These are the headlines from an earlier Reuters report.   Joe Stiglitz is one smart dude (OSD) and was the World Bank’s chief economist during the 1997 Asian Financial Crisis and 1998 Russian Debt Default.   He says the ultra-loose monetary policy in the U.S. and Europe is forcing Japan and Brazil to defend their exporters through extraordinary measures, including quantitative easing and implementation of capital controls.   Reuters reports,

“Ultra-loose monetary policies by the Federal Reserve and the European Central Bank are throwing the world into “chaos” rather than helping the global economic recovery, Nobel Prize-winning economist Joseph Stiglitz said on Tuesday…

“The irony is that the Fed is creating all this liquidity with the hope that it will revive the American economy,” Stiglitz said. “It’s doing nothing for the American economy, but it’s causing chaos over the rest of the world. It’s a very strange policy that they are pursuing.”

The U.S. dollar has weakened about 6.5 percent against a basket of major currencies since the beginning of September as prospects for further monetary easing by the Fed have led investors to seek higher returns elsewhere…

Recent actions by those countries to curb the strength of their currency were “necessary,” Stiglitz added.

“It’s natural in that context for them to say — we can’t just let our exchange rates appreciate and destroy our exports,” he said.

On Monday, Brazil doubled a tax on foreign investment into local government bonds, while Japan lowered the target for its benchmark interest rate to a range between zero and 0.1 percent.

The Bank of Japan also pledged to buy 5 trillion yen ($60 billion) worth of assets, in a strategy similar to the one adopted by the Fed to pump funds into the economy.

This weekend’s IMF Annual Meetings should be interesting given the global currency “chaos.”   The Guardian writes,

“Finance ministers from the G7 will hold an informal meeting in Washington this week to discuss growing concerns that the world is in the grip of an “international currency war” as government’s manipulate their currencies to bolster exports.

The meeting on Friday, on the sidelines of the annual International Monetary Fund gathering, comes amid rising tensions between the western industrialised nations and China, whose prime minister, Wen Jiabao, is on a charm offensive in Europe this week.”

We tend to agree with Stiglitz.  Outside of China, most countries, rather than fighting a “currency war”, are engaged in sandbagging missions to prevent the Tsunami of Dollars from flooding their economies.    Any agreement short of disciplined policy coordination will be ineffective, in our opinion.   And given the cyclical divergence of most emerging economies with most developed economies,  such an agreement is highly unlikely.  Stay tuned!