Well, actually the dollar has leveled off against the euro over the last 8 days and is beginning to rise at a slow pace:
The dollar against the euro over the last 5 days
Last Trade 6:34am · 1.028912
Posted on 7/6/2002, 6:26:02 AM by HAL9000
The head of the International Monetary Fund, Horst Koehler, has warned that central banks worldwide might need to work together to prop up the US dollar.In an interview in the Financial Times newspaper, Mr Koehler said that "no intervention at all is not the right answer" should the dollar continue to decline in a "disorderly fashion".
The dollar has fallen by around 10% in the last few months, nearly reaching parity with the euro.
But the US administration is opposed to intervention in currency markets.
In September 2000, during the presidential term of Bill Clinton, the US Treasury did agree to joint action to boost the value of the euro, which had reached a record low of around $0.84.
Alan Greenspan, the influential head of the Federal Reserve, the US central bank, is expected to give his view on the dollar's weakness when he testifies to Congress on 16 July.
Danger of meltdown
The global fall in stock markets amid uncertainty over the strength of the US economic recovery has led to further doubts about the strength of the dollar.
The US is also facing the largest trade deficit in its history.
A weak dollar would hurt exporters in Europe and the Far East by making their goods more expensive in the US, while in turn increasing inflationary pressures there.
Mr Koehler said that there was a danger that financial markets could "exaggerate problems so that they become a self-fulfilling prophecy".
But he admitted that there was a one-in-five chance of a global financial meltdown.
That could happen if a further stock market collapse in developed nations happened at the same time as debt defaults by developing countries such as Brazil and Turkey - both receiving IMF help at the moment.
And he warned that the financial excesses of the past had created problems for governments and international institutions.
"We can't have a world where excessive profits are reaped, and then, all of a sudden, the IMF and governments have to repair the damage," Mr Koehler said.
Admitting mistakes
Mr Koehler has admitted that in the past the IMF - which provides short-term financial help to countries in trouble - had not paid enough attention to building a social security safety net for the poor.
The IMF has come under withering criticism - especially from the former chief economist of the World Bank, Joseph Stiglitz - for enforcing financial orthodoxy and deflationary policies on countries affected by the Asian crisis.
Mr Stiglitz has also criticised former IMF officials, such as former deputy director Stanley Fischer, for accepting jobs with large commercial banks after they retired from the fund.
In return, IMF chief economist Kenneth Rogoff said that Mr Stiglitz, who won this year's Nobel Prize in Economics, was "a towering genius as an academic... as a policymaker, however, you were just a little bit less impressive".
I wonder what could have caused that? Could it be "Free Trade", not to mention a fiat currency system under the federal reserve?
First, ALL currencies are fiat currencies now, even the historically redoubtable Swiss Franc, which no longer even has a nominal gold backing. The obvious question must be asked: why is a fiat currency to the US' disadvantage, comparatively? The answer: it isn't, comparatively.
Second, the trade 'deficit' has exactly nothing to do with the currency per se, but has everything to do with the relative price level of the currency and the international flow of investment funds. The trade 'deficit' exists, and will continue to exist for an indefinite period, for several reasons, and the list below is NOT complete.
1) The US tax code makes manufacturing works comparatively uncompetitive IN the US (hold labour costs constant across nations, and it STILL would be madness to make most consumer goods here). The only comparative advantage the US has is the LOWER (go ahead and laugh) level of regulation, compared to the state socialiss in Wonderland, and which it is busily throwing away.
2) Even adjusted, labour costs in the US are disproportionately high. This same phenomenon occurred in the Roman Empire in the first century A.D., and contributed to its ultimate fall 3 centuries later (and to its rot during the intervening centuries, although there were surely other contributing factors).
3) Everybody eats, and there is no surer way for a gov't to get tossed out on its butt (dictators excepted) than for the price of food to rise sharply, even in America. Hence, gov'ts bend efforts to keeping the price of food artificially low, whether by being purchasor of last resort (the old CCC in the 1950s and 1960s), a lesson last learned by the criminal Nixon and his successor, the idiot Ford, or by direct subsidy, which is the current popular mode in the US, Wonderland, and Japan,
4) The US has used all manner of trade subsidies, not just in foodstuffs, but puts itself always at a 'subsidy disadvantage' compared to the Japs and the Eurotrash, by at least **attempting** to hold to the (thoroughly stupid and unbalanced) rules of GATT.
5) The US permits, through the wonderfully laughable fiction of 'Generally Accepted Accounting Standards', companies to play ANY sort of accounting games they like, without penalty...or rather, without penalty UNTIL they get caught out by economic reality. When nothing goes wrong, this fiction entices capital into US markets, strengthening the dollar, but when the fit hits the shan, capital similarly exits, as now.
FREE trade works wonders when practiced. This occurs for about 5-10 years per century, over the last three centuries (I'm being a little generous here). 'Fair' trade, as 'practiced' worldwide, is nothing other than old-fashioned 17th- and 18th-century mercantilism, and of course the great error of modern-day Japan.
