[Foundation-l] OT: The economics of debt and exchange rates (Was: Relocation announcement)

[Anthony]

On 9/22/07, Thomas Dalton <thomas.dalton at 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.