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Posts Tagged ‘Dollar’

MONEYLESS: Deflation (Or, “too little money”)

December 29, 2011 9 comments

FOFOA’s argument against modern money theory can be summarized as follows:

A staggeringly massive hyperinflationary event is already latent in the global economy. The dollars currently in circulation only retain their purchasing power because of the function of money as medium for the circulation of commodities. Modern money theory, which proposes the fascist state faces no monetary constraint on spending in excess of its ability to tax or issue debt, is making an argument for monetary policies that will only exacerbate the latent hyperinflation already present in the economy. The problem posed by hyperinflation, “too little money”, is not mitigated when the state creates new currency out of nothing. Rather, the case is the reverse: emitting new dollars does not create additional purchasing power; it simply dilutes the purchasing power of the dollars already in circulation, adding to the implosive potential of the inevitable hyperinflationary event.

According to FOFOA, the hyperinflationary event has been held back so far by the self-interested action of Europe, Japan, and China; who have recycled their dollars back to the US to buy its debt over the past thirty years. This recycling of dollars into US debt has supported the purchasing power of the dollar, but it has reached its limit. The dollar is now suffering a credibility crisis among US creditors, that must lead to an effort by these creditors to exchange their dollars for real, not fictional, assets. With the US’s creditors losing faith in the stability of dollar purchasing power, and boycotting the purchase of US debt, the US is actually engaged in wholesale creation of dollars out of nothing to fund its operations, driving the dollar into actual hyperinflation.

This latter scenario, the impending and irreversible loss of dollar credibility, is where FOFOA badly stumbles in his argument against the advocates of modern money theory.

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MONEYLESS: FOFOA on Hyperinflation (or “too little money”)

December 7, 2011 Leave a comment

Toward the end of his case against the modern money school, FOFOA offers this insight into Wiemar Republic hyperinflation, and what he argues is the basis for the coming hyperinflation set to be unleashed in the dollar system:

As the German Mark fell, there was “not enough money” to pay the debt. And with a little inflation, there is “not enough money” to buy our necessities from abroad.

Hyperinflation, FOFOA argues, is commonly described as a rapid rise in the general price level — an incredibly sharp burst of inflation where the prices of commodities increase a hundred-fold, even a thousand-fold, as a result of a rapid depreciation of the purchasing power of the currency. But, hyperinflation can also be thought of as a sudden implosion — collapse — in the supply of money in relation to the prices of commodities. A situation emerges where there is “not enough money” to pay for commodities.

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MONEYLESS: The Dollar Puzzle

December 4, 2011 2 comments

It turns out my first reaction to FOFOA’s post, Moneyness, was the correct one: the Moneyness of the dollar is to Money what Stephen Colbert’s Truthiness is to Truth, i.e., NOT.

To really understand the significance of FOFOA’s pure concept of money, I will compare it to Karl Marx’s and classical political-economy’s view of money. In the latter view, value drives and determines price; while in FOFOA’s pure concept of money, price is wholly indifferent to value. Marx argued the price realized by the sale of a commodity in any exchange was, at root, a function of the duration of socially necessary labor time it takes to produce it. The realized price of the commodity included the wages paid to the worker plus a quantum of unpaid labor time realized as profit by the capitalist. However, because this is a social process, and the actual exchange is heavily influenced by imbalance between supply and demand and many other factors, a direct connection between the price and value of a commodity in a given transaction could not be established in any obvious fashion.

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MONEYLESS: FOFOA on the Dollar, Gold and the Present Crisis

December 1, 2011 4 comments

I am now reading FOFOA’s Moneyness, an epic length blog on the history of money. I was lured into reading it by the title, which I stupidly misinterpreted as tongue in cheek on the order of Colbert’s Truthiness. In fact, it is an attempt to bring his view on money to an analysis of the current global monetary crisis.

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How economists mislead…

November 11, 2010 Leave a comment

Here is a post at Beat the Press from Dean Baker, who is a decent enough economist to embrace the idea of shorter working time; but who, despite this point in his favor, nevertheless brings such defective reasoning to his analysis that it makes us cringe:

The Falling Dollar and Developing country Exports | Thursday, 11 November 2010 05:44

The Washington Post notes that the Fed’s new round of quantitative easing will:

“harm exports from developing countries. That’s because steps to lower U.S. interest rates and put money into the economy have the effect of making other countries’ currencies more expensive.”

If world imbalances are going to be addressed, then developing country exports must be hurt. In economic
theory, rich countries like the United States are supposed to have trade surpluses. This means that they export capital developing countries. The logic of this pattern of trade is that capital commands a higher rate of return in fast growing developing countries in which it is relatively scarce.

