
How to Win a Currency War - niklasbuschmann
https://www.lynalden.com/currency-war/
======
chrisco255
I love that Lyn's articles are getting top billing on HN. She's got very good
analysis of the macroeconomic situation. In times like this, very important to
educate yourself on these topics.

~~~
oh_sigh
Honest question...If you aren't educated on the topic, how can you tell if
there is good analysis or not? (Versus just reading and believing random
cranks). Is there any way to test her hypotheses against reality?

~~~
hogFeast
I have no idea who the OP is but a lot of the stuff is not accurate (I saw the
previous post that was linked here). It is a slightly less factual ZeroHedge.

For all it's faults, ZeroHedge actually gets the mechanics roughly correct
(although often doesn't get the interpretation right leading to odd
conclusions).

But a lot of the OP is just...not correct (as an example, the OP says that
countries were on the gold standard in the 1920/30s and devalued as a response
to the crisis...wrong, they were on the gold exchange standard and devaluation
wasn't the response, it was suspension of convertibility) and vague (all these
posts are very wordy, poorly written, and seem intended to reach a conclusion
that was arrived at before any evidence was examined).

I don't know why people are so fascinated with the idea that their currency is
worthless. In the US, I assume it is related to the fact that much of America
has German roots...where this "currency crash literature" is also a fetish.
But if you are worried about inflation, own gold, own inflation linkers, and
own good businesses. That is it.

Also, maybe the dollar will fall in value but if you are in the US and have
USD liabilities, it makes no difference to you. Stuff that cost $1 will still
cost $1.

~~~
AnimalMuppet
> But a lot of the OP is just...not correct (as an example, the OP says that
> countries were on the gold standard in the 1920/30s and devalued as a
> response to the crisis...wrong, they were on the gold exchange standard and
> devaluation wasn't the response, it was suspension of convertibility)

I believe that you are incorrect. The US, for example, suspended
convertibility at $20/oz, confiscated holdings of gold (!), then changed the
price to $35/oz, and resumed convertibility. That's not just suspension of
convertibility, it's _also_ devaluation.

~~~
hogFeast
I would read what I said more carefully. I did not say that countries did not
devalue.

~~~
AnimalMuppet
Well, OK, then you said that in response to the crisis, they suspended
convertibility. But the US suspended convertibility, devalued, and resumed
convertibility, long before the crisis was over. That means that the point had
to be the devaluation, not the suspension of convertibility. (Or else they
were incredibly stupid in how they did it.)

~~~
hogFeast
Right, and I said "in response" to the crisis not "before the crisis was
over"...again, you are continuing well after the point of logic. Read.
Carefully.

And the key point was most certainly not the devaluation. I can only suggest
you read more about the Great Depression to understand why (there was the
small matter of most banks in the country failing, devaluing your currency
does not help with that, suspending convertibility does). Basic. Basic. Basic.

~~~
AnimalMuppet
You might try speaking more clearly. And you might actually give some data
instead of just dripping condescension. So far, all you've said is "I know,
and I'm right", which is a really worthless conversation.

Oh, yeah, you said "read up on the Great Depression". Well, there's rather a
lot that could be read on that. You _might_ be a bit more specific, if you
wanted to be helpful rather than just smugly condescending.

And so far, you haven't said anything to make it possible to tell whether
you're a really knowledgeable guy I should listen to, or whether you're just a
loudmouth crackpot who's sure that he's right and everyone else is wrong.

------
thedudeabides5
Ok so sell USD to buy what?

EUR? How about after they figure out Italy

JPY? More debt than US and lower rates.

CNH? Ha

Gold? Sure, but it’s not a currency

