Currency wars are necessary if all else fails

[Francesca9]

Source: Telegraph (UK)

"The overwhelming fact of the global currency system is that America needs a much weaker dollar to bring its economy back into kilter and avoid slow ruin, yet the rest of the world cannot easily handle the consequences of such a wrenching adjustment. There is not enough demand to go around."...

The countries actively intervening in exchange markets to suppress their currencies – China, Japan, Korea, Thailand, even Switzerland, to name a few – are all too often the same ones that have the biggest trade surpluses with the US. They are taking active steps to prevent America extricating itself from the worst unemployment since the Great Depression, now 17.1pc on the latest U6 index and rising again...."

Read more: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8054066/Currency-wars-are-necessary-if-all-else-fails.html

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No one wants the US unemployment rate so they will manipulate and manipulate to hold jobs.

[EmilyKent]

1. Good way to go about

getting a world currency. :eyes:

[Ghost Dog]

2. True, that.

So, let's at least make it a sensible one, this time round.

:shrug:

[happyslug]

3. No, a good way to DESTROY the world's currency

The dollar has been the World Currency since WWII. From WWII till 1970, every currency (Outside the Soviet Union, the Warsaw pact and Red China) was pegged to the Dollar at a FIXED rate. Five German Marks to the Dollar, Four Dollars to the British Pounds etc. Some countries did permit a little flexibility (France and Canada for example) but everyone kept their currency within pennies of the above. The US Dollar had become the world Currency, even the Soviet Union, the Warsaw pact and Red China, when they traded with the west did it is Dollars (or another currency, which was convertible to dollars at a FIXED RATE).

In 1970, Nixon un-pegged the Dollar from Gold (from 1934 till 1970 the Dollar was fixed at $35 to one ounce of gold), but everyone continued to use the Dollar. The Collapse of the Soviet Union had no affect on the supremacy of the Dollar. The closest thing to a competitor was the introduction of the Euro. The Euro had the ability to unseat the Dollar as the world's currency, but as long as Oil is priced in dollar (and oil is the #1 traded item in the world), the Euro never did challenge the Dollar.

The problem is since the fall of the Soviet Union, the US, Japan and Europe have been going in three different directions. France and Germany see the Euro as they way to control Europe (Which is why Britain stayed out of the Euro, Britain did NOT want to become the third head of what is now the two headed Euro Dragon). Dispute this Germany and France have been dragging Britain and the rest of Europe (all of Europe has adopted the Euro except for Britain, Norway and Switzerland) to a more Europe centered world (which Saudi Arabia and the Arab oil producers want to be part of). Japan, China and the "Easter Tigers" (Korea, Taiwan, Singapore, Malaysia etc) to a more East Asia center. The US has been trying to make North America a US centered world (With massive opposition from South America).

My point is the World has had a world currency since WWII, and have been happy with it since WWII, the problem is the above three pulls, is tearing the world apart and with it the Dollar as the world Currency.

People have been talking of this since the fall of the Soviet Union, the US kept Europe and Japan loyal to the US do to fear of the Soviet Union, with that fear gone (and it disappeared in 1989 with the dissolution of the Soviet Union) the center can NOT hold on to the extremes. Worse, Russia is on its own tangent, but tied with China AND Europe, but NOT with the US. Japan #1 trading partner is NO Longer the US, it is Red China. Taiwan's #1 trading partner is Red China (While both claim to be the only real Government of "China").

Africa is in almost complete breakdown to to economic disaster caused by the withdraw of Western support (Notice I use the term "support" not "aid", "aid" is continuing, but "aid" tends to be ways to help "Africans" by giving them items produced in the First World, but whose Governments do NOT want to dump on their own domestic markets so they give away the "Aid" to Africa, whether Africa needs it or not (i.e. support for Farmers back home by buying excess production to keep the price up, and then dumping the excess production into some third world country). "Support" is giving Africans want they actually need (i.e. Ways to use their own seeds better rather then give them Western Seeds so to support First world Seed producers).

