Via ZeroHedge, an interesting read on today’s global credit unwind having parallels with the politically driven backlash against trade in the 1930’s which ended with the great depression along with the race to the bottom being run by countries vying to maintain their competitive edge in a shrinking trade pool :

As a consequence of globalization, our economies are more tied together than ever. One of the factors that brought about the great depression was a nationalistic backlash against trade. The end result was countries pulling in the reigns, drying up liquidity, and consequently deflating asset prices even more. Global credit risk is causing institutions to decrease international loan exposure, and banks are beginning to repatriate their money and lend more locally. This is an economic nationalism, and can have the same effect as the political ones did in the 1930’s.  Governments have little choice but to engage in competitive devaluations in an attempt to stave off the effects of these (localized) lending practices.

With the outcome of that race being inflation and pain for citizens everywhere as well as a nice little quote I thought worth highlighting for amusement :

In order to attract trade away from competing countries, it behooves most governments to opt for a weaker currency. If every country knows this, then we have a prisoner’s dilemma situation. We believe there is less honor among governments than among thieves, and a race to the bottom will be the result. Such a situation may be good for the winning individual country, but it is bad for the group and citizens everywhere. In this case, global inflation is the outcome. The countries with the most to lose are those with the most debt, and the least flexibility to deleverage. They must devalue fastest.

With governments behaving like sex starved ferrets suddenly thrust together in a sack it should prove an exciting race indeed.