The US starts an intense currency war to protect its global standing

President Donald J. Trump, attended the Full Honors Ceremony for Secretary of Defense Mark Esper Thursday, July 25, 2019, at the Pentagon in Arlington, Va. (Official White House Photo by Tia Dufour. Public domain)

One month ago this newspaper’s title was: “Trump after marginalizing G20 attacks Europe and China where it hurts, brandishes currency war”. Since then, the American President intensified his attacks on money parities, mainly against China. At the same time, he continues pressing the American central bank, the Fed, for not taking tough measures to actually start a currency war, by devaluing the dollar. Obviously, he considers super tariffs not enough to punish the Chinese exports to the US.

Every first year student of economics knows that a devalued currency can help exports and weigh down imports. However, the same student would have learned that the trade partners of every country can do exactly the same, and thus lead international trade and financial markets to a catastrophic vicious cycle. This was exactly the case in the aftermath of the Great Depression of 1929. The currency devaluations which followed in the 1930s led to the biggest catastrophe the world had ever known.

Currency wars

The Second World War claimed tens of millions of lives. The obliteration of half of the world changed the way humanity behaved. The United Nations and other prestigious conflict solving bodies were created, in order to avoid another global destruction in the future. Unfortunately, the Trump administration in America now tries hard to erase the lessons the WWII cataclysm taught us all. Let’s dig into the present monetary arrangements though.

Unlike any other currency the foreign value of the American dollar is not shaped by the country’s trade flows. During the last thirty years the huge double deficits of the US economy, in foreign trade and government budget, have not been enough to tame the foreign value of the dollar. The American dollar is immune to the US economic deficits because its value is supported by the political and the military might of this country.

So, practically, the US ‘owns’ the oil reserves in the Arabian Peninsula and elsewhere in the world. At the same time, the dollar is indispensable for almost all and every international market and transactions. So, those facts have created a value and demand shield for this currency.

Immunised from deficits

In this way, the American economy has been immunised from the delimitation every other country experiences, with internal deficiencies, persisting trade deficits and large fiscal gaps. As a result, for many years now Washington has been freely using the dollar printing machine to perpetuate its leading political and military position in the world gained after WWII. For this reason it has financed colossal defence expenditures.

On top of that, globalisation allowed the American multinationals, to go abroad and produce cheaply in China and elsewhere and sell lavishly in the US. No need to mind about the trade and government deficits. This was an arrangement wholly shaped by the US and dutifully undersigned by the rest of the world, China and Europe included. However, things seem to start changing now.

The rise of the poor

The once cheap manufacturers of American products have acquired political and economic might of their own and have started questioning the US arbitrariness in global affairs. Obviously, Washington has reacted strongly. Trump expresses this reality in a brutal way, but other presidents before him have done even worse. George W. Bush and his father before him destroyed Iraq when this oil producer started selling oil in currencies other than dollars. The same story is currently repeated in the case of Libya, with general Khalifa Hafta.

The US needs to control the oil reserves in both those countries. The US economy and the dollar cannot survive without controlling most of the global oil reserves. Iran is the next target. There are forces though which oppose this prospect but Washington will do whatever it takes to maintain its unique position.

At what cost?

In short, the trade and now the currency war declared by Trump, primarily against China and secondarily against Europe, is not of a clearly short term economic nature. It is more of a long term geopolitical endeavour, to tell the Chinese and of course the Europeans, they cannot change the American arrangement. The US must continue being the global ‘law’, more like the earth’s sheriff.

The question though that remains is how far Washington is prepared to go in order to maintain its global position?

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Italy solves the enigma of growth with fiscal consolidation: The Banking Union

This start-up is recycling abandoned wooden homes in Baltimore

From Shadows to Sunlight, Paraguay’s Road to Transparency

Empathic AI could be the next stage in human evolution – if we get it right

UN, Egypt help avert another Israel-Palestine war in Gaza that was ‘minutes away’, Security Council hears

Who will win the AI race? If countries work together, then the answer could be all of us

Safer products: EP and Council close deal to beef up checks and inspections

It’s time for financial services to embrace the Fourth Industrial Revolution. Here’s why

How to promote Primary Healthcare to the Young Healthcare Workforce?

These are India’s cleanest cities

Security Council approves ‘historic’ political Haiti mission, ending UN peacekeeping role in the country

From Israel’s ‘start-up nation’, 4 lessons in innovation

Inequality triggered protests across Latin America. Here’s how the youth can help

How robotics can help humanitarians bridge the digital divide

Impressive African health gains at risk from changing trends: WHO report

These 4 leaders are working to improve integration in Southeast Asia

This is the IMF’s latest take on the economy in 2020

Eurozone: Economic sentiment-business climate to collapse without support from exports

Coronavirus: Commission welcomes Parliament’s quick green light for proposed new resources to protect lives and livelihoods

Meet the robot fighting back against coral reef destruction

India is failing 175 million of its young people. Here’s the solution

Movius @ MWC14: Discussing novel Communications Applications over a “CAFÉ”

EU budget: Commission proposes major funding increase for stronger borders and migration

Commission publishes the first report on the issuance of a Eurobond

From Sweden to India, School climate strikes have gone global

OECD and European Commission join forces to further support structural reforms in European countries

How the world can gear up for the fight against cancer

How responsible businesses can step forward to fight coronavirus

4 bold new ways New York is going clean and green

Google strongly rejects EU antitrust charges and now gets ready for the worst to come

Brazilian public health system and universality: a forgotten right!

Tax evasion and fraud threaten the European project

G20 LIVE: “ISIL is the face of evil; our goal is to degrade and ultimately destroy this barbaric terrorist organisation”, US President Barack Obama cries out from Antalya Turkey

Media and entertainment in flux: it’s time for the close-up

State aid: Commission approves €200 million Danish loan in support of the Travel Guarantee Fund for travel cancellations due to coronavirus outbreak

This cheap, 700-year old solution could change billions of lives

EU confronts environmental threats as global leaders attempt to revive the global sentiment at NYC climate week

Antitrust: Commission launches sector inquiry into the consumer Internet of Things (IoT)

Africa is creating one of the world’s largest single markets. What does this mean for entrepreneurs?

Minding the information gap and why it’s important in tackling COVID-19

Young people are not a nameless, faceless mass. So why do we treat them as such?

High-flyers: China is on top of the world for skyscraper construction

Commission disburses €8.5 billion under SURE to five Member States

How the world can ‘reset’ itself after COVID-19 – according to these experts

Theresa May’s global Britain against Philip Hammond’s Brexit fog

As we switch to cleaner energy, there are three dangers we must not overlook

OECD: Mind the financial gap that lies ahead

The smartest cyber investment is collective action. Here’s why

Draghi’s ‘quasi’ announcement of a new era of more and cheaper money

Idai disaster: Stranded victims still need rescue from heavy rains as UN scales up response

Human Rights Council election: 5 things you need to know about it

Member states jeopardising the rule of law will risk losing EU funds

Solitary Britain sides with US aggressing Russia and chooses hard Brexit

Investing in working conditions and quality jobs

Eurogroup president swallows statement on savings confiscation

Why are Black people in the UK more at risk from COVID-19?

Security Council condemns attacks on Afghan security forces which killed at least 27

Migration crisis update: lack of solidarity not only among EU leaders but also EU officials

‘Crippling to our credibility’ that number of women peacekeepers is so low: UN chief

Central Asia bloc has important role in ‘peace, stability and prosperity’ beyond region, says Deputy UN chief

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s