The Goal of Currency Wars is Inflation

I expect a collapse in the value of currencies relative to real goods, real assets and real services. This will happen to all currencies, not just the dollar. I don’t expect a word where people lose confidence in the dollar and the euro does really well. On a relative basis, I’ve been bullish on the euro for some time. In the endgame, however, if people lose confidence in the dollar this will be inflationary in all countries around the word and I don’t think that any currency will be able to withstand it. When I say ‘the death of money’ what I really mean is the loss of confidence in the purchasing power of money. That’s very likely to be a global phenomenon not confined to any particular country.

Currency wars are part of the picture because the way you fight a currency war is by cheapening the currency, cutting rates and quantitative easing. We saw that recently with the announcement of more quantitative easing from Japan, which took the markets by surprise and caused the Japanese Yen to fall by over 2 percent in a single morning. That is a huge move in the currency markets.

Another big factor in currency wars is the question of paying sovereign debts. It’s the sovereign deficits that are really the problem and the question is how to deal with them. One way to deal with them is through inflation, which, of course, is the goal in a currency war. The problem is that not everybody can devalue against everybody else all at once. You have to take turns. So it goes back and forth and back and forth. That’s what happened in the 1920’s and 1930’s and it’s happening again today.

- Source, Jim Rickards via Proactive Investors