If you're someone who can't go for the idea no country wants a strong currency just because it wants an export advantage over its trade partners, let's look at it from another angle.
If your currency is too strong, you're probably paying your workers a lot more than workers elsewhere in the world. For a start off, this provides them with more disposable income than elsewhere, meaning they will eventually and inevitably bid against each other, raising the prices of goods and services. There is a higher cost of living in "rich countries" than in poor countries, the same product often for sale at a significantly higher price just because the local market can support that higher price.
Additionally, if your currency really starts to get very strong in comparison to some others, it seems to me it will be cheaper for your population to import than to buy locally produced goods and services (see: export of jobs to the Far East from The West over recent decades, unsustainable trade deficit problems).
An overly-strong currency not only undermines any export advantage you might like to enjoy, but also over time will gut your domestic economy.
Today I was inspired, by the sun and by FOFOA's stick man video comment on a NeuralNetWriter thread, to take the kids to the park and build a den with them.
A journey of 1,000 miles begins with just one step, and a stick den is no different. The first stick, which in this case I have indicated in the final photo above using the big red arrow, makes all the difference and in this case the first stick was an upright at the corner with a branch sticking out from it at just the right height for my purposes. This stick leant against one of the four trees that we chose to build around and the branch sticking out was used to support the second stick: a beam running to the second tree and against which not only the sticks forming that side wall and the roof would later be supported, but also the second of the beams going out to the third tree would be supported by it too. At first, this forms a highly rickety and precarious structure that one has to support while others pass you the parts you need (NO! Not that one dumbass, THAT one!) but as you build on more and more carefully-selected and even more carefully-placed sticks, all supported by the ones that have gone before, eventually the thing does begin to have some integrity. It can finally stand alone without ones constant assistance, even when the wind blows and the kids keep carelessly bumping against it and banging their fresh supplies of sticks into the thing. Pesky little critters. All the help you can take, as expected.
After a half hour or so of jolliness, scavenging and construction, the thing was finally plenty safe enough to sit inside and eat lunch. Not very exciting really — unless you're 7 or 8 years old, in which case it's the most exciting thing since ... well the last thing you did.
Anyway, once the kids were finally inside I had a thought and smiled to myself. Rather like the $IMFS being built atop the first "dollar", which formed the base of the system that has been pyramided onto ever since, the whole thing is at the end of the day all being held up by that first carefully-selected and even more carefully-placed stick at the corner. Without the critical support of that first stick, it would all come crashing down in a second onto these unsuspecting children, and I would piss my pants laughing from a safe position outside. Oh, the deep and plentiful joys of parenthood.
I hope nobody ever decides to kick the stick holding up the $IMFS, to see if it brings the whole house of cards down, just because they can from a safe position.
BIS Working Papers, No 348 The international propagation of the financial crisis of 2008 and a comparison with 1931
[...]
6. Conclusion
We have suggested a number of ways in which the financial crisis of 2008 was propagated internationally. We argue that the collateral squeeze in the United States, which became intense after the failure of Lehman Brothers created doubts about the stability of other financial companies in the United States, was an important propagator. The provision of large-scale swap lines by the Federal Reserve relieved many of the financial stresses in other countries that had followed Lehman Brothers’ failure. The unwinding of carry trades, particularly yen carry trades, is also likely to have transmitted market volatility to the countries that had been the destination of the carry trades when they were first put in place. It seems likely that, at the time of writing, there is still a large quantity of yen carry trades to be unwound.
In both crises, deposit outflows were not the only important sources of liquidity pressure on banks: in 1931, the central European acceptances of the London merchant banks were a serious problem, as, in 2008, were the liquidity commitments that commercial banks had provided to shadow banks. And in both crises, the behaviour of creditors towards debtors and the valuation of assets by creditors, were all very important. Flight to liquidity and safety was an important common feature of the crises of 1931 and 2008. In both episodes, the management of central banks’ international reserves appears to have had pro-cyclical effects. However, there was a crucial difference, in that the supply of assets that were regarded as liquid and safe in 1931 was inelastic and became narrower with the passage of time, whereas in 2008, it could be, and was, expanded quickly in such as way as to contain the effects of the crisis. The understanding that the role of governments and central banks in a crisis is to enable such assets to be supplied was perhaps the most important lesson of 1931, and the experience of 2008 showed that it had been learned.