What is needed is "Support" not "Aid", but almost all support ended with the Collapse of the Soviet Union (The West could NOT afford to leave the Soviets provide all the "support" so the West ended up providing most of the "Support" the third world needed, notice this required the fear that the Soviets would win UNLESS outbid the Soviet Union is "Support".

Thus Africa has suffered a double blow over the last 20 years, almost all "support" has disappeared and the "aid" being provided undermine any effort by those Countries to fix the problems of those Countries (the classic situation was Somalia in the 1990s, the country went into famine, people were dieing, then massive "aid" appeared, but almost no "support". Thus within six months the cheapest food in Africa was in Somalia. This caused long term problem for the local farmers. after years of Bad harvests, evened up not only with a shortage of Food, but the price for such food being so low they could NOT afford to sell what they produced. No wonder the country dissolved over the last 20 years.

Just a comment, we are seeing the destruction of the World Currency NOT the Creation of one.

[EmilyKent]

4. There will definitely be a world currency,

but it won't be the dollar.

[happyslug]

5. If you have one currency, then countries in economic trouble will NOT be able to devalue

That is the problem with Portugal, Ireland, Greece and Spain (the "PIGS" of the Euro). Prior to adopting the Euro when they over extended credit their devalued their currency. This tended to hurt the wealthy in those countries, but not the country as a whole (In fact mostly helped the lower classes, more work and since most lower class people purchased few foreign made items, little affect on them). The PIGS can no longer devalue their currency and get out of the mess they are in, so they must raise taxes and cut services to their people (and the people are rioting do to those tax increases and cuts in services).

Just pointing out one of the problem with a one world currency, who ever controls that currency (and someone will) will be able to demand payment from EVERYONE. That is how Rome became so powerful, it controlled the money of its time period, and all money returns to the center (and brings additional wealth with it). Rome ended up taxes its poor so much that when the Germans moved in, the Germans would recruit from the Roman people they conquered. Rome fell more do to lack of support of its own citizens do to the money always going more and more to the Roman Elites then it did to any military defeat (Even Attila the Hun was DEFEATED by the Romans and soon after the Huns dissolved, thus leaving the Vandals as the Only Germanic tribe that moved into Roman Territory AND had NOT been defeated by the Romans and then resettled by the Romans to help keep the Roman Peasants down).

The British Pound was the key to the British Empire (Yes, the British Pound was as important to the British Empire as was the British Fleet and its army). To do any trade in the 1700s or 1800s you had to use the British Pound OR some currency (such as gold) that could be converted to British Pound (Less true for the 1700s, but more and more true as China Collapsed in the 1800s and Britain expanded in the 1800s).

Britain lost the status of world wide Currency to the Dollar staring with WWI. During WWI Britain had to trade with the US for goods, exchanging Pounds for Dollars. At the end of WWII, those Dollars had to be returned to the US, and Britain did its best to do so (Britain in 1925 finally returned to the Gold Standard, it had been dropped during WWI, but this ended up being Winston Churchill's greatest error. Churchill was Minster of the Exchequer, the British Treasury, in 1925 and insisted on that early return to the Gold Standard. Within two years Britain was heading to Depression, ahead of the US). During the 1930s the US devalued the Dollar from $20 a Ounce of Gold to $35 an ounce of Gold. This helped America but hurt the rest of the World. During WWII, Britain, again, had to ask for American Aid, and the economic Situation was terrible in Britain as compared to America (During WWII an American Sergeant received the same pay as an British Captain, and the Captain had to pay for his means and his uniforms while those were issued to Sergeants). That is how bad the people of Britain had it in the 1920s, 1930s and 1940s. Finally during WWII, the US wrote the post world economic map, a map that lead directly to the collapse of all of the Remaining European Colonial Empires, as the US Dollar replaced the British pound as the world wide Currency.