~~~
dmurray
That argument is literally called out as "the biggest push-back I receive" and
the largest section of the article is devoted to addressing it.

~~~
MR4D
But she misses the demographics. The US has some of the best demographics of
the G20. Germany, Japan, and China all have much worse demographics, and will
change into net spenders (i.e. retirees) instead of net savers.

Within about 4-10 years (depending on the country), they will be producing
less and less for export to the US.

Heck, Germany’s GDP is roughly 50% exports. That’s unsustainable.

US policies are turning more inward, and countries that rely on exports to us
will suffer.

The dollar will be strong for the foreseeable future. It may go up and down a
bit, but overall it will be very high. The dynamic driving currencies is very
different from even 5 years ago.

As production moves out of China, they will get weaker. We have already seen
peak China (and US voters will insist that drugs and PPE are produced in the
US so we don’t run into a supply chain issue like we’ve seen over the past two
months.)

The EU banks (well, certainly the German ones) are basically insolvent. They
were never recapitalized after 2008, and have limited power.

So there is nobody around to challenge the US. As well capitalized consumers,
the US controls their future.

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nine_zeros
Looks like everyone has figured out the game or illusion.

There are 5 tiers of the world: 1\. US 2\. US allies 3\. Developing non allies
4\. Enemies 5\. Underdeveloped countries.

One of the major reasons developing countries aren't rising faster is because
they are not in the ring of US allies. Thus, they don't receive the first bite
in newly printed US dollars.

Since the US is not the majority importer, I wonder what happens if a
significant majority of the importing developing non allied world runs out of
dollars.

------
aazaa
Lyn's entire blog is worth reading. Very in-depth analysis and actionable
conclusions. She builds mental models using data. I've never seen economics
content like that anywhere.

For just one example, and a great backgrounder to the currency wars article,
check out:

[https://www.lynalden.com/global-dollar-short-
squeeze/](https://www.lynalden.com/global-dollar-short-squeeze/)

------
blazespin
What I really disliked about this analysis was its lack of discussion around
core PCE, something the fed watches very carefully when it comes to managing
its monetary policy. It talks about "dovish", but really perhaps the fed isn't
being dovish at all and is just desperately trying to maintain its 2% price
inflation rates.

------
jariel
A few problems - ok, so the there are more problems in the USD but:

a) What is the alternative? This is a relative game. Is the US going to fall
harder than the EU? Probably not.

b) In an uncertain world ... people want greebacks even more for the
structural reasons implied.

c) This trade deficit thinking is odd because it doesn't include _surpluses_.
If sells something for 50 cents that would otherwise cost $100 in the US, and
there is no other trade, then it still makes sense for everyone to buy said
things for a long time. So China has to get _something_ back for it, maybe it
ends up meaning those XMen movies are going to cost them a lot more than they
thought. Or the iPhones, or the US companies they buy or whatever else.

------
m_a_g
Japan has $1.2 Trillion worth of U.S. treasury bonds. I wonder what will be
their next move if the U.S. dollar weakens.

~~~
hogFeast
There is no other move. The reason they own that much is because USTs are deep
and liquid. There is virtually no other market in the world where you can
deploy $1trn (certainly no market outside the US).

~~~
brettproctor
Sometimes the only winning move is not to play :-)

At _some_ point it becomes irrational to keep holding USTs. I'm well aware it
seems right now there aren't any other good options, but that can definitely
change quickly.

~~~
hogFeast
I don't think you understand.

I am not saying there are no other good options, there are literally no
options.

You understand that having $1trn isn't like your TD Ameritrade account.
Thought experiment: they put the money into Japanese banks. First, the JPY
starts trading at 50 against the USD. Japanese industry is over. Second,
Japanese banks literally cannot pay the interest on these deposits because
they can't find enough people to lend to.

There aren't enough European govt bonds. They aren't enough corporate bonds
(and they aren't liquid enough). Literally, there is no asset class in the
world large enough for them. The only other asset class that was large enough
was MBS...which some people feel skittish about since 2008 (but which Japan
and China do own large amounts of...again, because there is nothing else).

Just as an example: in the 1970s the oil crisis caused a huge boom in earnings
for Middle Eastern nations. Most govts there weren't financially
sophisticated, they had no idea what to do with all this money so they started
depositing it in US banks. These banks had no idea what to do with it either.
They couldn't find enough borrowers (rates were pretty high then) so they
started lending to govts in emerging markets. This trigged a decade-and-a-half
long financial crisis from 1980 when these borrowers started defaulting (in
1980, Citibank was effectively bankrupt because of these loans). Again, this
isn't like your Ameritrade account...when you have a lot of money, you start
changing how financial markets fundamentally work. So you have to be very very
careful.

Hopefully that makes it clear.

~~~
brettproctor
I'm aware of the impracticability of everyone divesting out of USTs right now.
Your points are entirely valid and are the reason the system is still being
held together.

My point is there exists some set of circumstances in which that assumption
changes.

As an example, at _some_ fed balance sheet level + inflation level, your
options are either: 1) Do nothing and end up with nothing 2) Do _something_
and end up with more than nothing

I've lost count of total fed pledges at this point, something on the order of
$8T? Say things drag on and that goes to $12T+? And say inflation takes off,
is the fed really going to fight inflation? It can't.

You start seeing high double digit inflation while the fed is printing money
and keeping rates at zero, and at _some_ point you have to move your USTs into
_something_. If you don't, you'll be left with nothing.

I realize this is incredibly hard to imagine given the current system, but
things that can't go on forever wont'.

~~~
tick_tock_tick
The level is when we switch to a food, guns, and ammo economy. USTs are so
deeply interwoven into the very fabric of the world economic systems the only
way to get out of it is for the whole system to fall apart.

------
12yrprogrammer
Maybe the libertarian party is awful at campaigning but they are absolutely
correct on economic policy.

Or rather predicting the outcome of current economic policy.

Buy Bitcoin

