"Competitive devalutions"

I hate it when this happens. You look right at a thing and you know that something important is going on, but you can't yet see what it is or where it fits and you don't fully comprehend what it means......amid all the other noise and fragments.

The RBNZ has been dropping interest rates and one of the effects of that was to devalue the NZ$. The effects of that are obvious: imports become more expensive and exports become cheaper.

I got that far. I even wondered what would happen if everyone tried it. The answer to that thought was a big, fuzzy impenetrable "dunno". So I didn't think about it much more. Damn. As is so often the case, this was likely the most important question of the moment requiring answering or at least understanding. Yet these kinds of big, hairy questions are often the most difficult to identify and focus on. Where do you start?

More contextual information is now coming in (Telegragh UK). There appears to be a 'battle of currencies' going on right now. The "winners" get to improve their terms of trade while the losers will see themselves with higher currencies and placed at a disadvantage as imports become cheaper while exports wilt.

The Swiss are desperate to lower the value of the Swiss franc in order to avoid widespread default on loans in Eastern Europe denominated in their currency. Those with the most financial leverage appear to be dropping the value of their currencies successfully (US and UK), while others with less leverage (New Zealand, Australia, Canada) in the financial markets are seeing their currencies rise rapidly against those two currencies. The Euro is also rising, which is interesting. The yen has been going up and Japan's exports have crashed in recent months. China has lost 20m jobs in recent months and deflation is underway there.

Will the losers of the present stay losers? Or will they attempt to turn the tide by making their currencies less attractive? If we go into a war of currencies, what will the flow-on effects be? Does it matter? After all, deflation makes your cash on hand more valuable if you are fortunate enough to have cash rather than debt. Anyone with an income is better off if they can maintain that income despite deflation. That's where the problem will rest: To what extent will incomes (personal and national) be forced down as the 'losers' wear the cost of being priced off the global market due to the currency war?

If the comments above seem muddled, you're right. I'm trying to summarise a lot of details in a few words and distil the patterns out of it. Not there yet.