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Nouriel RoubiniBack to OpinionNouriel Roubini

Only the weak survive

TOKYO – The risk of global currency and trade wars is rising, with most economies now engaged in competitive devaluations. All are playing a game that some must lose.

Today’s tensions are rooted in paralysis on global rebalancing. Over-spending countries – such as the United States and other “Anglo-Saxon” economies – that were over-leveraged and running current-account deficits now must save more and spend less on domestic demand. To maintain growth, they need a nominal and real depreciation of their currency to reduce their trade deficits. But over-saving countries – such as China, Japan, and Germany – that were running current-account surpluses are resisting their currencies’ nominal appreciation. A higher exchange rate would reduce their current-account surpluses, because they are unable or unwilling to reduce their savings and sustain growth through higher spending on domestic consumption.

Within the eurozone, this problem is exacerbated by the fact that Germany, with its large surpluses, can live with a stronger euro, whereas the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) cannot. On the contrary, with their large external deficits, the PIIGS need a sharp depreciation to restore growth as they implement painful fiscal and other structural reforms.

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. Aside from the eurozone, the US, Japan, and the United Kingdom all need a weaker currency. Even Switzerland is intervening to weaken the franc.

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Nouriel Roubini is chairman of Roubini Global Economics, professor of economics at the Stern School of Business, New York University and co-author of the book “Crisis Economics.”


  • Guest 5

    Dear Mr Roubini,
    It used to be a reality that when a country or government had economic trade surpluses and low debt that its currency would strengthen damaging exports and encouraging competitive imports. The counter to that was to invest very heavily surpluses to protect damaged parts ( imports) of the economy and ( or stimulate others) = increase debt resulting in a rebalancing of the exchange rate thru and this is KEY i.e TRADE.
    What went wrong was the almost complete international withdrawal of FX rules that used to demand a trade or commercial purpose for the exchange of currency ( other than in some states who chose to manage currency rates) like presently China currently.
    You have Hedge funds, George Soros ( stg) and banks playing with Trillions daily in the FX markets and they are playing a zero sum game ( trading FX as such) unless they can get you to ignore the real Trade exchanges fundamentally in place… they use the former to enhance profits of the latter which leaves an imbalance in the real economic value of any currency.
    Currency exchange should be about TRADE not exchange rate dealing and Exchange rates determined by the economic funadamentals of trade and government debt
    Big trade balance, low debt = strong currency.
    Trade deficit, and High debt = weak currency.
    Permutate those how you will, but the essential is to stop pure FX currency activity, it is not a trade but a zero sum equation.
    Thats what gives rise to so called Quantitive easing, another unneccessary tool /complication.
    As Soros proved the market players given the guts to spark a crisis and rumours can with a relatively small amount of money out bid sell or buy any currency including the US $ for a personal buck but some one paid big time for his profit. It added nothing to overall global wealth!! Real or nominal!!
    The overall playing around with very low interest rates simply causes the dearth of investment capital as many investments are long term with historically high interest rates. This capital is not moving and finanacing needed economic growth is not available.
    Tomove globally huge available cash internationally into business investment International interest rates must rise. Governments globally have had more than enough time to reduce the national debt interest burden. No they have to attrct money back to the ecomies to invest thru higher rates.
    Guest 5.