A respected investment advisor at Morgan Stanley in the US, wrote recently:
The world’s major central banks, as well as emerging markets, are universally fighting currency appreciation. Because of this, I feel major global tension rising created by debt growing beyond the world’s current economic growth. This is the reality by which responsible financial advisors should prepare their clients’ portfolios.
The major tension, globally, is that the (US) Federal Reserve is not alone in their chosen path for handling our debt fiasco.
Debt monetization, currency depreciation, and inflation targeting are not strategies on which the United States central bank has a monopoly. The European Central Bank (ECB, the central bank for 17 European States) is trying the same thing, as is the Japanese Central Bank. (Actually, Japan is trying it much more dramatically than Europe.)
When you see the world’s three most significant central banks all fighting for victory in the race to the bottom, the emerging markets have no choice but to fight their own currency appreciation as well (as it violently threatens their export competitiveness). This includes countries like India, Brazil, Russia, Malaysia, and Indonesia. So I’m preparing for the reality of a currency war in the years to come – a currency war happening as a result of a debt overhang that the world is not growing its way out of – and therefore will use the tools of monetary policy as a coping mechanism along the way.
Australia with our high incomes & high standard/cost of living (by world standards), surely cannot afford to watch this ‘race’ from the sidelines until we have the highest currency exchange rates?
Might this be an indicator of lower interest rates for the near-term future?