Now, the US feared Europe going Communists in the 1940s and 1950s, so sent all types of aid and support to Europe so that it would NOT become Communist. That tended to bind Europe and Japan to the US. The problem is the Soviet Threat died in 1989, and since that date the US and Europe have been on a Collision course that both sides want to avoid, but both sides do NOT want to make the compromises needed to avoid a fight. The upcoming Currency war may be the key that brings this to a head, but only time will tell.

[EmilyKent]

8. Oh? What happened to all that talk

about the dollar being the world currency?

Please stop giving me your version of economic history, and concentrate on the topic.

[happyslug]

11. To understand the Future, you study the past

At present the US Dollar is the World Currency, as the British Pound had been before WWI. The Spanish Dollar had become the first world Currency with the expansion of Spain into the New World and the Orient starting in the 1500s (along with Portugal). The Dutch soon followed, but everyone used "Piece of Eight", the Mexican Mill Dollar, produced in Mexico and used world wide from the 1500s till the late 1800s (The Mill Dollar was legal currency in the US till 1857, the in the late 1880s the US produced what was called the "Trade dollar" do to the fact the Mexican Mill Dollar was still the currency of choice in the Far East, the US Dollar was a little bit smaller, but the Trade Dollar corrected that (The Trade Dollar was intended for Far East Trade, but was also legal tender in the US, which caused confusion between it and the Regular US dollar and the Trade Dollars quick death (Through some were found still being used in China during WWII).

US Trade dollar

http://en.wikipedia.org/wiki/Trade_Dollar_%28United_States_coin%29

Thus to understand what will happen, look to the past. We want to believe what is happening is completely new, but in many cases it is not. How things work together may change (For example when the French Invaded Mexico in 1862, they followed the same route the US had used in 1848 and the US followed the same route Cortes took in 1519. Where the battles where fought changed for how the armies were organized were different (Cortes was more a Spanish-Indian army, with more Mexican Indians then Spaniards), the US was opposed by the Entire Mexican Nation, The French could rely on a handful of syncopates to help them. Notice the make up of the invading armies were different (as were the Defending armies) but the route remain the same.

You see this over and over again in History. The Genghis Khan connected east and west into one "World" having an empire from Iran and Russia to the Pacific. Spain and Portugal re-connected the East and West by going around the Cape of Good Hope (Portugal) and over the road between Acapulco-Mexico City-Veracruz (Spain as while as the Straits of Magellan). The Dutch (and their bigger ships based on the introduction of the pulley onto ships which permitted bigger ships with smaller crews), then the British (Based on Coal) and now the US (Based on Oil). Each world wide empire was built on something different then the previous empire, but then HOW each handled their Empire was roughly the same. Expansion till you over expand, then force to withdraw do to the over expansion, but find out one withdraw leads to the next, soon back to original size but by then a new expanding power starts to expand.

The same with "World Wide Currency" what ever is the Currency of the Power that is expanding become the new "World Wide Currency". The Currency may outlive the Empire that produced it (The Spanish Mill Dollar is a classic example), but only until a new expanding power moves into that part of the World.

[EmilyKent]

13. No, the past is past.

And I'm afraid you're just going to have to get used to a new world currency.

[muriel_volestrangler]

25. Emily, you're not even trying to make a case for your assertions

Just repeating "there will be a world currency" tells us nothing. I don't know if you're predicting a new form of international currency, if you think it will be the yuan/renminbi or what. I don't know if you're saying it will be a de facto world currency, like the dollar has been, in which international trade is normally done, or an enforced one which all countries will use internally too.

happyslug is right to try to learn lessons from the past; and this is not a question of him not 'getting used to' a different world currency.

[Francesca9]

10. The proposed world currency would be a hedge fund

It would be a synthetic derivative.

We know what those do.

As the euro proves, you must have an economy to have a currency. The euro lacks a unified economy and is slowly fading.

A global currency requires more global economic unity than the EU can manage.

