Southack, I'm replacing "South Americans" with "foreign central banks" in your argument. Does it work?
>>> But, those foreign central banks love to store their wealth in the form of cash (dollars). They "see" their wealth in terms of cash on hand. To them, money should store wealth.
To me, that's precisely what money should *not* do. Money should merely facilitate retail and wholesale trades, not act as a store of wealth.
If you want to store your wealth, then you should use money to purchase traditional stores of wealth such as real estate, mineral rights, oil itself, gold, factories, licenses, etc.
Freidman wants your money to store wealth. That's the foreign central bank recipe for economic stagnation. There are better ways to store your wealth than cash... <<<
It doesn't work real well. Foreign central banks have used dollar reserves *precisely* becasue they have been a relative store of value. Since the demand for dollars is decreasing and the dollar is not as great a store of value, we should see some flight to the Euro and other currencies -- that are perceived as stores of value.
Regarding "hoarding" -- isn't that just a word to indicate strong demand for something? There's strong demand because of a perceived store of value. What really is troublesome is "dis-hoarding" when people perceive that holding a currency is a losing proposition. This leads to people unloading dollars as quickly as possible in order to stem the loss of value. When many people do this simultaneously, the herd mentatlity can lead to panic unloading of a currency. I think I prefer hoarding to dis-hoarding. Prices and currency are more stable.
Oh, and regarding Freidman...is he really wrong or do you just disagree with his conclusions based on your own research?
I don't see it. The Dollar has declined since 1930. Real estate has increased in value since 1930. If central banks were about storing wealth instead of manipulating Markets, you'd think that they'd be able to afford managers clever enough to invest in appreciating real estate instead of depreciating cash...
Throw me into that briar patch. The more that the Euro increases, the more expensive European exports to the U.S. become. That makes American companies more competitive, hiring more Americans.
Friedman is only "wrong" in the sense that the more your currency stores wealth, the more difficult it becomes to speed up the velocity of money.
If your bank account always had $1,000 in it, but every day that $1,000 had more and more purchasing power, then you'd be hard-pressed to spend your money. This is what happens with computers getting cheaper each month. People delay buying a new PC as long as possible because they know that their money will buy more of a machine the later that they wait.
In contrast, if your $1,000 buys less and less each day, then you have an incentive to hurry up to spend your money sooner, rather than waiting for it to become worthless. In this environment it is considerably easier to speed up the velocity of money.
Well, the slow speed of money is the South American economic model. The fast speed of money is the U.S. model.
If you had to choose one economic model, the U.S. version will always win out.