Currency Wars and Accounting Identities

I’m not going to link to Sarah Palin’s Washington Post op-ed on why unrestricted pollution should be allowed to destroy the planet. Let’s just observe that the Post’s habit of publishing this kind of material is part of the reason why, adverse consequences for a number of writers I like, I wouldn’t shed a tear if the Washington Post Company were to choose to shutter it’s money-losing newspaper and focus on its core competency in the field of standardized test preparation.

"The opposite of currency wars is not necessarily currency peace; it can easily be interest rate wars," is the warning Citi's Steve Englander sends in a note toda, as EM and DM bond yields have relatively exploded in recent weeks. The backing up of yields represents an increase in risk premium, so this will likely have negative effects on asset markets and the wealth effect abroad as well.

As debate about potential currency wars heats up, commentators including myself have called out the likely losers, the Japanese yen and South Korean won being high on most lists. Much less discussed has been which countries will win from the currency wars. After all, the currency market is a zero-sum game - as one currency declines, another must go up. In this issue, I'm going to suggest that Singapore and to a lesser extent, Thailand and Malaysia, will be relative winners.

Two from Tim Duy -- this is the first: Currency Wars Over Before They Begin?, by Tim Duy: Are the currency wars already over? From Reuters: The finance minister's [Taro Aso] comments indicate some surprise within the government at how quickly those expectations among traders translated into declines in the yen.

Edward Harrison submits:The BBC’s economics editor Stephanie Flanders released this nice little 3-minute video which explains why the so-called currency wars are something you should care about. For me, it is quite significant that South Korea of all countries, the host of the G-20, has major political figures talking about capital controls on the eve of the G-20 summit (see here).

Simon J Evenett, 14 February 2013Discussion of currency wars has broken out again in the run-up to this week’s G20 finance ministers' meeting in Moscow. This column points to the underlying policy choices responsible for the recurring currency disputes and the feeble ex-post rationalisations for them.Full Article: Root causes of currency wars

Chris Hayes said something quite inspirational yesterday about the need to stop trying to route ourselves around mountains and instead just dynamite through them. It was a good line, but like Nick Beaudrot I have my doubts that this willpower-centric approach to politics accurately describes the situation: