Undated
James Rickards: World Currency System Moving Towards Catastrophe
“The world currency system is riding down the road to catastrophe.” Those were the words from James Rickards during a recent interview on Wall Street Journal, senior managing director of Tangent Capital Partners and author of the book Currency Wars: The Making of the Next Global Crises. “The world already has entered a currency war that began in 2010 on the heels of the Federal Reserve’s massive easing program. Since then, plenty of nations have joined in, including Brazil, Switzerland and Japan.”
Japan has been devaluing significantly their Yen over the past two months as we wrote here. There is a new competitor in the room. The most recent news, as reported by Bloomberg, is that Venezuela just decided to weaken the exchange rate by 32 percent to 6.3 bolivars per dollar starting February 13th. The currency war has clearly and openly started.
In order to exactly understand what is going on, we need to go back to an earlier interview Jim Rickards gave to Bloomberg. In it, he explained the following:
What the Fed is trying to do is get inflation. They have tried already everything: QE, Operation Twist, communications … but everything has failed. They now try to cheapen the dollar and import inflation from abroad. It’s not because the Fed tries to do so, that it works. The aim of the Fed is to take the dollar down 20 to 30%.
There are two catalysts for the currency war to hit and lead to a weaker dollar. First, if the US trading partners will decide to let their currencies go stronger, we will begin to import inflation through the exchange rate mechanism. The other point is that, based on the quantity theory of money, the Fed can create inflation whenever it wants.