Forbes columnist extraordinaire Peter Ferrara was once kind enough to call my own Econoclasts “a brilliant, overlooked book.” I know another brilliant book that wasn’t overlooked when it came out last year (it was a bestseller), James Rickards’s Currency Wars, but it sure could do with a dose of renewed publicity and attention about now.
So I was slipping into Currency Wars last week when I was jerked alert by the following sequence:
At the heart of every currency war is a paradox. While currency wars are fought internationally, they are driven by domestic distress. Currency wars begin in an atmosphere of insufficient internal growth.
And in particular by this:
The country that starts down this road typically finds itself with high unemployment, low or declining growth, a weak banking sector and deteriorating public finances. In these circumstances it is difficult to generate growth through purely internal means and the promotion of exports through a devalued currency becomes the growth engine of last resort.
Here let it be clear that Rickards is making an inventory of the general conditions, over the years, that have brought about attempts by countries to rescue their sad economies by forcing foreigners to buy their products. But doesn’t it sound exactly like an inventory of the American condition three-and-a-half years into President Obama? “The country…typically finds itself with high unemployment, low or declining growth, a weak banking sector and deteriorating public finances.”
Check, check, check, and check in the U.S., Fall 2012.
And what is official economic policy in this context, but a huge new play by the Federal Reserve to cheapen the dollar (“QE 3”) coupled with a race to the bottom on the part of the president and his Republican challenger to hit a big trading partner (China) with penalties.
The idea is that if all the spending and regulation of the last few years has only resulted in nil growth, stubborn unemployment, whopping budget deficits, and a banking sector nobody believes in, at last increase American jobs and wages through…exports. If the dollar goes down against the major currencies, exports will go up, the logic goes, and same thing if the trade “penalties” get their desired effect.
In other words, the Fed and the president are now outsourcing—yes, that word— to the rest of the world the burden of getting the domestic American economy recovered. But of course the world has asked for no such thing. A binge of U.S. exports would be reflected in foreign places by money flowing out-of-country to the U.S. and concomitant declines in employment. We’re talking about places like China and especially Europe having to transfer some of their currently distressed living standards to the American people, all because Obamanomics and the earlier Fed feats turned out to be a failure.
“Currency war” is the term Rickards uses to describe this sort of gamesmanship, which obviously can be played most effectively by powerful counties and at the expense of the less powerful. The president’s supporters have made much of Obama’s foreign policy “reset” with Russia, Europe, Iraq, and the Arab world, and the man won the Nobel Peace Prize, but sure enough he is now embarking on one of the most classic ploys to force the world at its own expense to support the American lifestyle.
Of course there’s official denial all over the place. But a big secret like this one is hard to keep. Rickards has fun with the slips that have come from the administration. He quotes the Fed vice-chair Janet Yellen (Obama’s appointee) referring to quantitative easing two years ago: “The purpose…is not to push the dollar down. This should not be regarded as some sort of chapter in a currency war.”
But once loosed from her appointment as Obama’s economics chair, Christina Romer said soon after: “Quantitative easing also works through exchange rates…The Fed could engage in much more thorough quantitative easing…to further lower…the dollar.”
OK, so it’s a currency war, one now really jacked up with QE 3 and the tough trade talk. Sometimes, Rickards is keen to point out, currency wars yield to shooting ones. For all our domestic woe these years of the Great Recession, the full potential wages of the failure of Obamanomics are only now beginning to come into focus.
James Rickard’s Currency Wars can be found at The Imaginative Conservatives Bookstore. Originally published at Forbes.com the essay is reprinted here with gracious permission of Brian Domitrovic.