The Unintended Incentives of Rate Cuts

Interest rate cuts by central banking authorities are by and large a domestic affair with international consequences.  The targeted unemployment rates and economic effects are domestic, and foreign effects get little or no consideration in the matter.  Any nation that cuts rates puts pressure on all other nations it is involved in trade with to alter its behavior, or make cuts themselves to maintain the same exchange rate.  This creates an interesting domino effect.  As it only takes a couple major economies engaging in rate cutting to get the ball rolling.  Others, driven by the thought of declining exports and GDP, are forced to jump on board with the effort and join their irresponsible foreign friends.  The graphs below chart interest rates in various large economies since 2000, and the similarities are uncanny.  People ask if we are entering a currency war.  To me it seems quite clear we have been in a currency war since late 2008.  The worrisome part is that we have bottomed out, e.g. many of the countries below are riding 0 or near 0 interest rates and have no room to move lower.  It's an old fashioned standoff.  Nobody is willing to go against the grain in fear of "the deflation", and the longer we sit in this position, the more devastating "the deflation" will be. Of course, nobody is willing to take the deflationary cure until significant amounts of inflation can be used to justify such actions....  So what happens now?  You win (or lose... depending on perspective) a currency war by outprinting your foreign opponents until the public loses confidence in your currency.  It's always this two pronged strategy: 1) print like there's no tomorrow.  2) make sure people use the currency and don't lose confidence.