[...]
Having learned an important lesson in 2008, there being a strong likelihood that future market volatility will be transmitted to the countries that had been the destination of the carry trades, and there being still an elastic supply of assets that are regarded as liquid and safe ... I see a strong likelihood that all future market volatility will be dealt with in the same manner it was dealt with in 2008.
Because, I don't know about you, but I'm on the fence when it comes to Peak Oil. My understanding is those Russians pretty much swear by abiotic, and who am I to argue really with the world's largest producer of anything? [Except in the case of dollars, natch...]
Fortunately, it's not really directly relevant to RPG or HI, and to my mind a much less pressing issue. Certainly not anything I can realistically do anything about personally, whichever side of the debate I came down on. But that's just me being a pragmatist again.
[sarc] Or am I just an idealist and I don't even realise it..? :-\ [/sarc]
A quick'n'dirty look at Freegold from the
perspective of Marx's Law of Value.
The social value of commodities in general, reduces during periods of economic contraction. (As a result of supply/demand dynamics.)
People continue with the same expectations for individual value. (They are unwilling to accept a pay cut, or "austerity".)
This disconnect results in tension between business owner/operators ('Capitalists': who must sell the production of their business at worst for break-even and optimally for a profit), and workers ('Labour': who are unwilling to accept a reduction in their individual value of labour — and, infact, expect to see a steady increase in it, at least nominally, over time).
This tension has always in turn eventually resulted in: sustained and stubborn deflation (an increase in the value of currency, in relation to goods and services in general); fear and uncertainty; economic turmoil — in the past ultimately only escaped by some form of catastrophic societal and currency collapse (depression, sometimes even revolution).
The euro-Freegold design circumvents this issue by enabling a redenomination of the denominator (currency), either upwards or downwards, to guide the social and individual values of commodities (including labour) into a constant state of relative equillibrium. Through the single and unwavering mandate of the ECB targeting — and so far achieving, it should be noted — an approximately 2%pa inflation in the HICP index of core consumer prices, adjusting the exchange value of the currency upwards/downwards to achieve that goal. The means to redenominate the denominator, is to adjust the currency against the ultimate globally-accepted benchmark of true and enduring value: gold. Gold is held as the primary reserve of the currency manager, and the ratio of their reserves (ounces of gold) to their liabilities (euros in the system) is the objective measure of their success.
Here is the fundamental difference between the euro and, say, the dollar:
The dollar is not directly and objectively measurable against anything tangible and it is a debt backed security — as the promises break down, the backing for the currency disappears along with them.
The euro is an objectively measurable, asset-backed security — the major promise of the ECB is that they will sell you their reserve gold, if necessary, at the €price they maintain to be the prevailing market €price.
You can see quite clearly that they have been making good on that promise for at least the last decade, right here.
Here is, IMO, some interesting data, collated from the ECB website. I'll just show the two graphs first, and include the underlying numbers below for all you stat porn junkies out there.
ECB gold reserves by weight
ECB gold reserves by value
My take on this (the steady and significant reduction of ounces in reserve, in spite of the increased valuation of the reserves over time -- due to the steadily rising price per ounce) is that the ECB are delaying the inevitable repricing event that is on the horizon at distance-unknown. Patrick has a slightly different view of what is going on (which I won't share, but Patrick perhaps you might add a comment to explain it, if you see fit and happen to read this post? ;-) )
So much for the gold being hoovered up by all the Central Banks these days, eh? Looks to me like the ECB has over the past decade or so disposed of about 1/8th of its gold to someone or another.
(Capitalism: The Unknown Ideal, Ayn Rand, 1967, page 107. ISBN:978-0-451-14795-0)
"[...] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets.
The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion. [...]"
And this, all of 45 years ago, straight from the hand of the great Satan himself! :->
(FWIW, "no I don't believe in evil in this instance".)
"[...] A great irony presents itself, since a Greek Govt debt default might trigger huge Credit Default Swap contract payouts by AIG, now obligated by the USGovt. [...]" (From July 1st Jim Willie article)
An interesting nuance, I thought.
I do wish he'd fade the conspiratorial tone in his articles, it's just not really necessary is it? And off-putting for potential new readers not pre-packaged with a tin-foil head adornment, IMO.
