Keith, I don't think that a single currency based on a commodity like gold will
ever work again. What you don't seem to be taking into account is the
tremendous changes in production, consumption, technology and trade
(globalization) that have come about since the last feeble remnant of the gold
standard became history in 1971. Whatever the Great Leap Forward and Cultural
Revolution did or didn't do, China became a huge source of cheap labour and the
product of that labour could easily be transported to the rich world. China
ensured that it's products, whether produced by domestically or foreign owned
companies, would move by keeping the value of the yuan low -- i.e. by
manipulating its currency. The US ensured that its people could buy those
cheap goods by printing money based on bonds that, among others, China could
buy -- i.e. by currency manipulation. The EU established a common currency
used by its members and the ECB has tried very hard
to maintain the value of that currency at a more or less constant level. It
may for a time be working for some countries, but not all of them -- Greece,
for example, may soon have to revert to the drachma.
What I think I'm saying is that countries operate out of self-interest and will
always do so. They try to work to their own advantage which often turns out to
be the disadvantage of others. Currencies are among the most effective tools
countries have to work things in their favour, and, despite experiments like
the European Union, I can't see them abandoning control over their currencies
in the complex world we have now moved into.
Ed
________________________________
From: Keith Hudson <[email protected]>
To: "RE-DESIGNING WORK, INCOME DISTRIBUTION, , EDUCATION"
<[email protected]>; Arthur Cordell <[email protected]>
Sent: Tuesday, September 13, 2011 8:37:43 AM
Subject: Re: [Futurework] The approaching sanity
Arthur,
At 14:21 13/09/2011, you wrote:
Interesting. When the
history of this time is written we may see how cheap exports from China
to US (and elsewhere) led to China holding US dollars which were later
used for a variety of things including buying up assets everywhere and
making inroads into the EU by buying Italian paper. The
Walmartization of America seems to have led to a strange and unintended
outcome.
Yes indeed. The question that future historians will ask is: If
America had not allowed the dollar to be overprinted from 1971 and
onwards (when Nixon de-linked the dollar from gold) then what would China
have done? In my view, because of the awful blunders of Mao Zedong's
Great Leap Forward in the '50s, and the craziness of the Cultural
Revolution in the '60s, Deng Xiaoping would still have taken power and
would have still instituted total reforms of the administration and, even
more importantly, a total re-cast of its economy from mostly heavy
industry to a more balanced one as in the West. But China's new economy
would not have taken off at anywhere near the same speed if oodles of
cheap Eurodollars and Asiandollars had not already accumulated and were
ready to pile into China via American corporations and huge Chinese
ex-pat businesses in Hong Kong and elsewhere in SE Asia. Cheap Chinese
labour certainly helped (and was obviously a great attraction to all
these incoming businesses) but as far as sheer quantity of production is
concerned, and the types of goods made, cheap labour was nowhere near as
important to the Chinese economy than the modern industrial methods and
the (tremendously important) marketing know-how that the incomers brought
with them. Without the incomers and their dollars and expertise, the
Chinese export industries would have been mainly home-grown and would
have stayed that way for years, perhaps decades, to come. They would not
have been kick-started into modernity. Chinese exports would have resumed
with the same sorts of products that they had previously been exporting
in the 18th and 19th centuries (that is, before war ravaged both Europe
and China in the 20th century) -- such as hand-painted porcelain, silk
fabrics, hand- made wooden toys and furniture and the like. Of course,
China would still have developed from the 1980s and onwards but at
nowhere near the speed that it actually did. Furthermore, America (and
Europe) would still have retained a considerable part of its former
consumer goods industries.
America's dollar-printing policy of the last four decades, and the more
recent growth of credit on top of it by its rampant investment banks,
must take the major blame for China's eruption into the modern world and
America's present predicament.
Keith
From: [email protected]
[mailto:[email protected]] On Behalf Of Keith Hudson
>Sent: Tuesday, September 13, 2011 5:26 AM
>To: RE-DESIGNING WORK, INCOME DISTRIBUTION, , EDUCATION
>Subject: [Futurework] The approaching sanity
>
>Some credence has been given to my last paragraph of yesterday piece by
the news late yesterday that Italy's finance minister Tremonti appealed
to China's Investment Corporation last week to buy the next wave of
Italy's debt due on 15 September. The news apparently rallied Wall Street
share prices last night.
