The Unwinding of the Asian Currency Crisis
bitsofnews.com
bitsofnews.com
I want to make two general points in response.
1.) Many things in Economics have two sides to them, and exchange rates are one such thing. Yes, a weaker dollar means those who hold dollars are, effectively, poorer. OTOH, a weaker dollar makes our exports more attractive to the rest of the world, and will redress the trade imbalance that the professional doom-and-gloomers are always on about. If you're in business, selling to the rest of the world, a weaker dollar is _good_. See, for instance, all the whining about 'artificially' low pegs for the Yuan and Yen.
2.) The _current_ (floating) exchange rates represent the aggregate wisdom of the market on the question of _future_ exchange rates. If the dollar was "obviously" going to depreciate further, it would depreciate now, as traders looked to short it. Predicting deviations from the current market rates is simple speculation. If that's your bag, knock yourself out, but don't act like the future is transcendentally obvious. That sort of talk is simple kookery.
A couple of times, the article mentions a country's wealth and power. In the long run, national competitiveness determines a nation's wealth. Currency changes are a mechanism that can influence competitiveness in the short term. (As mentioned by others, devaluation can increase competitiveness and wealth.) National competitiveness has been studied exhaustively. While there are still a lot of questions, we seem to agree that a nation needs to produce goods/services that the rest of the human race values and are willing to pay for at an efficient cost. The nation also needs to attact the most able and willing workers, call them the "talent". The nation needs a mechanism to identify and provide opportunities to the talent. Thus far, U.S. is recognized as the nation still most able to provide these conditions. Less universally agreed upon is the need for a rule of law including rights to personal property, the opportunity for the talent to accumulate much more property than the average person, and efficient access to capital. As those on this website know, access to capital and entrepreneurial support is pretty good here :)
There are two additional trends that I think have influenced the Asian Currency Crisis. One is the broad aging of the population in the wealthy contries. There is a net savings effect that is still going on. Younger people have more need of loans and older people have more need to invest. Right now, the need to invest outweights the need for loans. Money has been cheap for several decades. No one know what effect this will have when an equilibrium is reached, sometime in 2030. Another effect is land. The U.S. is said to have about the same livable land as China. You can see what this might mean. China has about 1.5 billion people to U.S.'s 300 million. A lot of Chinese will want to immigrate to US to get away from extreme over-crowding and the destroyed environment. (If you get the chance, watch the documentary "Manufactured Landscapes.") This will cause land values in US to rise, in proportion to the rise in China's per capita income.
National economies have changed drastically over a relative short time period -- a few decades. One of the scenarios discussed by experts is similar to the doomsday scenarios caused by a US dollar devalution versus the Chinese yuan. In most estimates, if this particular scenario does occur, it takes about 30-50 years. Interestingly, if you listen to most Chinese government and financial representatives, they present a doomsday scenario where China is the one going bust. They are very familiar with their own potential dangers, while we are much more aware of our own problems. For example, China has a very serious pension issue. Due to the one child policy, their workers-to-retired ratio is far smaller than in the U.S. They have not begun to create a Social Security program. (Think of Logan's Run. Actually, there are scary stories that I've heard from some of my Chinese friends.) I'm just giving another angle to this whole national competitiveness issue.
Basically, we're screwed. The Project for a New American Century has completely failed, unless you count the trillion or so dollars that have been stolen from the American people and laundered through Iraq.
If we could not find more gold we could still have economic growth, it's just that the value of gold would rise relative to the goods it could buy. (ie prices would fall)
You can read more here: http://www.mises.org/mmmp/mmmp5.asp
At least right now, it makes a lot more sense to trade in an energy containing commodity than pure energy because it's easier and more familiar to people.
The price of oil goes up and down too much. People wouldn't want to loan or save a currency that changes value so much. The beauty with gold is the price would be stable, as to date no one's come up with a way of getting lots of it quickly and easily.
People still keep searching for and mining gold. That was silly two thousand years ago, but they have the excuse that they didn't know better. I read that current methods used for mining gold in some countries (e.g. Argentina) are especially hazardous for public health and the environment of local populations.
This was important before the Information Age, but now there is no reason to have a lot of physical currency when you can just have ones and zeros. It's easier to use pure energy, the item that embodies scarcity, than something like gold that is much less useful. So it would make much more sense to use oil as the backing currency, or even pure electrical power.
"I know we paid you 25 grams an hour for your last six-month consulting contract, but if you want us to renew it, we just can't afford to pay more than 23..."
If this is the way things are, how can we make this good for us?
This is impossible for me because I don't have any money, but I think you'd have to be insane to invest a large amount of savings in the US stock market.
What if you borrowed money to start a company and used it to short the American stock market?
Please, leave the reddit talk on reddit.
A violent revolution would certainly be bad for the dollar. But if we were somehow able to bloodlessly kick out all the evil sociopaths in the government and replace them with individuals that wanted to help society as a whole, that would be very good for the value of the dollar. Unfortunately, this is impossible because of the overwhelming military firepower of the government and what appears to be an inevitable tendency towards corruption in democratic leadership.
If Stagflation happens in the US, those who survive and can profit from booming economies elsewhere will mop up the panicked, desperate, and undervalued here.
Here are my hypothesizes:
1) borrow American dollars that you don't need and spend them immediately on building something of value. For example: start a company, hire employees, write software, etc. As the dollar devalues, so does the value of your debt.
2) Build sales and business overseas. Make your business a pump for foreign currency back into the US. Pay for this business with debt described in 1. Use your power and stability to mop up the panicked, desperate, and undervalued here. Think Google during the Tech Bust.
3) Have the power and position to reap the rewards of the next economic upswing.