Jesse.: Yes they will intensify and we are seeing that already. A fiat currency is an exercise in both confidence and power. As confidence weakens, the use of power must intensify to maintain it.One of the things that people forget is that when one adopts a common currency, they surrender a portion of their economic autonomy. We are seeing this play out in the European Union as monetary theory would predict.
In adopting a common currency, the euro, the entire region thereby agreed to let a central group set their monetary policy for all, which includes the ability to tighten and loosen supply in response to prevailing economic conditions. But whose conditions, when they vary over a broader area?
When a country adopts another currency, they surrender a portion of their own fiscal authority, and thereby their political autonomy. If you do not believe this, just look at what is happening in Greece and Cyprus.
A common fiat currency system works over a large and diverse region such as the United States because in addition to monetary union there is a political union as well, including transfer payments and spending to those regions which may have differing economic conditions. Fiscal policy evens out the blunt force of a unified monetary policy.
This is important, because as the rest of the world is now seeing, the dollar hegemony is not working because the United States is setting monetary policy for itself, but is doing it with the world’s reserve currency. This is where the dislocations begin in some regions of higher natural growth, which see inflation and other effects first that place a stress on their political governance.
The outcome of the currency war will be something like a supra-regional government that encompasses most of the developed world, with the same problems that have become apparent in the European Union that leads to repression, or in some other resolution that permits for local autonomy with more flexibility for international trade. Obviously this is a range of possibilities and the actual result will be evolving somewhere in between.
The creation of a ‘currency’ that is not under the control of a single political authority could be achieved by creating a unit of trade based on a broad basket of national currencies. It ought to include something that is not under the control of a single country, such as gold or silver.
There will still be manipulation of currencies and metals, but the manipulation would be more difficult because the power of each is diluted within a basket if it has been constructed well.
Since money is power, those who are in control of the money of the status quo, the US dollar, will resist this change, even to their own eventual disadvantage and destruction. Pre-eminent among those are the multinational banks, which are loosely called the Anglo-American banking cartel. This extreme defense of untenable positions is an unfortunate tendency of human nature, and especially of those who are driven to seek power and fear losing it.
By the way, the US is suffering a protracted recession now because while monetary policy is active, although misguided, the fiscal policy has stopped functioning well because of political deadlock. The monetary policy that Bernanke has set is a trickle down approach, which is obviously failing because it is operating in a system that was already skewed by corruption and has not been reformed. It is like sending aid to a Third World country. The aid is seized by powerful warlords and used for their own advantage, with little reaching the people.They know this, but they do not care. It is about personal advantage and careers.
In the US in addition to political deadlock, caused by a struggle for power, there is ironically a credibility trap as well. Both sides are dipped so deep in the corruption of the system that they cannot bear to unleash any uncontrolled reform movement, but they are also fighting one another for the spoils. I have seen this play out in the failure of major corporations, and I am seeing it now again on a larger scale..."