>
>This oughtn't really to be a surprise. Italy's recent attempt at an
austerity plan is even more likely to cause country-wide strikes and a
collapse of its government than the present predicament in Greece. No-one
knows the outcome of the discussions. Furthermore, there's unlikely to be
any sort of public disclosure at any time. More than likely,
though, the fragility of the Eurozone is now so extreme that some deep
understanding will have to be reached, and China will have to make some
very important decisions. From China's point of view, the Eurozone can't
be allowed to collapse if it's all possible. The Eurozone is not only an
important source of import goods (high grade machine tools, engineering
know-how and luxury cars, etc mainly from Germany), but the Euro itself
is an important currency ally against the ever-cheapening American
dollar.
>
>Also, if the Eurozone collapses, and many European banks are devastated,
then the effect on American banks (holding substantial European
liabilities) is such that America would likely plunge instantly into a
deep depression. China wouldn't want that to happen. It's one thing
for America to slide slowly into recession, as it is patently doing right
now, but it's quite another if America unleashes yet more quantitative
easing and devalues the dollar at an even faster rate. From China's
point of view, America and the Eurozone must both survive somehow for as
long as possible until both accept the necessity of a world-wide stable
trading currency which China has been calling for for years.
>
>Of the two problematiques, America is by far the more intransigent for
psychological reasons. Just as the opinion-setters of England
(politicians, civil servants and the media) experienced in the 1930s in
trying to adjust to its governmental debt and the demise of the British
Empire (and the necessity of constantly devaluing the pound), so America
is experiencing the same today. America was probably at its peak of power
in the 1960s at the time of taking on the communists in Vietnam -- and
losing -- and it's been downhill all the way since then despite its still
numerous military bases in many countries. Its last big episode of
invading Iraq, but now having to leave the country with even more
problems than it had before (with Sunni terrorism of Shias running amok
and without, as yet, America getting a drop of oil from Iraq's massive
undeveloped oilfields in the north), together with America's increasing
humiliation in Afghanistan by the Taliban, all this eloquently
demonstrates that America must now adopt a more humble role in the scheme
of things just as England had to (most of its intelligentsia
anyway).
>
>If America continues with its dollar-printing strategy, thus maintaining
prime-mover advantage in cheapening its exports and subsequently throwing
increasing inflationary strains on China and the rest of the emerging
world, then it will be punished, just as England was. It won't be China
that will do the punishing. It will be the whole world market through the
agency of scores of central banks around the world, mainly of the
emergent countries, which are now buying gold as their ultimate safe
foreign exchange reserve. Since 1999, this increasing necessity has
already produced as smooth an accelerating price curve as any scientist
could wish to see from an experiment.
>
>The price rise is due to go vertical by this time next year. Before then,
at levels of gold prices that will become approachably convenient to one
country after another, governments will decide to back their currencies
by the amount of gold in their central banks. And here the same
prime-mover advantage will obtain. Those countries who are the earliest
to do so might well suffer a brief hiatus of trade while their trading
partners adjust but will very quickly benefit while the free market price
of gold continues to rise. There won't be a panic crash in the gold
price. There will be a more or less panic flattening out. There will be a
reversion to the illogical, but yet status-driven, centuries-old
obsession with gold that will once again stabilize our financial systems
and prevent money inflation for good and all (just as happened in England
all through the 19th century).
>
>But just a final word to those steady-staters who, like me, think that
the advanced countries are already becoming locked into a particular
urban-dense way of life that will last for a very long while (while some
of the other countries -- but by no means all -- catch up), a
non-inflationary world currency doesn't mean stultification. Man's
frontal lobes are too curious for that. We will always be making
discoveries and will always want to make more. There's no reason why, in
a world in which the mass of everything we need by way of consumer goods
will be made, freighted and sold by automated methods, we should not also
gradually carry out infrastructure changes that will lead to a
sustainable economic future that will be friendly to nature and the
amazingly fascinating world it displays about us.
>
>Keith
>
>
>Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2012/08/
>
Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2012/08/
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