<<<< At 08:23 20/05/2010 -0400, you wrote:
(EW) Keith, given what is currently happening to the Euro, how could anyone expect that the development of rock solid world currency would be possible.
(KH) I don't think that a world currency will ever be possible until there's a crisis and, in fact, I think that the first step has already been taken. At the point last Monday morning (1.00am) when the European finance ministers were unable to agree to anything (particularly as between Sarkozy and Merkel) and the talks were at the point of collapsing, Obama rang them up and intervened with his swap dollar arrangement which, effectively, allied the two currencies and the two blocs in a way that hasn't happened before. Greek and Spanish debts (as euro bonds) could be laundered into dollars via the banks, the ECB could then buy those dollars and issue euros in exchange as a loan to Greece, etc. It wasn't any sort of monetary union in its real sense but it enabled the ECB to carry out Quantitative Easing in a way that didn't actually break the rules of the ECB. And that's why, after a day's pause to reflect on the "rescue", the financial market decided that it would do nothing to bring Greece and Co up to scratch anytime soon.
(EW) In signing onto the Euro, the countries of Europe believed that they were sufficiently economically and culturally similar to make a single currency possible without giving up many of their sovereign powers.
(KH) This was roughly so to start with the founder members of six northern European countries. The first mistake that was made was when Italy was admitted into the EMU by fudging their debt figure -- already way above the maximum limit of 60% of GDP and already (if my memory is correct) nudging 100%. Everybody knew that its figures were fudged (every newspaper was saying so at the time) but Italy was such a large prize to be added to the EMU that a blind eye was turned to it. Italy, like other EU countries, had already given up many sovereign powers (to do with trade tariffs, justice, and many other matters) when it joined the EU, but it didn't have to give up any more financial powers (such as taxation rates) when it joined the EMU, only what amounted to a solemn promise to keep their annual budget deficits within 3% and to work its government debt downwards to 60%. As well as continuing to sell its government debt (as eurobonds, now seen to be stronger than merely Italian bonds) to private buyers, Italy could also borrow euros from the ECB at low interest rates. Surprisingly, although Italy has continued to slip behind its targets, it's actually done a lot more in reducing public service expenditure (though nowhere near Germany, of course) than all those countries which subsequently joined the EMU.
(EW) Given what has happened to Greece, and is likely to happen in other southern European countries, it now looks as though they were wrong. A single currency, to be workable and effective, would require member countries to give up a huge chunk of their sovereign powers and their populations to undergo substantial changes in their expectations.
(KH) They didn't have to give up any financial sovereign powers (taxation and expenditure) -- only, as already mentioned, to try to be good. The ECB or the Brussels Commissioners could only cluck away in disapproval. As things began to seriously deteriorate some years ago the EMU actually devised a plan to fine individual governments which were not trying hard enough. But it then realized that it didn't make sense to penalize those countries that were already heading for trouble. So the fines were never approved or exercised.
(EW) The countries of the EU are much more economically, culturally and politically similar than the dominant and emerging global economic powers. Could you really expect the US, Brazil, Russia, India and China to give up the huge chunk of sovereign power that would be needed to make a single global currency work? I don't think so.
(KH) But they wouldn't have to give up any financial sovereign power at all by instituting a world currency in principle. (Can you imagine China giving up anything? Culturally, and second only to Japan, it's probably the most nationalistic country in the world.) What a world currency would do is to act as a benchmark of value which can be specified in a trading contract. This is something that simply can't be done at the moment except by hedging one or other of the partys' currencies or, more usually, US dollars.
A world currency wouldn't be easy to establish. Besides establishing its underlying rock solid (or only slowly-changing) value, the main negotiating countries would have to set an initial value of their national currencies against the world currency. But once these are launched then governments would have to ensure that their own national currencies become as steady as possible if they want to maintain a reasonable amount of trade. Competitive inflation of a national currency wouldn't be possible any longer unless the government of a country was bent on impoverishing its citizens.