[EmilyKent]

14. LOL it won't be that either.

I don't recall saying anything about the Euro, but actually the EU is doing better than the US.

[Francesca9]

16. The euro is slowly (maybe) fading away

Just Google, the euro is in deep shit. To have a currency there first must be a unified economy. The EU doesn't have this so the euro is in trouble.

We can create a world currency without a unified world economy - but it will be a hedge fund, a "basket" of minor currencies. The US economy dominates the world, so the dollar does as well.

Those are the two choices - (1) the US dollar OR (2) a hedge fund.

The dollar is the world currency, but to reduce unemployment in the US we cannot afford to be anymore. We are in the process of getting rid of the world currency and are not in the process of creating one.

[EmilyKent]

18. The Euro is doing as well as the USD overall.

But I wasn't talking about the Euro. We will have a totally new world currency.

The US no longer dominates the world, and neither does the dollar.

The global economy will change to reflect this.

[Francesca9]

22. The US economy still dominates the world by any measure

Debt and unemployment issues and not the economy are the challenges. The US economy is massive but growth is slow. A devalued yuan will fix this, reduce everyone's saving and pensions, and create the jobs that we need. Young people who have little savings and no pension concerns will greatly benefit.

In 18-20 years at this pace China will pass the US economy. China however does NOT want to maintain the global currency.

The Chancellor of Germany recently said that the euro could fall. Google Merkle and euro.

There will be no global currency because there will be no global economy like there was under the US.

[Art_from_Ark]

6. A few comments about your post

Not every currency was pegged at a fixed rate to the US dollar until 1970-- The German Bundesmark was fixed at 4.2 per dollar for a few years after it was introduced in 1949 (it never was fixed at 5 per dollar), but it fluctuated a bit after that, and the post-war Japanese yen was fixed at 360 yen per dollar from its introduction in 1949 until 1971.

The last time the British pound was at the $4 level was in 1948, which was just a couple of years after the UK completely debased its currency by removing the last vestiges of silver from its circulating coinage. The pound declined dramatically in value for a couple of years after that, falling to $2.80 in 1950, then leveled off until the late '60s, when it started another decline, falling to an annual average of $2.35 in 1968.

Nixon up-pegged the dollar from gold (for international payments) on August 15, 1971.

The Soviet Bloc was dissolved in 1989. The Soviet Union ceased to exist in 1991.

[happyslug]

9. I was going by memory, never a good thing to do

And while the Soviet Union survived till 1991, it was doomed as soon as it pulled out of Eastern Europe in 1989 (Thus why I use that date). As to the exact fluctuations, I admit I did NOT go into them in much details, but those were what most people assumed that rates were in the late 1960s (people who did NOT deal with those currencies on a daily basis).

As to the British Pound, I was using the "Traditional" Valuation of the Dollar i.e. before FDR devalued the Dollar in 1934 (Prior to 1934, the Dollar was $20 an ounce of Gold, except during the US Civil War, the US only started to officially use the Dollar in the 1790s AFTER the American Revolution). From FDR to Nixon a Dollar was $35 an ounce. I then compared that "Traditional Price" of the US Dollar to the same "Traditional Price" of the Pound in terms of Gold (i.e. pre-WWI and Churchill's return to it in 1925). Now the actual price was $4.85 Dollars to the British Pound, when both were on the Gold Standard (Most people used $5 a a quick conversion calculation).

During the late 19th and early 20th centuries, many other countries adopted the gold standard. As a consequence, conversion rates between different currencies could be determined simply from the respective gold standards. The pound sterling was equal to 4.85 U.S. dollars, 4.89 Canadian dollars, 12.10 Dutch Guilders, 25.22 French francs (or equivalent currencies in the Latin Monetary Union), 20.43 German Marks or 24.02 Austro-Hungarian Krones.
http://en.wikipedia.org/wiki/Pound_sterling#Gold_standard

Now, I did find a site that suggest the Pound's decline followed British Decline in coal exports starting after WWI (The Decline was bad enough that Italy, which till the 1920s imported its coal from Britain, had to Switch to German Coal, given as one of the Reasons Italy switch sides, allied with its coal supply in WWI i.e. Britain and France, allied with its Coal Supply during WWII, i.e. Germany).

