My post was to be understood as a cynical joke about Bernanke's monumentally stupid sophism.

For that idea to work your adjustments would have to be done several times a day, eg it would look like current marketplace.

So lets cut the crap.

Chernobyl accident released about 400 times as much radiation as Hiroshima bomb and it didn't even stop putative power plant working.

1. Introduce hyperinflation to destroy Chinese influence over US economy.
2. Replace currency to stabilize domestic economy.
3. Live sustainably, base on domestic market. Rely on barter in international trade.

Finally, what peoples would do?
I suspect they would do the same what peoples in Russia did in 1991 or peoples in Argentina few years ago, eg nothing very much.
Sit, cry, yell at government, get drunk and go sleep.

You may be surprised within next few coming years if not months.


The plan is to replace, not to devalue.

Many times done in EE and seemed to work for a while each time.
If you want a stable solution with new currency you would also have to ban budget deficit for example.

You would also have to return to commodities (gold, silver etc.) based currencies if you are not able to prevent fiat currency abuse.

Obviously American workers who would have 10 or 100% daily pay increase.


Other currency would not be available and if I need to buy a loaf of bred today, I would care little, how much my pay would be worth after a month or so.


Nonsense.

After few months of amok, you are replacing currency and everything is fine.
Done many times around a world with success.

Further, I assure you that such solution actually will be implemented faster than you suspect.

All what Chinese are doing is building a copy of a setup, which we already know to be unsustainable and failing.

They have wide spreaded riots now while various toy factories are closed and GDP growth dropped from 11 to 9%.

Last edited by EnergyUnlimited on Fri Nov 14, 2008 7:03 pm; edited 1 time in total

Floating fiat currencies is a disaster. We had a much better developed, free market, international trade system under the gold standard (with exchange rates "fixed" in the manner that 8 ounces is fixed to a cup). Without the international gold standard, international trade is reduced to barter.

I guess you and I are simpatico, then, at least. Bill?

...and that gold standard was only working until France actually demanded her gold...

Obviously some better gold standard is needed.

But wait a moment...

If we rigorously return to gold standard in global trade, we will soon end up back in mercantilism era.
East India Company, you know...

Why?




WHAT? Are you absolutely out of your gourd? Chernobyl was a FIRE and pressure explosion that exposed a reactor core; Hiroshima was NUCLEAR DETONATION in the atmosphere. You must be smoking your socks if you really believe what you just said. Where did you come by your figures, at the bottom of a bottle of tequila?




Translation: blow your brains out so you don't have take orders from the boss! That'll learn 'im!

Darwin Award-level thinking, my friend.




Translation: kiss off foreign trade and loans for the next generation and a half!




Translation: grow bananas and farm mink in your bathtub! Yeah, actually, I think a few people here and planning to do that anyway, in whatever shack the Unibomber left empty when they nabbed him...




Get huge loans from the United States, you mean?

By the nature of the discussion, that seems contraindicated.




What happened to "step one, hyperinflate currency to wipe out bad guys, then move on to griping and vodka, tovarich"? I seem to remember you suggesting that, like, about thirty seconds ago.




When? I know a number of occasions when currencies were adjusted to bring their value against gold in line with economic conditions and their relative strengths against the currencies of trading partners, but I'd like to know just how often major European nations actually disavowed their established currency and instituted a new one. After hyperinflating it to destroy China and moving on to the vodka, of course.





Yeah, that's what I've been saying here all day in suggesting the economy worked better when the currencies all had FIXED RATES OF VALUE RELATIVE TO GOLD, and that Bretton Woods largely went out the window when the States just took its fiscal belt off and let it all hang loose, and you and Billy keep telling me I'm wrong. Well, I must have convinced YOU somewhere along the way...




Yeah, Zimbabweans LOVE getting paid in their own hyperinflated currency, too! Yay, I make 1000% what I made yesterday! Too bad by the time I spend it, bread will cost 5000% what it cost yesterday!

In the case you're suggesting, Americans would do exactly what Zimbabweans do: ANYTHING, to get their hands on someone ELSE'S currency.




Yeah, officially it wasn't in the East Bloc, either, but I keep hearing about black markets...




Try a few decades.




Have they...?

Yeah, having the government monoplize the warehousing of money doesn't work out so well, does it?

An electronic, 100% backed, fully convertible, completely anonymous, cryptographically secure digital gold standard would be nice, oh, and with coins in circulation and prices measured in grams.

Blah, blah, blah... Silly girl.

Better read that: link before carrying on with your silly arguments further.

Go live in China, if you think that there is your boss.

It is not important what peoples like.
It is important what they will actually do. By default I mean.

Nope. There won't be any large scale international loans.

And in any case Russians were not relying on these after Soviet collapse. They have actually defaulted.
New loans started only years after default.

Hyperinflate currency to make it useless for Chinese and tedious for Americans.

Then replace, means introduce new one.

Russians did it, I think twice after WWII. Few minor EE nations also did it.
Easier then you think:
1. Announce replacement over Sunday when banks are closed.
2. Invalidate all higher denomination notes.
3. Issue new notes and replace low denomination notes into new notes in limited number per individual.
4. Replace some proportion of bank deposits of individuals and companies into deposits in new currency.

Because you are wrong.
Bretton Woods was flawed from the start.
It was exposed when France actually demanded physical gold, not just dollars from US.

Your employer was paying you in domestic currency only.
Western currencies was treated as longer term capital allocation which was resistant to inflation.
They were also used to purchase rationed goods beyond state control system.

No one would bother to exchange monthly petty cash paid in local currency to a Western one. That was regardless of annual inflation rate in range of 50-100% and sometimes more.

Yes, they do... link

Last edited by EnergyUnlimited on Fri Nov 14, 2008 8:49 pm; edited 1 time in total

People please do not let some Troll hijack this thread

No, I am not in the gold standard camp for several important reasons. One it does nothing to avoid booms and busts. History is full of such events while gold was the standard. It simply rewards the country with the most gold regardless of their labor productivity. Think Spain.

Currency pegs and fixed exchange rates breakdown over time due to different rates of growth; changes in trade patterns; large surpluses or deficits; changes in real interest rates (nominal minus inflation); loss of faith in a government or its ability to meet its external obligations; etc. A currency peg that is defended long after its economic fundamentals have changed creates even more distortions like importing inflation. Tying your currency to another country's fiscal and monetary policies works at cross-purposes to your own financial priorities.

Freely-traded, floating exchange rates work the best. They are the pressure valve of global capital markets. They work less well when central banks and governments manipulate the external value of their own currency to remain artificially export competitive, and/or run huge current account deficits to artificially stimulate their economies, so that they grow faster than trend (faster than improvements in labor productivity and development of a sustainable competitive advantage).

It is an absolutely vital role for foreign exchange traders to second guess central bankers and undermine governments to keep them honest. Governments like capital controls, and exchange rate limitations, so that they can keep manipulating their own currency. But this is bad for them and bad for the world economy in the longer term. Just like trade barriers are bad in the long run. I believe very strongly that you cannot have free trade without fair trade, but that is a separate argument from this one that is about freely-traded, floating currencies versus fixed exchange rates or currency pegs. So I will stick to the topic at hand.

The problem is that governments are not honest. They break their promises. They give you a gold standard, but then they confiscate your gold. Or they print more currency than they have gold in the vaults. This is why Mises did not support gold-backed currencies. Only gold itself. So even if you have currency pegs, if governments are not honest they will break down over time.

Even within the single currency zone of the EMU countries cheated to get into the euro and continue to cheat by breaking the agreed upon Maastricht Criterion on debt and deficits. If they continue to cheat - and they will - then the not only is the integrity of the euro in questions, but its survival is also in doubt. I would not be the least bit surprised if either some member states are asked to leave the EMU or whether those with stronger fundamentals voluntarily leave if the euro gets to weak, or inflation too high, within the eurozone. That is not tomorrow or even next year, but politicians are undermining the ECB as we speak, and cumulatively that is having an effect on the integrity of the EMU.

That is within a single currency zone with an agreed upon treaty on debts and deficits. But individual member countries still have control over their own fiscal policy. With a currency peg or fixed exchange rates countries have individual control over both fiscal and monetary policy, so there is nothing stopping them from cheating when it suits them. The US issues too much debt. The Chinese keep their currency artificially too weak. Both are pursuing their own perceived national interest at the expense of the stability of global capital markets. The massive global financial imbalances we are seeing now are a direct result of that unenlightened self-interest.

So if I know that fixed exchange rates and currency pegs do not work - or more accurately I understand how and why they breakdown - then why would I be a supporter of them when I know that freely traded, floating exchange rates work better? They work much better when countries have sound economic fundamentals, and neither rely too heavily on debt or trade to plug their current account deficits. Currency speculators cannot successfully launch a pre-emptive attack on a strong currency. So the key is to have sound fiscal and monetary policies, not to let imbalances fester behind the fascade of capital controls and currency limitations.

And as for gold it is simple. If gold is freely-tradable. And currencies are freely tradable. Then just swap your paper currency for gold and you have what you want. You have the versatility of a paper and electronic system for trade. You have the safety of gold as a store of value.

As for currencies losing their value, well as I have already explained that is mainly due to governments cheating using inappropriate or loose fiscal and monetary policies, but even if they did not PPP and trade-weighted exchange rates would change over time due to changes in trade patterns. If you export more than you import your currency will tend to gain in value over time relative to your trade partners. That is not a weakness of floating exchange rates, but a self-righting mechanism. It can be perversed by central bank currency manipulation. But we should see that manipulation for what it is. Cheating. It is governments, not speculators or markets that steal the purchasing power of their citizens. Thank you.

I don't recall using the word "Asian". My OPINION is that the folks running the show in the PRC are much more long term focused that we are.

There are lots of short term thinking Chinese, Japanese, Americans, Germans, etc.



The environment is not "destroyed"; mangled, perhaps. Simple value judgment; the cost is acceptable in the decision makers eyes. That you disagree with that assessment does not imply that the decision maker did not consider the cost.



As long as Oil is traded in dollars, having some sizable quantity of dollar based export trade is quite reasonable. Whether the US is going to "pay back" in the end is probably irrelevant to the decision. That the US is willing to use military force to sustain dollar based oil trade, otoh, is quite relevant.



Not necessarily. Industrial, export based economy is NOT the goal, it is the means. The goal is a strongly Han, unified China, primarily engaged in modern, domestic commerce. And all the stops are being pulled to make that happen.



It is clear they are long term decisions; it is also clear that you despise the choices that were made. However, I don't think the movers and shakers in the PRC care much about your opinion.

Maybe, maybe not.
Is there enough market demand for dollars, in excess of that normally needed for trade? I kinda doubt it.

If you have billions of dollars in plant and equipment producing stuff, fashioned for the US market, to be sold in dollars, do you take the risk of instantly destroying the market for those products?

I think they'll take the safe way, and draw down their dollar holdings at a rational rate; they don't seem to keen on drastic actions of any sort.

Mr Bill, I don't think you understand that money is a phenomenon of the free market, not a gift bestowed by governments. This is a common misconception, as money supplied by the free market is inconceivable to most, conditioned as they are by the current state of the world. Most of your post merely highlights the problems caused when governments monopolize the money industry, but rather than conclude government should be restrained from that sector of the economy, you conclude it must have complete and total control!

Another thing you don't understand Mr Bill is the vital role of the "store of value" function in the currency of account. You have said that "the dollar is a transactional currency." Without sound money in which to calculate profits and loss, the economy has no north star to guide it's development. When currencies depreciate what you get is massive simultaneous economic miscalculations in society that wreak untold havoc, such as we saw in the bubbles of late. And of course the government's "solution" is to do everything it can to make sure the economy continues to be misled.

Matt, you're entitled to your own opinions, but it is you that are making the mistakes. I worry about your reading comprehension skills if you think my post was in some way a defence of the government's monopoly over money supply? Huh? I explained in detail how and why fixed exchange rates can and do breakdown. So where does this strawman argument come from?

My understanding of how capital markets work is not an endorsement. I have consistantly harped on about large current account deficits, currency manipulation and the resulting excessive money supply growth and credit expansion as the source of global financial imbalances. I have also clearly stated that I am a fiscal conservative, so I do believe in balanced budgets and not structural deficit spending. In the absense of those financial imbalances you would have lower long-term inflation and stronger currencies. Then financial assets like stocks and bonds would be stable, long-term stores of value.

However, goldbugs like yourself simply do not understand, and probably never will, that even in a stable world where free markets set the value of a currency that currencies will fluctuate up and down on their trade-weighted value. That means when the US' share of world trade falls from circa 40-percent of world trade immediately after WWII to say 20-percent today that the US-dollar would have fallen in value on a trade-weighted basis in any case. Assets whether they are US-dollars or gold do not have absolute values. They trade relative to one another.

If a responsible country runs a slight budget surplus; a slight trade surplus; plus keeps inflation under control; and real interest rates slightly positive then over time their currency will appreciate. That is great for the currency as a long-run store of value. However, as this strong currency continues to appreciate against all other weak currencies it will not only attract surplus capital, but also start to undermine export competitiveness and local manufacturing. This strong currency will act like a magnet to suck in imports from abroad.

So for all your ideology about gold as the answer I can only say that a country needs to get its currency policy right. A currency can be too weak. But it can also be too strong. Just as all assets trade relative to one another, so do all currencies trade relative to one another. Personally, I would sooner that governments run balanced budgets, so that imported capital gets channeled into productive industries instead of being used to finance existing debt. If you reduce current account deficits you also reduce current account surpluses. That leads to more stability. That in turn would smooth out currency volatility. Then as you say, companies can more accurately calculate profits and losses as well as better plan.

So please do not mistake my understanding of how capital markets work for an endorsement of how and why governments are cheating investors and savers with their short-sighted currency manipulations and false accounting. Thanks.

UPDATE: Risk is very high
source: Mr. Practical www.minyanville.com

Troll: n. Most of the time, meaning "someone I disagree with who makes a forceful point I can't counter or am too lazy to dispute"

Regarding trade surpluses and deficits for a country. acountry in and of itself is na artificail construct, an agreement. They make a govt. for an area then a currency and when the area imports too much the currency value falls. So to recognize this maybe the country should be redefined to inclued some of the areas it imports from to balance that out so that then there is no more deficit. Like Eruoland has a strong Euro and not a strong DM aginst a weak Lira. How to do this for the island USA is hard however. Canada and Mexico make up most of US trade but China is biggest trading partner with a big surplus to USA. Amero would make sense like Euro but USA/China/Japan with a single currency would be hard.

I have no desire to see my currency stapled to the US dollar. None whatsoever. It's like asking a relatively healthy cat to share a kidney with a diseased elephant. I don't really know where Mexico fits in. Maybe it's like having a cactus shoved up your a$$.

Anyway, no thanks.

look at the bigger picture in terms of the majority of destitute North ameircian populaiton in ten years. Occupation by invasion or a reduced autonomy economically. Canada has no nukes for example and needs USA to protect it from other potential invaders. Between a rock and a hard place.

We actually HAVE been invaded by the US in two wars. It didn't drive us to a shared currency, much less a shared nationality. I don't see why the mere threat is supposed to.




Wouldn't take long to build them; we're one of the three countries that undertook the Manhattan Project. But I don't imagine it's all that necessary in the scheme of things.




Like who? It's not like we share a border with anyone else and they can hide in the trees till they're ready. Anyone who seriously undertakes to invade us is going to give us a lot of advanced notice just loading the boats.

We've only been a close ally of the US since WWII. Guess how many times we've been invaded by anyone BUT the US since 1763? Hint: it's an integer less than 1.