Anthony wrote:
On 9/22/07, Thomas Dalton
<thomas.dalton(a)gmail.com> wrote:
That's a good point. Nevertheless, it's still
a short term
consideration - purchasing power and exchange rates will converge over
time (and then diverge again, of course, but there's no way to know
which direction they'll go in next time).
That's not a given. It depends on getting the economic fundamentals
right at the national level, like not depending on debt to fuel
spending. It will work as a short term tactic, but cannot be sustained
as a long term strategy. Exchange rates merely reflect purchasing
power, and that in turn is a composite of a number of factors. Some
countries have gone bankrupt in the past, and the old currency became
worthless.
The modern world economy is based almost 100% on debt. Pretty much
every unit of currency in existence exists because someone lent it to
someone else (ie. all money is in the form of an IOU and is not backed
by anything - the gold standard went the way of the dodo years ago).
There is nothing wrong with debt, it's just unserviceable debt that's
a problem. The current economic difficulties were caused by banks in
the US giving mortgages to people that couldn't afford to pay them
back. If they'd been able to pay them back, there wouldn't have been a
problem.
If you're interested in a challenge to this theory that the problems
we're having were caused solely by banks giving mortgages, Alan
Greenspan's new book is good reading. It's obviously not written from
an NPOV - of course, neither is the theory that the current economic
difficulties were caused solely by banks. Mortgages played a role, to
be sure, but a far bigger IOU not backed by anything is the national
debt, in the form of treasury securities. Google "deficits must
matter" for a preview.
I at least agree with you that the current mortgage
crisis is not THE
problem. The U.S. did recover from the S&L crisis a few years back, and
that did have some similarities to the mortgage crisis. Perhaps even
the failure of the dot-coms was a related phenomenon. They were all
motivated by good old-fashioned greed. A government that has its
economic house in order can weather these storms.
Conservatives who have for years complained about "tax-and-spend
liberals" don't exactly deserve a pat on the back for going half way.
They have controlled taxes, but have not controlled spending. Who is
coughing up the funds for the expensive luxury of a war if the taxes to
pay for it have not increased? Somebody is cutting the cheques to the
military's industrial partners. A lot of it is based on borrowing money
from China and is secured by increasing US investment in Chinese
manufacturing.
I just read a paper, published in 2005, discussing the possibility that
the international reference currency might change from the U.S. dollar
to the Euro.
http://www.saag.org/%5Cpapers16%5Cpaper1597.html . That
author seems to feel that that possibility is at least a generation
away, but he does make an interesting observation: "No single factor can
ever bring the dollar down. It will be a host of factors (some listed
above) and others include, shear single-minded foolish US behavior of
expensive outside wars, excessive manufacturing imports (from China &
elsewhere), expensive life style at home and a huge trade deficit will
ultimately so weaken the Dollar that alternatives will look
attractive." Hmmm!
I could go on, but I don't want this to seem too much like a rant. ;-)
Ec