

The Unwinding of the Asian Currency Crisis - ingenium
http://www.bitsofnews.com/content/view/6155/

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mxh
Certain things in this article indicate that it was not written by a serious
man. The confusion between the words 'effected' and 'affected'. The reference
to 'capitalists' as an identifiable class of people. The assumption that
America lacks "the ability to produce products that the rest of the world
wants to buy", apparently irrespective of their cost. Gratuitous references to
'obese' Americans.

I want to make two general points in response.

1.) Many things in Economics have two sides to them, and exchange rates are
one such thing. Yes, a weaker dollar means those who hold dollars are,
effectively, poorer. OTOH, a weaker dollar makes our exports more attractive
to the rest of the world, and will redress the trade imbalance that the
professional doom-and-gloomers are always on about. If you're in business,
selling to the rest of the world, a weaker dollar is _good_. See, for
instance, all the whining about 'artificially' low pegs for the Yuan and Yen.

2.) The _current_ (floating) exchange rates represent the aggregate wisdom of
the market on the question of _future_ exchange rates. If the dollar was
"obviously" going to depreciate further, it would depreciate now, as traders
looked to short it. Predicting deviations from the current market rates is
simple speculation. If that's your bag, knock yourself out, but don't act like
the future is transcendentally obvious. That sort of talk is simple kookery.

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jyoon
While I agree with some of the points in the article, I want to stress that
this is only one possible scenario. (Sorry for this long post. It's my first.)

A couple of times, the article mentions a country's wealth and power. In the
long run, national competitiveness determines a nation's wealth. Currency
changes are a mechanism that can influence competitiveness in the short term.
(As mentioned by others, devaluation can increase competitiveness and wealth.)
National competitiveness has been studied exhaustively. While there are still
a lot of questions, we seem to agree that a nation needs to produce
goods/services that the rest of the human race values and are willing to pay
for at an efficient cost. The nation also needs to attact the most able and
willing workers, call them the "talent". The nation needs a mechanism to
identify and provide opportunities to the talent. Thus far, U.S. is recognized
as the nation still most able to provide these conditions. Less universally
agreed upon is the need for a rule of law including rights to personal
property, the opportunity for the talent to accumulate much more property than
the average person, and efficient access to capital. As those on this website
know, access to capital and entrepreneurial support is pretty good here :)

There are two additional trends that I think have influenced the Asian
Currency Crisis. One is the broad aging of the population in the wealthy
contries. There is a net savings effect that is still going on. Younger people
have more need of loans and older people have more need to invest. Right now,
the need to invest outweights the need for loans. Money has been cheap for
several decades. No one know what effect this will have when an equilibrium is
reached, sometime in 2030. Another effect is land. The U.S. is said to have
about the same livable land as China. You can see what this might mean. China
has about 1.5 billion people to U.S.'s 300 million. A lot of Chinese will want
to immigrate to US to get away from extreme over-crowding and the destroyed
environment. (If you get the chance, watch the documentary "Manufactured
Landscapes.") This will cause land values in US to rise, in proportion to the
rise in China's per capita income.

National economies have changed drastically over a relative short time period
-- a few decades. One of the scenarios discussed by experts is similar to the
doomsday scenarios caused by a US dollar devalution versus the Chinese yuan.
In most estimates, if this particular scenario does occur, it takes about
30-50 years. Interestingly, if you listen to most Chinese government and
financial representatives, they present a doomsday scenario where China is the
one going bust. They are very familiar with their own potential dangers, while
we are much more aware of our own problems. For example, China has a very
serious pension issue. Due to the one child policy, their workers-to-retired
ratio is far smaller than in the U.S. They have not begun to create a Social
Security program. (Think of Logan's Run. Actually, there are scary stories
that I've heard from some of my Chinese friends.) I'm just giving another
angle to this whole national competitiveness issue.

------
Goladus
So what are the options?

~~~
rms
We could stage a coup and get a US chairman of the fed that isn't in cahoots
with the sociopathic corporations. Good luck with that.

Basically, we're screwed. The Project for a New American Century has
completely failed, unless you count the trillion or so dollars that have been
stolen from the American people and laundered through Iraq.

~~~
lupin_sansei
Or we could get rid of the fed and go back to free market money (gold).
<http://www.mises.org/story/2623>

~~~
rms
But then economic growth revolves around new gold discoveries. It would make
much more sense to have a currency directly fixed to oil.

~~~
dood
Why not cut to the chase and define the joule as standard unit of currency.

~~~
rms
That would also work, in theory. It would also future proof the currency
against developments that could make oil worthless, though I don't see that
happening anytime soon.

At least right now, it makes a lot more sense to trade in an energy containing
commodity than pure energy because it's easier and more familiar to people.

