Most economists are in agreement that the world entered into a currency war about two years ago — one that has intensified in the last year with the European Central Bank and Bank of Japan increasing their quantitative easing operations.
But First Trust economists, led by Brian Wesbury
, beg to differ. "The currency war story makes good copy and finds supporters, but it lacks any consistent set of facts to back it up," they write in a commentary.
Monetary policy supposedly sparked the war, but the global economy isn't all about central banks, the economists explain.
"Some analysts think that central bank policy (specifically, quantitative easing) is the only thing that matters," they say.
"They overlook innovation, investment and just plain old hard work and argue that stock prices, interest rates and economic performance are driven by central bank stimulus."
So the flawed analysis says "the world has returned to a Depression-era game of competitive devaluation (some call it 'currency wars')," the economists note.
"But if expanding central bank balance sheets were the key factor driving equities and economic performance, wouldn’t there be consistent evidence?"
Currency war is raging around the world, as central banks outside of the United States seek to devalue their currencies to boost their sluggish economies.
To be sure, in most experts eyes a currency war is raging, and China is poised to increase its involvement in the skirmish, many of them say.
"The economic backdrop, with a race to the bottom, tells me that the [yuan] is likely to experience weakness in the years ahead," Russell Thompson, chief investment officer at Cambridge Strategy hedge fund, tells The Wall Street Journal
. China is "caught in a debt trap."
China's slowing economic growth will push the government to depress the currency, foreign exchange market participants say. Chinese GDP rose 7.4 percent last year, the slowest rate in 24 years.
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