There were in fact substantial flows of capital from rich countries to poor countries prior to the East Asian
financial crisis in 1997. However, the harsh treatment of countries in the region by the I.M.F. led developing countries throughout the world to focus on accumulating vast amounts of reserves in order to avoid ever being in the same situation. This meant that developing countries had to run export surpluses with the United States and other wealthy countries.

In effect, the I.M.F, under the guidance of the Rubin-Summers Treasury Department, put in place a dysfunctional system that would inevitably explode. The effort to re-balance trade is about reversing those policies.

Baker should know better.

It should have occurred to him that if an idea appears on the pages of the Washington Post, it is probably wrong. The post makes the argument that quantitative easing will hurt exports from developing countries. As dollars flood the American economy, interest rates will fall, and capital will go looking for someplace with a better return — like China or Brazil — forcing their currencies to appreciate.

If we understand Baker in this post, he is agreeing with the Washington Post, and making the argument that exports from the developing countries must fall in order to “re-balance” the world economy — i.e., reduce the US trade deficit. Rich countries, says Baker, are supposed to have exports surpluses, not poor countries.

So why is it now the other way around? Why does China export to the United States more than it imports from the United States? Baker’s answer to this is that China exports so that it can accumulate sufficient dollars to protect it from a financial crisis like the one that hit Asia in 1997.

As Baker alludes, the developing world was hit with a series of financial crises over the decade and a half prior to the Asian Crisis of 1997, because of the US decision to turn these less developed countries into low wage export platforms for American companies seeking to import back into the US. The crisis even dumped Japan into a permanent depression in 1989. This was the exports of capital he refers to.

So, the “dysfunctional” trade imbalances that Baker says resulted from the Asia Crisis actually created the Asia Crisis in the first place. Moreover, despite these rolling financial crises, the US deficit has continued to grow without pause.

But, that doesn’t fit into the story progressive economists want to tell. They want a story that blames China for the US trade deficit and the loss of manufacturing jobs. So, despite their own evidence that the US export of capital is the cause of the US trade imbalance, they need a story that makes Chinese exports the problem.

The only problem with this reasoning is that China’s exports have little or nothing to do with the exchange rate between the dollar and the yuan. The US imports from China are increasing even though its currency has been appreciating against the dollar. It imports from Germany even as the euro is rising against the dollar. And, the Japanese yen has risen from 360 yen per dollar to 80 yen per dollar over the last 40 years, but the US still imports from Japan.

Yen exchange rate with the Dollar (1950-2010)

The reason why this is happening — and will continue to happen despite US quantitative easing — is twofold. First, the US owns the world reserve currency, which allows it to depreciate its currency at will, while paying no cost for this depreciation in terms of reduced consumption from imports. Second, the US dollar is a worthless piece of paper, which can be generated in whatever quantities are needed by Washington to buy whatever its wants.

In effect, the US profits by depreciating its currency because it pays nothing for the exports of other countries. And, the more currency it prints, the more it profits by this depreciation.

Quantitative easing will not result in more US exports, nor in the repatriation of US industry back to the US. Instead, it will force other countries to ship even more output to the US at the expense of the consumption of their own citizens.

When progressive economists apply the fallacies of economics to concrete problems they risk misdirecting activists time and attention to blind alleys. In this case, activists would draw the conclusion that it is China, not the US that is responsible for the off-shoring of US jobs.

In fact, off-shoring is a deliberate Washington strategy to reducing labor costs and destroy domestic unions. Quantitative easing is just the latest weapon in that arsenal.

Obamanomics: An economic disaster of untold proportions…

November 23, 2008 Leave a comment

Vodpod videos no longer available.

more about “Barack Obama’s economic plan“, posted with vodpod

The Moron and his Wall Street crew thought it might be a good idea to inject trillions of dollars into the failing financial system to stimulate new lending, so they handed out billions to every banker they could find – forced them to accept the money, by some reports.

They stuffed hundreds of billions more into the pockets of central bankers from virtually every nation and on almost every continent – Africa, of course, seems to have been bypassed on this astonishing and unprecedented act of charity.

The financial markets responded by immediately shedding trillions of dollars of wealth.

As fast as the U.S Treasury and Federal Reserve could shovel money out the door, investors’ shoveled it right back in. The withdrawal of liquidity from every market proceeded apace as every market player with the means at hand sought the safest form of investment possible: US treasury bonds.

By last week, Hank Paulson threw up his hands and finally surrendered to the obvious: Mr. Market hates money! And, the wealth destruction we are witnessing results not from too little money in circulation, but too much.

Sisyphean efforts notwithstanding, Mr. Market has made clear society is no longer bound by the laws of scarcity and any interventions made on the premise that such scarcity exists will be rebuffed.

Time to wake up, people!