A similar comment can be made to the US Dollar, US was a net exporting of Oil till 1969, then the US became a Net Importer. The Dollar and Gold Connection ended two years later. Could the Dollar have replaced the Pound as the World Currency do to the Switch from British Coal to US Oil? And can the present crisis be caused by no one being able to replace the US Dollar, even 40 years after the US STOPPED exporting oil?

Just food for thought.

Articles I caught well looking for historical price of the Pound:

The Farthing (and that when it was withdrawn in 1960 as almost worthless, it was worth more then the present New Pence, which is worth more then the current US Cent):
http://en.wikipedia.org/wiki/Farthing_%28British_coin%29

The Euro is NOT the first attempt at a world wide currency, the Latin Monetary Union lasted from 1865-1927 was a previous attempt at a world wide currency:
http://en.wikipedia.org/wiki/Latin_Monetary_Union

[Art_from_Ark]

12. The British pound suffered from several events

The coal situation could have been one of them, but the pound also was hit hard by the costs of World War I. In 1920, the circulating silver coinage was debased from .925 ("Sterling") silver to .500 fine, which in itself would have had a damaging effect on the international value of the pound. You are right about Churchill's attempt in 1925 to reinstate the gold standard, but that lasted only 6 years, until 1931. Eight years later, Britain was involved in another costly war, and completely debased its circulating coinage almost immediately after the war ended. In 1947, Britain lost India, and that was probably another blow to the pound.

You are also right about the Latin Monetary Union's attempt to establish an international currency (based on the French franc) and it did have an impressive run. But even that was preceded by the Spanish silver 8 reales (sometimes called the Spanish dollar because it served as the basis for the US dollar), and its gold cousin, the 8 escudos, which set the monetary standard for international transactions in the 18th and early 19th centuries.

[roamer65]

7. Currency debasement leads to the most insidious taxation ever invented.

Inflation.

Inflation hurts the poor and middle class much more than the rich.

[happyslug]

15. Only if the inflation in internal, we are facing deflation not inflation

If you are NOT importing, then devaluation is NOT a big factor. If I am paying someone $20 a day for food he grows on his farm, I will continue to pay him $20 a day even if the Dollar is inflated 1000%. Why? Because he and I are using the same currency for the same item. Thus no inflation IF THE INFLATION is do to devaluation AND one trade internally only.

Devaluation hurts people who IMPORT things from countries using a different currency system. If your trade is limited to people within you Currency system, the devaluation of that currency system will NOT affect what you buy and sell. Everyone will be hit by the same devaluation but a Dollar stays a Dollar for all internal purposes.

Yes, most people do buy things from countries that uses a different currency system, and those imports will go up (sometimes substantially) but as Henry George pointed out in the late 1800s, as your income goes up, the percentage you spend on luxuries goes up, the percentage you spend on housing stays about the same and the percentage you spend on necessities goes down. Most imports are Luxuries in most countries (and that includes Oil). Thus devaluation hurts those who buy imports, but it helps people who buy within the same currency and thus the people most hurt tend to be people who are dependent on such imports or deal with such imports.

In most countries, food is domestically grown, so rare to be affected by devaluation. Housing is almost impossible to import so NOT affected by devaluation.

Furthermore look at the alternative, we are facing deflation, i.e. downward pressure on income for most people. When you get into a Situation like the Portugal, Ireland, Greece and Spain are in, something has to give. The lower classes will be hurt more by deflation then inflation. The alternative is to force down wages of the Lower classes (And by this I mean the Working class) and that is classic example of deflation. Something has to give, what do you want to give? Do you want riots in the Streets as people lose their jobs, suffer a reduction in wages, etc or do you want those people working?

