The long standing theory of how to use hyperinflation /currency devaluation to our benefit requires two preconditions. A long term balanced budget and eliminating our need to import things like oil. If you can’t do that then you are just shooting yourself in the foot
Of course, any unanticipated inflation is going to benefit borrowers, and hurt lenders and anyone with savings, since saving is equivalent to lending money to the bank or to the government if your savings is in cash.
Anyone who takes a look at the experiences of countries that actually experienced hyperinflation would discover that they didn’t find it to be very helpful, not even for the very poor people.
The link shows that US dollars buy fewer Euros than a year and a half ago. This is not because of a depreciated dollar, however.
All it takes to prove that is to look at inflation in the USA, which has been hovering somewhere in the neighborhood of zero for a couple of years now, and was actually negative by most calculations in 2009.
The dollar is now headed up, so all the scared people can rejoice. Except for those trying to sell stuff into the Eurozone, of course.
If strong currencies were so great. China would stop tying theirs to the dollar. They know very well what would happen if they did.
Why are widgets of less value because of currency fluctuations? Dollar goes back up, widgets become expensive again. When I lived in Africa the Congolese franc was worth almost nothing compared to the dollar, and even less on the black market (which you get when you don’t let a currency find its own level.) That didn’t make the art we bought worth any less.
And I’m not proposing forcing a devaluation, just not freaking out when the market has its say.
If the dollar crashes it’ll be like a financial atomic bomb that hit the world: with the entire Middle East plus China, India, Brazil, and Mexico getting hit on their foreheads, Canada and Russia getting toasted nice and crispy, and Europe flash-blinded and trying to outrun the fallout. It makes sense to suspect that the world is trying to keep the dollar alive.
Just kill everyone who’s poor. Not by Carousel or any other method of direct homicide, but rather by letting them starve if they can’t fend for themselves. Get rid of the designated “useless eaters”. The law of the jungle. Social Darwinism.
That’s the Republican/Conservative policy. Compare what the Republicans are doing to what I am accusing them of. Notice how you can’t find any difference between the two?
Cheap oil is a thing of the past. China and India’s increasing demand for oil are about to make sure of that. We need to move onto alternative fuels.
The U.S. will not survive a balanced that is balanced by any conventional means. Complete non-starter. You may have a ghost of a chance after a dollar collapse. Maybe. But balancing the budget without social safety net cuts that will end in rebellion? I dare anyone to show how that’s gonna be done.
This. Living abroad, paid in USD, I have seen my local purchasing power drop 20% since the previous administration conciously allowed the dollar to fall against major world currencies. During the current administration, we had a brief few months when I was able to buy Euros at a deep enough discount to buy a house. Now we are falling again, and I can’t afford the furniture.
:dubious:
Widgets are of less value because you get less (foreign) money for them.
The notion that exporters love a weak dollar because that means they can export more is misguided. Yes, they can sell their goods more cheaply. Because they are selling their goods more cheaply, they get less money for their goods. How is that good?
China’s undervaluation subsidizes their export industries. How does it do that? By forcing everyone in the country to sell their goods more cheaply to foreigners, and forcing everyone in the country to buy their goods more expensively from foreigners. In other words, everyone in China has to work more, and the value of that work is collected by the Chinese government and handed over to foreign purchasers of Chinese goods. And this is what you want to emulate in America?
I agree that policies to create a “strong dollar” create the exact opposite effect, where everyone has to work harder and their money is collected and handed over to people who purchase foreign goods. That’s just as silly.
Look at the case of Bahimes here. He lives abroad but gets paid in USD, which means from his perspective he’s getting a large pay cut. I suppose if he had to quit his job in Europe and move back to the US would be regarded as a massive victory by the “emulate China” crowd, because he’d be producing goods and services here rather than for dirty foreigners.
Again, deliberately devaluing the currency means deliberately forcing everyone in America to take a pay cut. Yes, forcing everyone to take a pay cut will produce jobs. This is the argument that corporations give to union workers, accept a pay cut or we shut the plant and relocate to Indonesia. Except it’s the government telling every American worker to accept a pay cut. Yay inflation! It’s what made the 70s so awesome!
