The myth of spending = prosperity is an illusion that relies on overheated economies working overtime to bring in foreign wealth; exports are the only wealth producing activities these Keynesians are involved and thus must make up for the failure of the welfare state and consumption based economics. This means that ALL countries need their goods to be cheaper than others to stimulate buying, which in turns creates motive for countries keeping their currencies artificially low of for devaluing currency as America is doing now.

Since all the countries seek this competitive advantage, “currency wars” become commonplace. But the global recession has meant that it is not two or three countries posturing, it is the entire world involved in racing to the bottom so that more of their goods are purchased abroad:

If there’s one thing the world’s economic powers can agree on, it’s that none of them wants a strong currency right now.

Most advanced economies expect lukewarm domestic growth at least through next year, leaving them unusually export-dependent. The major emerging economies, including China and Brazil, rely on exports too. They all know a weaker currency gives their goods a competitive advantage.

Fears that a currency war may be brewing will likely dominate talks when financial leaders gather at the twice-yearly International Monetary Fund and World Bank meetings in Washington beginning on Friday.

In the past month, Japan has intervened to drive down the value of the yen, and a couple of emerging markets have followed. The U.S. dollar has tumbled as investors brace for the Federal Reserve to print as much as $1 trillion to fund debt purchases in the hope of propping up the recovery.

Currency wars also create political instability between countries as the losers realize that the others are winning a war with them without firing a shot, but the results can be as devastating:

Brazilian Finance Minister Guido Mantega said last Monday the world was in an “international currency war” that put emerging markets like Brazil at a disadvantage. Both the head of the IMF, Dominique Strauss-Kahn, and U.S. Treasury Secretary Timothy Geithner dismissed that view, however.

In the long term losing a currency war is the kind of grudge that leads to warfare between countries years or perhaps decades down the line. In the short term Americans, who are on the “winning” side of the war, are going to suffer immeasurable damage to their savings and quality of life:

U.S. employment figures due on Friday are likely to serve as yet another reminder of the sluggish pace of recovery. Economists polled by Reuters think the data will show virtually no job growth in September, with the unemployment rate ticking up to 9.7 percent.

That is likely to provide encouragement for the Fed to flood the economy with even more easy money, perhaps as early as its November policy-setting meeting, which would put still more downward pressure on the dollar.

Nobel-prize winning economist Joseph Stiglitz said weakening the dollar may be the Fed’s most powerful economic weapon because interest rates are already rock bottom, and this has not spurred sufficient lending or spending.

“One of the main ways that our monetary policy is working is through competitive devaluation,” he said in a Reuters Insider interview. “Brazil, China, India are probably robust enough that they can withstand that, but I certainly understand their annoyance.”

Emerging economies can withstand a cheaper dollar but can the American consumer? Make no mistake, victory in the currency war will help some American industries at the expense of destroying the purchasing power of all Americans. This is madness, but the government wants to present the people with growth, and if the only way to get that growth is to put Wal-Mart goods out of the price range of most shoppers that what they will do.

Inflation is here even without this competition to debase our dollar. Once the fed starts “fighting” this currency war you will rapidly lose ground financially even as some well connected businesses profit. It is time to start storing long term food and water supplies if you haven’t already.