Eed,
At 18:05 13/09/2011, you wrote:
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.
What's much more pertinent since then is the depreciation of the
dollar and the other main currencies and the huge trade imbalances
which have also occurred. (The huge governmental debts are the
counterparties to the trade imbalances.) If the gold standard was
able to hold inflation at zero (in England and several other
countries of Europe) during by far the most explosive period of the
industrial revolution (the 19th century) then there is no reason why
it should not be a currency-stabilizing factor again.
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.
Most Chinese production of exported consumer products has been that
of assembling high value components made elsewhere. This is gradually
changing (though the Chinese haven't designed or produced anything
brand new yet). So far, cheap labour has obviously been useful but
it's only been a small part (typically 5%) of the final price of a
consumer good. Resource and transportation costs are relatively
modest also. By far the largest part of the final price is due to
design and marketing costs.
(EW) 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.
Yes, in one sense both China and America have been manipulating their
currencies. But this has only happened with the consent of American
corporations in allowing sufficient attributable dollar profits
gained in China to remain there. Part of these attributable profits
are paid as corporate taxation in China and part into further
investment (and subsequent profits) in China. American corporations
(and their pension funds!) gain by paying less corporate tax at
headquarter level in America, and the Chinese government gains by
being able to invest dollars in American government bonds as part of
their foreign exchange assets.
(EW) 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.
But the whole crazy thing about the Eurozone (its primary elementary
mistake) is that the European Central Bank was not allowed in its
foundation rules to issue Eurobonds! (It couldn't do so because no
Eurozone taxation authority had been set up.) This meant that
individual countries issued their own Eurobonds. Because of the
initial Eurozone propaganda and the implied uniform credibility of
all of these bonds they carried almost identical interest rates to
start with. To all intents and purposes, all Eurobonds were
considered to be indistinguishable. All the Eurozone countries
(including Germany) started borrowing money (issuing Eurobonds) but,
however, with greatly varying degrees of profligacy. In due course,
the banks that bought these Eurobonds realized that some countries
were far more profligate than others but they still thought they were
blue-chip assets to have (as part of their reserves) because, in
times of difficulty, the ECB would bail-out any country which was
falling behind in paying interest or on the bonds themselves when
due. Wouldn't it? Well, it did, two or three times, (even though it
was breaking its rules) but only because the more disciplined
countries such as Germany or Finland chipped in.
(EW) 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.
Yes.
(EW) 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.
Hold on! You've just used the word "currencies" (plural). The
Eurozone countries have no currencies. That's the problem. They only
have one currency, the Euro. The Eurozone countries can't
individually devalue their own currencies (by printing excess money)
and thus get their exports back on track, as other countries can.
Well, we'll see. Angela Merkel is going to have her telephone chat
with Sarkozy today (I think she's got tired of being kissed and
hugged by this rather nasty man). Maybe they'll pull something out of
the hat. But it's doubtful. In the whole history of mankind there
can have never been such a frenzy of visits, summits, consultations
and group photos as there has been over the Eurozone problem in the
past 6 months. Never has there been so much mental labour expended by
so many otherwise intelligent people (including four current European
Union Presidents of different sorts, so help us!) to such little
avail. (And, I've just noticed from my morning newspaper, Obama is
having a go at them, too!) What a mess!
Keith
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/>http://allisstatus.wordpress.com/2012/08/
Keith Hudson, Saltford, England
<http://allisstatus.wordpress.com/2012/08/>http://allisstatus.wordpress.com/2012/08/
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Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2012/08/
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