|Dollar Has Been Under Attack As Trump's Actions Stir Doubt|
While it is still unclear if this has become the new U.S. policy Mnuchin's comments crashed the sagging dollar bringing it to a new three year low. This made many of us suspicious as to whether this government filled with Wall Street insiders made a fortune by being tipped off in advance about his intentions to trash the dollar. It also is another signal that not only is the Trump administration militarily aggressive but also willing to engage in heating up the currency wars. This comes after several years where behind the curtain central bankers seemed busy manipulating currencies to trade in a narrow range that would create stability and not rock the boat. Over the years countries have become very adept at coordinating policy and using currency swaps. It appears this has even extended to include investing in stocks.
The bottom-line is currencies are being promoted to play a bigger role in the trade wars and this is dangerous. Currencies should be viewed as an economic tool and using them as a toy or a weapon raises the risk of an economic misstep that will bring down a global economy dependent upon stable relationships between its various parts. Derivatives and the carry trade are often highly leveraged and can implode if stressed too much, in such a case the contagion can rapidly spread causing massive defaults. Fighting a trade war with currency as a weapon can bring about some rather self-defeating results and is akin to "Cutting off the nose to spite the face" is an expression used to describe a needlessly self-destructive over-reaction to a problem. This is a warning against the stupidity of pursuing revenge in a way that damages America and its wealth more than the object of our anger.
Footnote; Below is an article delves into the complex world of currencies and how the failure of any of the world's four major reserve currencies will destroy the myth that major currencies are immune to the same fate that has haunted so many currencies throughout history. It also reinforces how we must not underestimate the advantage the dollar has as the world's reserve currency or the size of debt floating across the globe comprised in dollar-based agreements.
http://Currencies Are Trading In A False Paradigm.html