The head of the International Monetary Fund, Dominique Strauss-Kahn, is sounding a warning that a global currency war poses a “real threat” of a potential depression. Following through on a policy of “quantitative easing”, the U.S. Federal Reserve and the Bank of Japan are deliberately devaluing their currencies. The idea is to manipulate currency value to spur economic growth, primarily two ways, making exports cheaper and to cheapen the currency with inflation to monetize their massive sovereign debts. Meanwhile, the officials of both U.S. (Timothy Geithner) and Japan are encouraging the China to increase the value of the Yuan, to make China’s exports more expensive and to make their holdings of U.S. and Japanese bonds worth less. Emerging market nations, like Brazil, are also now caught in the crossfire. The head of the China Central Bank, Zhou Xiaochuan said Friday they will resist currency reform efforts by the U.S. and Europe.

U.S. dollar notes are seen tied after counting at a bank during a photo opportunity in Seoul October 8, 2010. Japan will continue to intervene in foreign exchange markets when deemed necessary, the finance minister warned on Friday, just hours before G7 and IMF officials meet to discuss rising tension over currency policies.  REUTERS/Lee Jae-Won (SOUTH KOREA - Tags: BUSINESS)

But China is not rolling over and playing nice. Which makes currency war hawks like George Soros to complain regularly that the currency market is lopsided in China’s favor. He told the BBC radio on Friday that “One of the basic imbalances that was at the root of the financial crisis and which needs to be corrected is the chronic (trade) surplus in China and the big deficit in the United States.” We can consider Soros an expert, as he made billions short-selling the English pound, and became known as the ‘Man of Broke the Bank of England’.

On Tuesday, the Federal Reserve held it’s monthly meeting and are gearing up for ‘QE2’, a new wave of quantitative easing, buying up a wider range of assets, such as corporate stocks. Instead of curbing inflation, which has been the Fed’s ‘alleged’ policy since the early 1980s, the Fed is now preparing for initiating a planned inflation rate of 4% per year. How much do you want to bet that this leads to inflation rates much higher?

The global game of chicken is well under way as nations deliberately race for the bottom in devaluing their currencies. The International Monetary Fund head, Dominique Strauss-Kahn, says that the currency war could lead to a depression. If Timothy Geithner thinks he can sway China he’s dreaming. The head of the China Central Bank, Zhou Xiachuan said Friday they will resist any “shock therapy” to appreciate the yuan.

ITAR-TASS: MOSCOW, RUSSIA. OCTOBER 4, 2010. A signboard of a currency exchange office. Russia introduced a ban outlawing small currency exchange houses. Starting Friday, October 1, companies running exchange shops without offering a wide range of services along with exchange operations will not have the right to operate. (Photo ITAR-TASS/ Maxim Shemetov) Photo via Newscom

A foreign currency dealer from the Korea Exchange Bank walks past a screen displaying the Korea Composite Stock Price Index (KOSPI) at the bank's headquarters in Seoul October 6, 2010. Seoul shares ended higher on Wednesday, with the main index hitting its highest close since late December 2007, led by heavyweights such as Hyundai Heavy Industries. KOSPI ended up 1.33 percent at 1,903.95 points. REUTERS/Truth Leem (SOUTH KOREA - Tags: BUSINESS)

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