A one-page article, “The Link between exchange rates and asset markets”, in the print edition of the Economist, January 16th, 2010, explores the changing relationship over time between currency exchange rates and prices of assets. Over the last 100 years we have all experimented with systems that fixed, linked, then floated, currency exchange rates between large country blocks. What the article seems to suggest is that independent of the system adopted, bubbles tend to occur, and over time, imbalances lead such bubbles to stress and ultimately break. Bottom line: our current financial crisis might not have been avoidable – perhaps it would have happened anyway, somewhere else, with a different trigger, but happen nonetheless. Interesting – I need to read my “The Ascent of Money” ASAP!
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