One More Sign That The Currency Wars Are About To Heat Up

QE2 Risks Currency Wars And The End Of Dollar Hegemony -- The Telegraph

As the US Federal Reserve meets today to decide whether its next blast of quantitative easing should be $1 trillion or a more cautious $500bn, it does so knowing that China and the emerging world view the policy as an attempt to drive down the dollar.

The Fed's "QE2" risks accelerating the demise of the dollar-based currency system, perhaps leading to an unstable tripod with the euro and yuan, or a hybrid gold standard, or a multi-metal "bancor" along lines proposed by John Maynard Keynes in the 1940s.

China's commerce ministry fired an irate broadside against Washington on Monday. "The continued and drastic US dollar depreciation recently has led countries including Japan, South Korea, and Thailand to intervene in the currency market, intensifying a 'currency war'. In the mid-term, the US dollar will continue to weaken and gaming between major currencies will escalate," it said.

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My Comments: Wars and conflicts are not always measured by how many soldiers, tanks, and airplanes are used in a conflict. Money and finance can sometimes have a greater impact and cause more destruction than what bombs and bullets can sometimes achieve.

The U.S. is now positioning itself to inflate away its debt and financial liabilities, an action that will undermine everyone's currency position in global trade and employment. The impact from pursuing such an action has raised everyone's apprehension and fears that a currency war will produce the same environment that led to the Great Depression .... and they are probably right.