Impacts Of Artificial Currency Devaluation And Quantitative Easing (Printing Money)

There is a confusion of what currency devaluation does to a country and its economy. Many people, including the well-known economists, have unrealistic expectation on the impacts of currency devaluation. I will try to explain it in plain English here from the trader’s point of view. Hence the content is not suitable for kids who need a quick summary on the subject for an upcoming exam.

What Is Currency Devaluation?

• Currency devaluation simply means the value of a country’s currency going lower
• You can find the wikipedia page on the term devaluation
• Artificial devaluation on established economies is different from organic devaluation

What Is Quantitative Easing?

• It is a form of money printing
• QE is printing money to service a country’s debt
• Money printing leads to currency devaluation
• It is illegal to print money out of thin air in almost all the countries doing quantitative easing right now, yet none of these countries are enforcing their laws

The Direct Impacts Of Devaluation

• Price of foreign goods become more expensive
• The already booked sales / revenue from foreign countries become larger
• The products priced in the devalued currency become cheaper to foreign countries
• Asset class not bounded by local valuation become more expensive
• Regular QE on this enormous scale allows some people to take advantage of it similar to using insider information and government data to profit from various markets

The Indirect Impacts Of Devaluation

• Selling more goods to foreign countries
• More hiring to produce more goods priced in the devalued currency
• Reducing import from foreign countries
• Reduced hiring from companies selling imported goods

The Illusion Of Positive Impacts

• Positive impacts are the talking points the politicians and economists spinning about
• So called positive impacts are all indirect impacts except the on paper gain of the booked revenue
• Indirect impacts are imaginations that do not necessary happen because they are not consequential from the direct impacts
• You need expandable production capacity to benefit from the direct impact for which most established economies have none
• When there is no means to production increase there is no hiring increase
• When there is no means to production increase there is no extra goods to sell to foreign countries
• When the imported goods are essential there can be no reduction of importing such goods
• When the imported goods are luxury there is no stopping the rich people from buying these luxury imports

The Hidden Negative Impacts

• Small to medium size businesses are negatively affected in all scenarios
• The exporters have higher operating cost and higher raw material cost but cannot sell more because they have no resources to expand capacity
• The importers have higher operating cost and higher import cost but cannot sell more because the overall population cannot afford higher prices
• Large companies handle the impact by cutting costs through firing workers and automation
• Higher overall tax burden without rising individual income
• Wipe out the middle class
• Pressure the lower class

Who Benefit From Devaluation

• Big corporations with booked foreign profits on next quarterly earning reports
• Whatever you like to call them – the 1%, the elites
• Companies selling to the 1%
• People who service the 1%

Why Does It Work For Some Countries

• Expandable production capacity
• Robust foreign markets
• Both conditions no longer exist in the largest economies around the world
• Artificial devaluation works if it is done on a one-sided basis and it benefits both sides (as a whole economy) until it does not. e.g. What United States did in past decades benefit all the major economies around the world
• Positive impacts from devaluation take time to happen as real products and services within the economies have to be transacted at the new rates
• Negative impacts from devaluation take much shorter time to happen as businesses have to change their business plans once the rates changed
• Countries with strengthen currencies can benefit from currency devaluation of another country if their economies are expanding and self sustainable

Currency War

• Currency war is the race among countries to revaluate or devaluate their currencies to gain from the supposed positive impacts
• Currency war is always bad to the countries affected
• We are in a currency war right now because the central bankers and government officials took the time to tell us that they are not engaged in such activities
• We are in the biggest currency war in human history
• When all the major economies use artificial devaluation to stimulate their economies, there will be no more real currency flow as the action of one central bank is countered quickly by the others

Impact Of Currency War

• Damage is done and no positive impacts to be realized in the future
• When established economies use artificial devaluation to service their debts, the negative impacts accelerate
• Initially such impacts would be masked out by the spending of the 1%
• Big companies survive by cost cutting but there is a limit to that
• Prolonged decline in corporate profits will surface when cost cutting no longer work
• No real trickle-down effect from the money printing because the top 1% have limited consumption on essentials and very limited preference in goods and services where they would spend their money
• Top 1% will continue to do fine until revolution starts
• Wipe out majority of small to medium size businesses that are independent from government contracts
• Wipe out middle class worldwide
• Potential housing , food and necessity price control
• Price control will lead to drop in production of all essential goods and services drastically. Think USSR and China pre-economic reform days where you cannot even find food in their government operated stores
• Rise of the black market economies
• Rise of hidden wealth

The Alternative Scenario To QE

• If there were no QE, no bank rescue and no debt restructuring with some of the troubled countries, we should have been hit by depression worldwide already
• The difference is that some of the 1%, many of these bankers and the corrupted politicians will be jailed and their assets would have been confiscated
• A wipe out of the banking industry
• Many revolutions and wars would have happened
• Those people who are making the decisions at the top and those people who can influence the people at the top are part of the group that will be negatively affected most
• It is obvious why the alternative scenario were not allowed to happen
• Cannot tell if the alternative scenario is better because we cannot put a price tag on human lives

Survival Tactics For the Masses

• Work in industries that service the top 1% as those companies will still have growth
• Work in industries providing absolute essentials as those companies will likely survive bad economic conditions
• Minimize unnecessary spending
• Learn wealth generation skills (i.e. trading) should one day your assets are stripped from you
• Convert savings into non-taxable and easily transportable assets that is allowed by your country

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