A disturbing dynamic is going on in which countries are competing to devalue their currencies in order to make their exports more competitive. China, of course, is the main culprit, using its trade surplus to buy huge amounts of dollars each day, thus driving up the value of the dollar and keeping the renminbi artificially low.

The U.S. dollar is naturally weak because of the enormous budget deficits in Washington, low interest rates and the miserable economy. The Fed's policy of "quantitative easing," an unnecessarily obscure term that signifies the central bank's purchases of longer-dated and sometimes non-government debt, to lower long-term interest rates, exacerbates the dollar's weakness. (Even so, China's policy keeps the renminbi undervalued even against the dollar.) Many are waiting for another bout of QE from the Fed, dubbed "QE II," to juice the economy before the election.

Now Japan is escalating the currency war, cutting short-term interest rates to nearly zero, like those in the U.S., and throwing in a little quantitative easing to boot, the WSJ reports. During the Depression governments tried to protect domestic industries with barriers to imports. Such tariffs and quotas got a bad name for prolonging the slump and are now more or less taboo. The preferred state policy to protect domestic industry during this crisis seems to be debasing one's currency, a tactic which may not be as harmful as the 1930 Smoot-Hawley Tariff but which is not without risks, either. Small wonder gold is hitting record prices of more than $1,300 an ounce.