The last few weeks have been a near perfect example of why Central Banks are destined to fail in their quest to devalue their currencies and create an export driven recovery. As the global race to the bottom heats up we are seeing increasing central bank activity from almost all corners of the globe. The most glaring was the BOJ/MOF intervention just a few weeks ago. The BOJ implemented what I referred to as a “short-term fix to a long-term problem”. Well, it turned out to be far more “short-term” than I even believed. Just a few weeks later the Yen is trading above its pre-intervention levels:
The problem of course, is that the entire global economy is hoping to keep their exchange rate low as they export their way to economic prosperity. The Chinese peg the Yuan to the dollar, the Japanese will maintain easy money as far as the eye can see, the Fed will ease to no end and the Europeans (who appear to be asleep at the wheel as the Euro surges) will almost certainly intervene in some fashion in the next few weeks or months. The problem is, this is all just a fancy sounding merry-go-round. Everyone can’t devalue at once. Despite the BOJ’s obvious failure in intervention the world appears to have an undying faith in Central Bankers who clearly don’t see that they are wasting time focusing on all the wrong problems. The global imbalances remain. The private sector problems very much remain. We can’t glaze over these problems via market manipulation. As Joseph Stiglitz said this morning, more likely, these bankers are making everything worse.