TODAY’S CURRENCY AND FINANCIAL WARS 139they’ll retain value and withhold supply from the market.
In The Death of Money, I use the term “phase transition” to
describe the process:
“When wood burns and turns to ash, that is a phase transi-
tion, but there is no easy way to turn ash back into wood. The
Federal Reserve believes that it is managing a reversible process.
It believes that deflation can be turned to inflation, and then to
disinflation, with the right quantity of money and the passage of
time. In this, it is mistaken.”
Like the Federal Reserve, the BOJ believes it can dial up in-
flation and dial it back down. But confidence is fragile and will
get even weaker with each surge of yen emitted from the BOJ.
Many central banks, including the BOJ, are squandering
their reputational credibility on wealth effect experiments.
These experiments are leaving central banks with huge bal-
ance sheets that cannot be allowed to shrink.
■ A Currency Wars “Pearl Harbor”
The most dramatic battle yet in the currency wars took place
on January 15, 2015. It was the financial equivalent of a Pearl
Harbor sneak attack...
“I find it a bit surprising that he did not contact me,” IMF
director Christine Lagarde told CNBC’s Steve Liesman that day,
“but you know, we’ll check on that.”
You can almost imagine the conversation afterward be-
tween Mario Draghi of the European Central Bank (ECB) and
Swiss National Bank (SNB) President Thomas Jordan...
Mario Draghi: “Did you tell Christine?”
Thomas Jordan: “I thought you were going to tell her...”
Mario Draghi: “Wait, I thought you were!”
Switzerland had just abandoned its peg of the Swiss franc to
the euro. The result was mayhem, with an immediate 30% drop
in the value of the euro against the franc and billions of dollars