Horses to Water

http://www.businessspectator.com.au/bs.nsf/Article/currency-wars-australian-dollar-us-dollar-euro-rom-pd20121025-ZDQZ6?OpenDocument&src=sph

Many many posts ago I discussed the looming currency wars.  We are now there; as competitive devaluations start to take hold and fiat money as a system comes under sustained attack.  There is now a concerted effort across the major developed economies to inflate the global economy through sustaining, a now apparently intentional monetary expansion.  I say intentional because that is exactly what got us into this place in preceding two decades.  Instead of cutting a zero of the global balance sheet there now seems a considered desire to add another one.  Effectively this strategy now means a shift in power from savers in favour of debtors; sovereign, corporate, and individual. 

Maintaining high levels of inflation for even a period of a few years will greatly reduce the debt burden on debtors sovereign or otherwise.  It sounds like a plan, and indeed is until you think about the end game.  It may look something like:

• A breakdown in global trade with significant consequences for emergent economies.
• The politicisation of trade into alliance factions.
• Undermining of property rights driven by debasement of fiat currency systems.
• Re-emergence and re-entrenchment of more authoritarian systems of government.
• Armed conflict as a tool of government policy for managing dissent.

If history does repeat itself we may see the re-emergence of widespread localised conflicts especially for natural resources in the absence of effective world trade.  I think it is unlikely to be a global war per se but a series of regional conflicts.  Possible locations:

• South China Sea - China, Japan, Vietnam, The Philippines, and the US.
• Siberia - China and Russia.
• Mongolia - China and Russia.

The middle east is now far more unstable that it was before the disastrous Arab Spring which replaced totalitarian but stable secular governments with whatever may replace them; which will be anything but democracies.  I suspect that as much as it may try to avoid it Turkey will have a critical role as a focus point of conflict here.

Well a lot of geo-political speculation today.  I will go pack the crystal ball back up!