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The Fallacy that Weakening Your Currency Generates Prosperity
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Those demanding that the purchasing power of the currency be devalued are impoverishing everyone who holds the currency.
Of the many economic policies that are accepted as true yet are absolute nonsense, perhaps none is more achingly nonsensical than the notion that weakening a nation's currency will magically make that nation prosperous.
Like the equally nonsensical Keynesian Cargo Cult's misplaced obsession with "aggregate demand" driving "growth," the idea that devaluing one's money makes one more prosperous does not make even rudimentary sense.
If devaluing one's currency generated prosperity, then those nations that have destroyed their currencies should be the most prosperous on Earth. The reality is those nations that devalue their currency are poor, for self-evident reasons: devaluing one's currency lowers its purchasing power, which generates price inflation as imports soar in cost.
By lowering the yield on bonds (the favored method of devaluing one's currency), the leadership inflates enormous credit/asset bubbles as everyone seeks to borrow nearly-free money to buy real-world assets that generate income streams. This fatally distorts the domestic economy and creates the potential for crisis in the foreign exchange (FX) market.
The obsession with devaluing one's currency is rooted in the idea that exports are the key to growth, and the only way to boost exports in a world awash in virtually everything is to beggar thy neighbor by lowering the cost of one's exports in other currencies by devaluing your own currency more than competitors are devaluing their currencies.
The problem with this idea is that the cost to the entire economy exceeds the modest gains in exports generated by beggar thy neighbor devaluation. In most economies, exports are a modest sector of the overall economy. In the U.S., exports are around 13.5% of the economy: $2.35 trillion in a $17.4 trillion economy.
U.S. Exports Hit New Annual Record, Reaching $2.35 Trillion in 2014. The U.S. exported $1.64 trillion in goods in 2014, including capital goods, consumer goods, petroleum products, foods, feeds, and beverages, and automotive vehicles and parts. The U.S. exported $710 billion in services in 2014, including travel, transport, charges for the use of intellectual property, and financial services sectors.
What all those demanding the destruction of the currency never mention is the other way to boost exports: improving productivity and making products that are better than those made in competing nations.
The reason why there are so many voices pleading for a weak currency is this boosts exports without having to actually boost productivity. It's boosting exports with sleight of hand rather than by doing the hard work of breaking down the obstructions to improving productivity in the domestic economy: cartels, quasi-monopolies enforced by the central state, over-regulation by the state, the financial skims imposed by central banks obsessed with boosting bank profits at the expense of everyone else, and so on.
If the state uses its power to protect the privileges of the few at the expense of the many, productivity stagnates--which is precisely what is happening. Central banks lowering the yield on capital to zero distorts the incentives to invest and breeds rampant speculation, at the expense of investments in productivity.
There's another problem with depreciating one's currency as a politically expedient quick-fix: competing nations won't sit still while you take market share away from them via a devalued currency: they will respond by competitively devaluing their currency, which feeds the beggar thy neighbor cycle that ends up beggaring every nation that attempts to out-devalue everyone else.
In effect, those demanding that the purchasing power of the currency be devalued are impoverishing everyone who holds the currency. This isn't the path to prosperity; it is the sure path to impoverishment.
As I noted in an earlier post, No empire has ever prospered by weakening its currency. Reducing the purchasing power of one's money is the road to ruin, not prosperity.
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What part of all fiat will die don't people understand?
"What part of all fiat will die don't people understand?"
Haven't you heard? This time is different. Krugman and Kramer say so.
Frequently, when ecommunist is think out loud, is speak of inflation and currency devaluation as "good for economic". Think member of flock! This is cannot possibly be benefit for economic standing of sheeple! Why are you to believing lie!?
Truth is that weakening currency of nation is generate ill gotten wealth for currency manipulator (aka Bankster). Same is as if there is fresh bake pie and all market participant is get equitable share. While pie is cool, not baker or other laborer, but bankster, self-appoint administrator, is approach and is claim if cut pie in different fashion, is generate many more piece. Baker and other laborer is expert class of tradesman, but is not so number smart, so is agree because of elaborate argument of bankster.
Now there is twice as much piece of pie, so everyone is feel rich and maybe even is more commerce engage if use piece of pie as token for barter, But every time bankster is divide pie, is take slim wedge for self from each piece as transactional fee for cutting of pie. So many time, cut, cut, cut and soon... well, you are get idea.
... but what is Boris know!?
Boris is also have brothel version analagy of economic, but maybe is save for later.
That not sound like "dismal science" professor tell me economics is.
You are understand, after patron of brothel is partake of worldly pleasure, most of analogy is comprise of soil sheet, pathology of sexually transmit disease, and destruction of family. Subject of analogy is alway to end up insane commit to asylum or is die after long suffering in terminal ward of hospital. Very dismal.
It's time to rediscover the long-forgotten "gold clause" and put it back into your contracts. It just might make you the hero.
What generates prosperity is giving most of your income to the gov't.
I don't think the average schmuck has any clue what Fiat currency means at all...
Watch a Mark Dice video. Most people should be forced to wear a helmet when they walk and chew gum simultaneously.
In Detroit, is understand to be sale of Chrysler to Italian Automobile manufacturer.