Keith >>>> At 11:04 20/05/2010 -0700, you wrote:
This also illustrates why we must never even entertain anything like the so called Amero or a common NA currency, nor any adoption of the unsupported by resources US dollar or Canada would essentially be taken over by worthless paper.rb On 2010.05.20, at 5:23 AM, Ed Weick wrote:Keith, given what is currently happening to the Euro, how could anyone expect that the development of rock solid world currency would be possible. In signing onto the Euro, the countries of Europe believed that they were sufficiently economically and culturally similar to make a single currency possible without giving up many of their sovereign powers. Given what has happened to Greece, and is likely to happen in other southern European countries, it now looks as though they were wrong. A single currency, to be workable and effective, would require member countries to give up a huge chunk of their sovereign powers and their populations to undergo substantial changes in their expectations.The countries of the EU are much more economically, culturally and politically similar than the dominant and emerging global economic powers. Could you really expect the US, Brazil, Russia, India and China to give up the huge chunk of sovereign power that would be needed to make a single global currency work? I don't think so.Ed----- Original Message ----- From: <mailto:[email protected]>Keith Hudson To: <mailto:[email protected]>Keith Hudson Sent: Thursday, May 20, 2010 4:33 AM Subject: Good housekeeping out of chaos? Dear Short List,The financial markets panicked on Monday after the Sunday meeting of European finance ministers (and some prime ministers) and their trillion Euro "rescue". The markets panicked again yesterday, after the decision of the German financial regulators to ban short selling of European bonds.European finance ministers (this time with more prime ministers no doubt) are due to meet tomorrow (though with several one-to-ones today one gathers). It's looking to me that there'll be a panic after this one also. And, if the panic gathers pace over the week-end (as the first one did a week ago) then there could well be yet another Sunday meeting reaching into the small hours.If Greece can't be rescued for good and all this time, then it very much looks as though it will have to be released from the European Monetary Union -- with more countries to follow inevitably. If the two chief players of the EMU -- Germany and France -- continue to scrap as they have been doing for the past week then it looks as though the EMU is going to crumble. There's already talk of Germany forming a mini-EMU with some Benelux countries.Chaos? Yes, there would be chaos as national currencies are hastily pulled out of storage and reinstituted. But it might be considerably less than the chaos that is now going on between the US dollar and the EMU euro, the two chief currencies of the world. If the present chaos continues then there can be only one outcome, and that is a deepening of the present credit crunch.If that happens then perhaps America and Europe will be finally forced to the negotiating table by China, India, Brazil, Russia and Middle East countries which say that we need a rock solid world currency. National currencies can then truly measure themselves and governments finally forced into good housekeeping instead of becoming increasingly in debt.Keith Keith Hudson, Saltford, England__._,_.___<mailto:[email protected]?subject=re: Good housekeeping out of chaos?>Reply to sender | <mailto:[email protected]?subject=re: Good housekeeping out of chaos?>Reply to group | <http://groups.yahoo.com/group/Ottawadissenters/post;_ylc=X3oDMTJyb2Zodjl0BF9TAzk3MzU5NzE0BGdycElkAzE1MjA5MDU5BGdycHNwSWQDMTcwNTA4MzUxMgRtc2dJZAMxMjMxOARzZWMDZnRyBHNsawNycGx5BHN0aW1lAzEyNzQzNTgyNTY-?act=reply&messageNum=12318>Reply via web post | <http://groups.yahoo.com/group/Ottawadissenters/post;_ylc=X3oDMTJmMWdiZjlxBF9TAzk3MzU5NzE0BGdycElkAzE1MjA5MDU5BGdycHNwSWQDMTcwNTA4MzUxMgRzZWMDZnRyBHNsawNudHBjBHN0aW1lAzEyNzQzNTgyNTY->Start a New Topic <http://groups.yahoo.com/group/Ottawadissenters/message/12318;_ylc=X3oDMTM3bzk5ODNsBF9TAzk3MzU5NzE0BGdycElkAzE1MjA5MDU5BGdycHNwSWQDMTcwNTA4MzUxMgRtc2dJZAMxMjMxOARzZWMDZnRyBHNsawN2dHBjBHN0aW1lAzEyNzQzNTgyNTYEdHBjSWQDMTIzMTg->Messages in this topic (1)Recent Activity:<http://groups.yahoo.com/group/Ottawadissenters;_ylc=X3oDMTJmY3QxMGEzBF9TAzk3MzU5NzE0BGdycElkAzE1MjA5MDU5BGdycHNwSWQDMTcwNTA4MzUxMgRzZWMDdnRsBHNsawN2Z2hwBHN0aW1lAzEyNzQzNTgyNTY->Visit Your GroupMARKETPLACE<http://us.ard.yahoo.com/SIG=15o5hgphm/M=493064.13983314.14041046.13298430/D=groups/S=1705083512:MKP1/Y=YAHOO/EXP=1274365456/L=9bbb25ac-640a-11df-bcf5-fb7e90f0bfad/B=U1MwQmKJiTM-/J=1274358256971840/K=bvrjORrbZZ3MKWX7pPtAtg/A=6060255/R=0/SIG=1194m4keh/*http://us.toolbar.yahoo.com/?.cpdl=grpj>Stay on top of your group activity without leaving the page you're on - Get the Yahoo! 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Keith Hudson, Saltford, England
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