Some things for people being terrified about the debasement of the dollar :
and
http://krugman.blogs.nytimes.com/2011/05/12/send-in-the-cranks/
And for people terrified about the huge cost of the deficit destroying the economy ( at the minute once we recover properly interest costs as a percentage of GDP are projected to hit early 1990s levels!) :
http://krugman.blogs.nytimes.com/2011/05/24/debt-arithmetic-wonkish/
Sure. If it crashes, if we don’t pay our debts, things will be really bad. But that is different from going bonkers if the value goes down, which seems to be the fear of the right wingers.
Ordinarily, you might be right. But not in a situation of insufficient demand.
We are currently in a situation of insufficient demand.
I sell 10 widgets for 10 bucks. The currency is slightly devalued. I then sell 20 widgets for 9 bucks. How is that not good?
You can’t ignore the international demand elasticity for US goods. Saying that manufacturers “get less money” per good means nothing until you know how many more goods they’re able to sell. And that’s not the end of the potential benefits. You can’t use the international exchange markets to determine domestic buying power. The dollar can lose a lot of its value against the euro and make the European vacationers cry bitter tears, but the effect can be almost entirely muted back at home. In the markets that most matter to the sellers, they’re not receiving 9 dollars instead of 10. They’re still receiving practically the full 10 Georges. In the domestic markets where they’ll be doing their consumption, the inflationary effect of the devaluation will be significantly less, and more than outweighed by the immediate effect of boosted revenue from increased international demand.
If there weren’t so much idle capacity, inflation would strike more quickly. But given that idle capacity, all those new dollars bouncing around are going to buy up that idle capacity and lead to more production before those dollars start bidding up the prices of already existing goods and services. The majority of the effect will be added production, not inflation. Exporters don’t get less money with a moderate devaluation during an output gap. They get practically the same amount of money for their goods, in the particular denomination of money that’s most important to them.
We’re not re-living the 1970s. We’re cutting it very fine to re-living the 1930s, and that was an entirely different situation. The post war Keynesian period had its excesses, and sounder money policies were the solution. Not so under the old gold standard. It wasn’t until they finally ditched their antiquated money systems and accepted a touch of inflation that they started their recoveries from the Depression. The longer they delayed, holding firm to their delusions of sound money, the longer they suffered.
Different diseases have different remedies. Devaluation isn’t often a useful tool, but it has its time and place. The US and the EU both would benefit from more monetary easing at the present moment (for reasons above and beyond export benefits, the effect of which would mostly cancel out with cooperative easing).
Naturally, there’s no cause for any severe devaluation. That would just be bloody stupid.
But they’re also selling a whole lot more goods. That’s called an offset.
And if their prices were not so cheap they wouldn’t be selling much of anything. Then here would their workers be?
None of you have yet answered the main question: how is that worse than the permanent unemployment that millions (especially the middle aged and older) are facing now?
Going at the rate we’re going he may be fired from his job and be replaced by a cheap local worker.
I’m sure in your universe he’d be better off then. Probably take a trip to Spain or something.
While adding more jobs.
What would you rather have, a pay cut or permanent unemployment? Permanent unemployment is a real problem for a lot of people right now.
Untrue. Corporations forced pay cuts and then laid people off. This scenario may or may not result in pay cuts for all Americans but it will also result in a HOLE LOT of hiring. That’s a lot of people going from earning $0 a month to > $0 a month.
Or perhaps you’d rather they live on welfare until welfare bankrupts us.
The situation we have now is much worse than the 70s. I lived through the 70s. It was nothing like this mess we’re in now.
Isn’t it kind of odd that so-called economic geniuses here believe the economy does well when wages go down and prices go down, but they then say wages can’t go up when prices go up?
Or worse, they believe that free trade causes wages to stay the same or higher, relative to prices, when history clearly does not justify such a belief? :rolleyes: