Posted on 09/08/2014 6:37:03 PM PDT by Nachum
There are few truisms about the world economy, but for decades, one has been the role of the United States dollar as the world’s reserve currency. It’s a core principle of American economic policy. After all, who wouldn’t want their currency to be the one that foreign banks and governments want to hold in reserve?
But new research reveals that what was once a privilege is now a burden, undermining job growth, pumping up budget and trade deficits and inflating financial bubbles. To get the American economy on track, the government needs to drop its commitment to maintaining the dollar’s reserve-currency status.
The reasons are best articulated by Kenneth Austin, a Treasury Department economist, in the latest issue of The Journal of Post Keynesian Economics (needless to say, it’s his opinion, not necessarily the department’s). On the assumption that you don’t have the journal on your coffee table, allow me to summarize.
It is widely recognized that various countries, including China, Singapore and South Korea, suppress the value of their currency relative to the dollar to boost their exports to the United States and reduce its exports to them. They buy lots of dollars, which increases the dollar’s value relative to their own currencies, thus making their exports to us cheaper and our exports to them more expensive.
In 2013, America’s trade deficit was about $475 billion. Its deficit with China alone was $318 billion.
Though Mr. Austin doesn’t say it explicitly, his work shows that, far from being a victim of managed trade, the United States is a willing participant through its efforts to keep the dollar as the world’s most prominent reserve currency.
(Excerpt) Read more at zerohedge.com ...
I know, instead of compiling a list of everything that 0bama wants to/probably will destroy, let make a much shorter list of what might remain intact after he’s done.
Street crime? The black market? Drug trade? Race riots? The list is endless ;(
I guess I shoulda thought about it longer. Hell of a legacy.
Let’s see if I get this: Take the value of the dollar down vis-a-vie other currencies. OK, BUT WAIT!?
I am paid in dollars, so my paycheck would go down in value.
My bank accounts, retirement fund, future SSN checks are in dollars, so they’d go down in value.
My house is valued in dollars, so it would go down in value.
Hmmm. If I have a job, savings and a house I lose value, i.e. money
What if I owe people money?
If I owe money, I could pay people back in dollars of less value than I borrowed.
If I owe lots of money, I’d come out even more ahead.
If I owe tons and tons and tons of money, I come out way and way and way ahead.
Hmmm. Who owes tons and tons and tons of money?
Ah! The government owes tons and tons and tons.
I see now! If the currency gets devalued against other currencies, then those who have jobs, savings and homes lose while the government wins.
Hmmm. How about one more test, an empirical test: What has happened to citizens in countries that have devalued their currency in the past: Mexico, Venezuela, Argentina, Zimbabwe. Their citizens don’t seem too well off.
What has happened in countries that have a strong currency: Switzerland and Germany? Their citizens seem to be doing better.
Would a friend of mine be promoting this idea?
Just like a writer put it today in a Letter to the Editor:
“Let’s put aside the false concept of American exceptionalism and superiority...”.
Their intent is to destroy every vestige of what made this a great country and what is alarming is that I see no serious effort to stop it.
Oh my God.
Sure . . . hand it off to terrorists and demagogues. Peace for our time!
Periodically, I receive emails from investment firms which state that the one event that would almost certainly tank the US economy would be the losss of the dollar as the world’s exchange currency. They predict a huge loss of value of the dollar and huge price increases throughout the economy.
You can find economnists who are predicting most any possible outcome, but those who think that the loss of the dollar’s reserve currency status would be a near disaster seem to make more sense than this article.
Basically, for a long time now, it boils down to this for me:
If a liberal is for it, I am against it.
Saves me an enormous amount of time and energy, and it is the correct stand to take 99.99875% of the time.
When I am wrong, I simply apologize and say I was mistaken and have changed my mind.
Haven’t had to do that yet, but it works so far for me.
By the way, good post...
Yeah, let’s just call it a day. Because printing trillions of dollars when you are not the reserve currency is a great idea.
These people are idiots.
Don’t forget those with metals. If they don’t get confiscated (*BIG* if) then they make out nicely as well.
The problem is that if you owe tons of money you need to keep borrowing at higher and higher rates. Over longer and longer terms. That will kill us.
Of course, if you have gold or some other store of value, you can wait for the inflation, convert your gold and pay your house off with three or four ounces.
And pay capital "gains" tax on the value (in dollars) that said gold "appreciated".
“After all, who wouldn’t want their currency to be the one that foreign banks and governments want to hold in reserve?”
Me, for one. But then I don’t trust any government not to waste money when allowed to borrow at fair market rates, let alone the artificially (aka unsustainable) rates associated with reserve status.
Yeah, that’s true.
You really think the government is going to be running smoothly in that situation. You could probably make a deal to simply keep paying your mortgage at a reduced rate. The banks will be sinking. The IRS would be so short staffed it would never be able to keep up.
If we get to the point I described, the game is over.
If we lose reserve status, the other central banks do no need our money in their reserves. Where do you think those hundreds of billions of crisp $100 bills are going to go? They will come flying back by the plane load. Literally.
That is not a situation you want to look forward to.
Another Anarchist
Bernstein graduated with a Bachelors Degree in Fine Arts from the Manhattan School of Music where he studied double bass with Orin O'Brien. He earned a Masters Degree in Social Work from the Hunter College School of Social Work, and, from Columbia University, he received a Masters Degree in Philosophy and a Ph.D. in Social Welfare.
Why are we even listening to this guy? He knows nothing about economics.
Post Keynesian Economics = Pure Marxism?
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