on the very real and very serious Currency Wars - the third of which is underway. For a long time the dollar has been the supreme uncontested leader of the economic markets. Other lesser currencies were subject to its whims. Now lead by the euro, the yuan and possibly the ruble, a slow siege is underway against the mighty dollar. Though the outcome is unknown, Rickards gives a few plausible expectations.

He begins by recounting a war games exercise he participated in a few years ago with high level government and military officials at the Pentagon. The object of the game, as always, was to play out possible war scenarios in one form or another, and learn something useful that can be implemented in real future combat. This particular war games exercise was different for its use of economic warfare which includes the potential destruction of financial markets and currencies by foreign powers.

Rickards, an investor / banker, tried to open the eyes of the government brains and military muscles to show that what could really happen is far beyond what anyone in Washington imagines, let alone has made plans for, and he came away from the exercise convinced that they still don't get it. American overconfidence in its great strength, cunning, and exceptionalism could leave it in a vulnerable position when a different kind of bomb is dropped in this or another currency war.

Explaining the weapons of devaluation, quantitative easing, exchange rates, and others arrows in the economic quiver, Rickards takes a look at the previous currency wars this past century and the more peaceful times before. He forms a reasonable explanation of what we face today as countries battle to establish the lowest exchange rate for their currency, some fighting with gold while most battle with paper. In the age globalization, this is a war fought in every country, in every city, in every wallet. Money is now fully global, despite the remaining distinct currencies, and should it suffer a lethal blow few will stand unscathed.

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