This is not the economy of the Founding Fathers. In about the same time one of that generation of Americans could travel from Boston to England – three months – China will bring 13 new power generating plants online. The productive capacity at our fingertips is of several orders of magnitude greater than that even enjoyed by mid-Twentieth Century Americans.

Now the Messiah has stepped forward to try his hand at the tasks which bedevil his predecessor. Saturday, Barack Obama announced his intention to spend perhaps as much as $600 billion on a stimulus package with a goal of creating 2.5 million new jobs through the start of 2011, according to the Huffington Post:

“These aren’t just steps to pull ourselves out of this immediate crisis; these are the long-term investments in our economic future that have been ignored for far too long,” Obama said in the weekly Democratic radio address. The economic recovery plan being developed by his staff aims to create 2.5 million jobs by January 2011, and he wants to get it through Congress quickly and sign it soon after taking office.

He called the plan “big enough to meet the challenges we face” and said that it will jump-start job creation but also “lay the foundation for a strong and growing economy.

If the Moron and his band of Wall Street predators imagined fixing a financial system choking on bloated bonuses, record profits and years of easy credit with even more trillions of dollars proffered on the easiest of terms, the Messiah and his Clintonite apostles have now decided the fix for an economy predicted to shed millions of jobs and hundreds billion of dollars in government revenue is to “create” more jobs, and run bigger deficits to do it.

Perhaps, we are incredibly dense, but Mr. Market seems to be saying we need less government, less capital, and less work. But, you keep electing people who seem determined to increase all three!

Give us a clue, people: What the fuck are we missing here?

What the fuck is so difficult about having a society where people spend less of their life immersed in the soul destroying filth of labor, greed and, faceless bureaucracy?

What the fuck is so horrifying about devoting less of your time to the mad scramble to pay bills, balance budgets, and find childcare for your own neglected latchkey children, that you would fight so strenuously to increase the very things that makes these things more onerous?

It is clear to us what Donald Trump gets out of this: he couldn’t find a date if he didn’t own a modeling agency.

And, we know what the Moron and Messiah get out of it: Its great to have everyone stand when you walk into a room; its great to glad hand all your class mates who now lead other nations, and know, deep down inside, you won the biggest prize of all – seven fleets prowling the world’s waters, and enough nukes to burnish the surface of the earth with glass, and precipitate a new glacier age.

But just what the fuck do you get out of it?

How is it improving your sex life?

How does it boost your bragging rights at state dinners?

The Messiah has now embarked on culmination of the very disaster begun by his predecessor. Instead of grasping the fundamental logic of this crisis – that working hours must be reduced; and, that government must be reduced along with this – he has chosen to intensify that crisis.

Resolution of this crisis will now likely be imposed in the harshest and most chaotic form possible, with all the incalculably catastrophic unfolding of events that this implies: The default and bankruptcy of the United States government, and subsequent collapse of global economic activity.

China: “If it is not the end of the world…”

August 30, 2008 Leave a comment

Okay.

We admit it.

We are prone to excessive pessimism regarding the impending catastrophe facing you; to exaggeration; to hyperbole – indeed, you can even say we underestimate your ability to muddle, once again, through the dark tragedy which is about to descend on you.

The United States is not Argentina, the Dollar is not the Peso, you say.

Almost.

Read this nasty little item from the Australian site, The Age:

A high-ranking Chinese economist has put his nation’s cards on the table in the global financial poker game by effectively telling the US to fix Freddie and Fannie … or else.

“A failure of US mortgage finance companies Fannie Mae and Freddie Mac could be a catastrophe for the global financial system”, Yu Yongding, a former adviser to China’s central bank, says.

“If the US government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,” Yu said in e-mailed answers to Bloomberg. “If it is not the end of the world, it is the end of the current international financial system.”

“Men like Yu Yongding don’t just get up one morning and say this sort of thing.” We are told by the writer.  “He is possibly the most highly accredited economist in China. A list of his positions would fill a little red book.”

Not a word this week from a single member of the elite bosses of the Party of Washington. Not a peep from the economic vandals of the Party of Wall Street.

Not a single response from The Presidency, the office of the Speaker of the House, nor from the office of the Senate Majority Leader.

Not a word of this and its implication for you and those you love from the lips of the nominee of the Party of Washington, who waxed eloquent regarding how life will profoundly change under his enlightened term in office.

He went on for forty-two minutes, we are told, yet found not ten seconds of it where he could have told the nation, “Uh, sorry. The Chinese just sent us an ultimatum: Either we fix our economy, or we are cut off from the spigot.”

Not a peep.

Let us speak frankly, so that you are clear about the stakes for you and your family, when next John McCain or Barack Obama hold one of those town meetings in your area.

There are only two choices here:

  1. Dismantle America’s Empire – withdraw from Iraq, Afghanistan, all overseas bases, pull back the fleets, recall the submarines, and stand down, or,
  2. Starve.