No one talks of Devaluation as an "Ideal" Solution, but it is a better solution then deflation. Remember we are facing deflation, and that is much worse then inflation. The closest thing to a Communist Revolt the US ever had occurred in 1877, after almost 6 years of Deflation. St Louis was run by a "People Committee", in Pittsburgh the National Guard deserted (and those that did not were run out of town). In between every city had "Riots" (Since is was 1877 and more people lived in Rural Areas then urban areas at that time these "Riots" were suppressed, but then followed by the "Free Silver" Movement out of the Rural Areas demanding the same relief the workers in the Urban Areas had fought for in 1877).

Deflation is that bad, prices stay the same, debts value stays the same, but income drops like a rock. Sooner or later you get into a situation where people can NOT tolerate it any more. Riots, Revolution and worse follow. In many ways (With the exception of a brief inflation after the Discovery of Gold in South Africa and Australia in the late 1890s), you had deflation from the 1870s till 1914. The best explanation for WWI, was the European countries had been so busy avoiding inflation that you had pent up tensions, tensions that lead to no one being able to back down in 1914 and compromise, which lead to War. History books do not mention is but not only did Russia have its Revolution, Britain and France had massive strikes in 1917 (as did the Germans, it was the strikes and mutinies that caused the Germans to seek terms in November 1918 AND similar Strikes and revolutionary activities in Italy, Britain and France that force those three countries to agree to the Armistice WITHOUT actually invading Germany).

That is what we and Europe are facing. The best solution is massive inflation, to inflate away the debt. Wages will drop in real terms, but do to the inflation money will circulate (at least on the basis better spend it now, for tomorrow it be worth less). Given that everyone involved internally will still be using the same Currency, internal inflation will be minimal (None of these countries import as much oil as the US).

My point, given what these counties are facing, a massive drop in income no matter what they do, the better solution is devaluation for it minimize internal inflation. Deflation brings down wages MORE then Inflation AND people can NOT adjust to it as well. Sorry, but given those two bads choices, inflation via devaluation is by far the better choice over deflation.

[Francesca9]

17. Devaluation is GREAT for young Americans

It wipes out savings and pension benefits - but it creates the jobs that our people need.

[happyslug]

19. I was discussing Portugal, Ireland, Greece and Spain (PIGS)

The PIGS should NEVER have been permitted into the Euro, but they were. Now each of them are seeing the downside of being in the same currency as Germany and France. The US is NOT at that level yet (some of our state may think they are, but the US is a much more united country then the European Union). Hopefully the US will NOT get to that level, but what if the US does, oil goes through the roof, but if you can avoid using oil, you will survive.

On the other hand a rapid decline in US demand for Oil (do to Oil being out priced for most Americans by such devaluation) can lead to to a rapid drop in demand for oil and thus a drop in price (As long as oil does NOT drop so that the US imports anywhere near what it does today). Furthermore the US is still the World's third largest producer of oil, a massive drop in US demand will release US oil for exports, improving out balance of trade (Don't knock the concept to much, it can happen, I doubt that it ever will but it is possible).

[Art_from_Ark]

20. You are right about inflation and currency debasement

If you're on a fixed or low-wage income, inflation really eats up the buying power.

[Francesca9]

23. Low ages might be fine, they will also rise

Fixed income will suck. If over 45 it will hurt a lot.

We need to do it to help the young Americans. They need jobs and a future.

[Art_from_Ark]

24. Some of us over-45s also need a job and a future

Also, it's easier in today's world to find a job in one's early 20s, than to try to find a new job in one's 50s or 60s.

[TheWatcher]

21. More Conditioning the Public that anything bad is "good" and "for our own good."

Maybe we'll wake up someday.

[Heywood J]

26. The dollar has already taken a beating in the last ten years.

No need to beat it worse. We should consider getting off the Chinese teat to right ourselves.