Only the Weak Survive

Export giant China has resisted revaluation of the renminbi. Eager for exports, nations follow China’s lead, increasingly engaging in competitive currency devaluations. These maneuvers exacerbate global imbalances already huge. “A world where over-spending countries need to reduce domestic demand and boost net exports, while over-saving countries are unwilling to reduce their reliance on export-led growth, is a world where currency tensions must inevitably come to a boil,” writes Nouriel Roubini for Project Syndicate. He explains how currency competition through currency purchases, quantitative easing, and other interventions is a zero-game, with one nation’s gain representing another nation’s loss. Global economic powers must cooperate on resisting normal market fluctuations in currency values, he warns. Otherwise, reduced aggregate demand combined with a supply glut will lead to deflation, debt defaults, diminished trust in the credit markets and a global economy unnecessarily weakened. – YaleGlobal