Well, actually the dollar has leveled off against the euro over the last 8 days and is beginning to rise at a slow pace:
The dollar against the euro over the last 5 days
Last Trade 6:34am · 1.028912
Clearly, the U.S. trade deficit is impossible under a gold standard. In that sense, the fiat currency standard (as currently constituted) is, indeed, responsible.
That's a 'Roger' on those NGO's and dead dogs! :-)
I wonder what could have caused that? Could it be "Free Trade", not to mention a fiat currency system under the federal reserve?
Globalisation
To return to a gold standard, or, ftm, any 'hard' standard, is thoroughly impossible. If the US were to try it by itself, the instant result would be a ruinous deflation. You might enjoy reading Peter Bernstein's The Power of Gold on this and related topics.
Nor will any group of nations attempt such a return; the political class have learned long since that fiat currency is an enormous lever of power, allowing them to bribe citizens with their own 'money'...until an inevitable collapse (which, they hope, they won't be around to witness). To consider that any significant fraction of this class would voluntarily yield such power is delusional. Speculating about a return to a gold standard is amusing, but no more possible in the real world, given the nature of the political class, than walking barefooted up Niagara Falls.
The notion that fiat currency, used by all nations, is responsible for the American 'trade deficit' is self-contradictory, for by this argument, ALL nations would have a 'trade deficit', clearly an impossibility. Or, in other words, a crock.
The fact of the matter is that if you can buy item X for $10 or for $15, you will invariably choose to pay $10, assuming you in fact have the choice. The costs of production and distribution then become the controlling factors in determining who will buy what from whom. Wealthier nations uniformly develop higher labour costs over time, hence when production of a good is labour-intensive, manufacture of that good will tend, again over time, to move to locations with lower labour costs.
Goods with high scarcity value, e.g. emeralds, chromium, are exempt from this constraint. The only other goods which are partially exempt are high-utility and/or high-value-added items, software for example, although as many kinds of software become increasingly commoditized, this too will change. It's changing as we speak, in fact; consider the exportation of contract programming to India, and, not too far in the future, to China. Why? Same reason, labour costs.
Thanks!
Labor is what gets the gold out of the ground, which can be traded for other products requiring labor. So when we put our excess gold in the warehouse for safekeeping, we are putting our our excess wealth in trust in return for warehouse receipts which serve as legal tender.
Gold in the warehouse represents real wealth, because it's already paid for (earned) and can be used to pay for commodities and products - in full.
Gold doesn't shrink, rust, swell up or lose its intrinsic value and serves as a standard for the medium of exchange, so long as the world continues to agree and support the premise that gold is suitable for that purpose. The world could have just as easily used something else so long as there was agreement and the standard remained stable both geographically and intrinsically..
My premise is that the Reserve system eventually sucked all the real wealth out of the economy, replacing it with debt, wherein everything purchased is purchased with an I.O.U., (Reserve notes) as there is no real wealth (gold, representing labor already performed) left in the warehouses.
The long-term consequence of the reserve system, means that all labor performed today is paying for the debts and purchases of the previous generation, and the expenses we incur today while doing that, will be paid for by the next generation -- and the next generation.
Pretend for a moment that currency is backed by rice. I put a cup of rice in the warehouse and receive my warehouse receipt. The warehouse cooks my cup of rice, yielding four cups of cooked rice. Then it lends it out, saying it has the same value as my original cup of rice in the market place. I return to the warehouse and hand over my receipt and demand my cup of rice back. But they give me a cup of cooked rice. Three fourths of my labor is stolen. The transfer of wealth up the food chain, a bean at a time, or a few grains of rice at a time. That, Sir, is what the Reserve system is and does. It creates rice out of thin air -- as much as it needs to loan out, becoming the lien-holder on future real wealth or current net assets and resources of not only businesses and indivuduals, but on entire nations. To be sure, fiat currency is code for a 'fiatricidal' economy.
The IMF is much too optimistic, as info on Uncle Bill's links would suggest that the chance of global financial meltdown is five-in-five.
'Free' trade or 'Fair' Trade, they're just slogans. The US in the late 80's and early 90's negotiated trade arrangements with China that were not in our interest. We taxed their imports to america at 3% while they taxed our exports to china at 35%. On top of that we put no restrictions on what they could sell us and they restricted severely what american business could sell in China. The free traders are proud of this agreement. It is not free and not fair either. Of course with the new situation of China being in WTO the tariffs and restrictions are more equal, but still not equal.
So to me, an ideological committment to 'Free' trade is ridiculous because it doesn't exist. No negotiation we engage in can realistically put a stop to trade barriers, the agreement may say that trade barriers are done away with, but those are only words. We simply don't control other nations, if they wish to impose barriers and through some sleight of hand prevent american products from being sold, then they will regardless of any agreement we pretend that we have with them.
Free trade is just an ideology, it is not a real thing. But if we do believe in this ideology, then we shouldn't be even talking about intervening into the financial markets to prop up the dollar. American manufacturers have been hurt very badly by the policies we've had in the last 15 years. They would benefit greatly for the dollar to decline dramatically compared to other currencies. This would help their position in the american market as well as in the foreign markets. If you really believe in free trade, then why don't you speak against this?
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