The Hobbit movies in New Zealand was focused on the union blacklist, but the background noise ' />

This week's drama around Warner Bros' decision to film The Hobbit movies in New Zealand was focused on the union blacklist, but the background noise was all about the New Zealand dollar's rise versus the US currency.

When Warner Bros were planning the movies, the New Zealand dollar was closer to 50c US. It has since risen closer to 75c, blowing out the costs by much more than any extra subsidies granted by the Government.

That background drumbeat is mostly coming from the US Federal Reserve's printing presses. Currency traders and investors around the world are straining to hear the hum of the electric engines warming up. They won't have to wait long.

Next week the Fed is expected to announce plans to print up to US$1 trillion to buy government bonds to boost the US economy. The idea is that this will reduce US market interest rates and encourage businesses and consumers to borrow.

The US economy is flat on its back and many doubt this second round of printing (the first was in March last year) will have much effect.

Some commentators are saying the Federal Reserve may have to print up to US$8 trillion, or 50 per cent of GDP. That is equivalent to 53 times the size of New Zealand's GDP created out of thin air.

The prospect of the world's biggest economy printing that much of the world's reserve currency is freaking out currency markets.

Thursday's announcement by the Federal Reserve will be the official first shot in what many describe as the "Currency Wars".

Emerging economies and commodity-based developed economies with free-floating currencies (such as New Zealand, Australia, Brazil, India, Russia and South Africa) are being hammered as the US dollar falls in anticipation of this money printing.

Their manufacturing sectors in particular are being slammed because they cannot take advantage of higher commodity prices on the other side of the ledger.

Brazil has doubled its tax on foreign investments in local governments to discourage the inflows of capital that are increasing the real. Thailand has done the same to protect the baht.

Ukraine and India are looking at intervening in markets for the rouble and rupee. South Africa announced this week a change in its capital controls to encourage investment by residents overseas to take the pressure off the rand.

It has also armed its central bank with a fund to intervene in the markets to stop it rising.

The world of currencies and trade is descending into a street fight where it's every man, woman and prime minister for himself and their countries.

The Hobbit and the collection of creative industries built around Peter Jackson are in effect another part of our manufacturing export sector. We have to fight for these highly skilled and often highly paid jobs. They are the jobs we point to when we say to our children that there is a future in this country.

We can't give them up without a fight, whatever it takes. John Key was right to roll up his sleeves and do the "impure" thing by offering ad-hoc subsidies to Warner Bros, regardless of the niceties of it all.

The details of the employment law changes should be scrutinised and challenged, but if necessary, they too should be used in the arsenal of dirty tricks.

The Government should add more to that arsenal too to protect our capital and avoid a damaging surge in our currency towards parity vs the US dollar.

That should include domestic procurement policies for governments and state-owned enterprises, the use of currency intervention and the use of banking rules such as the Core Funding Ratio to discourage foreign borrowing.

When it's every man for himself, it's best to throw away the rulebook.

bernard.hickey@interest.co.nz