Naked Capitalism has the article Wolf Richter: It Starts – Broad Retaliation Against China in Currency War.
But devaluations are not free lunches. They’re desperate measures that demolish domestic consumption and real incomes (see Japan), business investment, and overall credibility. And capital flees. They can also heat up inflation. But many emerging market countries and their banks and corporations borrow in other currencies to get access to lower interest rates. That foreign-currency debt can’t be devalued or inflated away.
Instead, the opposite happens. Their struggling or battered economies have to service foreign-currency debt with their own devalued currencies. Commodity exporters are getting sapped additionally by plunging commodity prices. Then that foreign currency debt, that cheap easy money everyone got to used playing with, becomes an insurmountable pile of expensive debt in a currency they can’t control and whose exchange rate might run away from them.
This is when a debt crisis begins to spiral elegantly through the emerging markets, taking down banks, entire economies, and gobs of investors as it goes – or taxpayers in other countries if there is a bailout. It’s always the same story. But this time, it’s different: after years of global QE, low interest rates, and hot money sloshing through the system, the sums are larger, and the risks are higher.
The issue is that the oligarchs will not allow any country to stimulate their own domestic economy by stimulating domestic demand for goods and services. The only way out, seems to be to export to other countries. This selling of goods abroad will keep employment high. However, you cannot have a world where each country is trying to get ahead by increasing its exports to other countries while lowering consumption in their own country. Ultimately, who is going to be left in the world to buy stuff? This strategy is the ultimate race to the bottom.
What country is big enough and powerful enough to try to reverse this contest to see whose workers can produce more while consuming (eating) less? Only the United States of America has a politician, Bernie Sanders, vying for leadership of the country, and one who understands this ultimate issue.