They do understand they just wont face it. I think they just want it to never change. Cuz change is scary an stuff.
so Yellen should raise interest rates!
Yellen should tie loop in rope, put loop end around neck and hang from rafter, but bankster is not incline to do what is should do for good of economic, so you are please lower expectation.
"Reducing the purchasing power of one's money is the road to ruin, not prosperity."
correction: ignoring the constitution's mandate that only gold & silver are to be used to settle debts (ie, exchange) is the road to ruin
When one views the Fed's actions as management of a terminal event rather than just ongoing operations things begin to make more sense. The entire dollar system needs to be wound down. Too many dollars, not enough stuff....at current prices.
Accepted by whom? Certainly not the thinker, maybe the idiots in government beleive this theory, but not many others!
They don't do it for prosperity. They do it to help keep the banks from imploding for various causes, to keep paper asset prices rising for various reasons, and to generate FOREX gains for various parties doing international business. That is why they have started devaluing the USD again.
compounding interest on debt makes debt burdens grow exponentially bigger.
As such if the currency supply does not also grow exponentially government simply taxing and paying its debts to the central bank would inevitebly cause a deflationary crisis and massive unemployement.
The problem is band-aid fixed by inflation.
the real fix is
Banning compound interest and converting the debt to simple interest.
or
Debt Free money from the treasury.
It clearly does! How can you deny that the exports are of greater fiat value the year after the devaluation?
The real fix is getting gov out of the $ business entirely. We have to prohibit any use of force by anyone as part of legitimate behavior. The world is too complicated for anything except complete honesty.
https://thinkpatriot.wordpress.com/2015/09/28/our-systems-failure-is-our...
Any entity having force can add small amounts of dishonesty (propaganda, spin) and enhance their power. That is clearly out of control, and is all associated with the control of money, banking and force.
9/11 was a False Flag operation by the Israeli-Neocons in the US Government
Bullshit, there is no such thing as a "deflationary crisis" for the average Joe when it comes to anything required for a high standard of living if the population is growing exponentially.
The fix is to thin the fucking herd.
same as it ever was.
"That is why they have started devaluing the USD again." -- they why are U.S. equities going down?
dollar devaluation will come, right after the Fed tries to save face.
How can it be that economic science places its first rule on the fallacy that decreasing currency value increases exports? Well because there are a bunch of idiot professors who are paid to say what the science tells them too. The Prossers point to certain theories that work mathmatically, then they say that all their theories are correct.
The way to increase exports is to decrease the vallue of the currency.
^^ Can you believe that?
When govts push the value of their populations currency down they remove purchasing power from the citizens.
Removing purchasing power from the citizens drives their wages down relative to wages in other countries.
This means that other citizens of different countries can go and buy your governments slaves (you) and force you to work for their currency which is more valuable than yours.
This creates a rush to zero valuations on currency, nations will continue to print currency to drive the value down as much as possible until all but one currency is worthless.
9/10 currencies will fail in a sustained currency crisis.
-The Euro is failing
-The Dollar is artificially propped up
-All the middle eastern currencies are failing/have failed.
-All the South American currencies have essentially already failed
-The Chinese currency is prospering
-The Russia currency is hurting but surviving
-The Japanese currency is essentially on its death bed/running around in a wheel chair
-The South Korean currency is doing ok (pretty good by world standards)
So far it looks like its a war between the U.S. Dollar and the Chinese Renminmbi, if the Dollar loses world reserve status chances are the Chinese will take over.
This will drive the cost of consumption down for the Average Chinese citizen (their society will reap the rewards for working like slaves for the past 50 years) and the average middle class Chinese citizen will be able to come to America and buy-up entire city blocks in American Middle Class areas.... this will displace the current American middle class and allow them to retire to places like Florida/Their National home nations and Balance will be restored.
The next Generation of Americans (Echo Boomers/Millennials) will essentially become workers in Chinese OWNED sweat shops for the next 45-60 years.
Best place to be right now is to become a Real-Estate Broker that speaks Chinese in places like New York or an English Speaking Real-Estate Broker in Florida, you will make a killing selling property to Chinese in NY (If you haven't already).
We should of all learned Chinese 10 years ago to save ourselves but we didn't have the fore-thought.
Monetary Power swings back and forth cyclically like a pendulum, if the Chinese worked like slaves for Americans for the past 50 years, then you will have 50 years of Americans working like slaves for the Chinese eventually as the pendulum swings back and the U.S. Dollars sent abroad come home to roost.
I think buying and holding Chinese Currency ISNT A BAD IDEA RIGHT NOW, it could easily go up in value 50% or more over the next 20 years.
could this be the future of the Yuan?
http://postimg.org/image/sr85wasg7/
Sorry, I don't see how a game of global Weimar ends well for anyone. The Chinese invented paper money for fuck's sake and have been devaluing faster than anyone else.
Moreover, if what you say is true than producers with no debt and title to all their land and productive assets will see tremendous gains in their wealth as all the Chinese paper floods into the U.S. Sounds fucking great to me.
Beer 5 euro now, Beer 10 euro tomorrow. You understand?
From previous ZeroHedge article on Greek prostitution:
The price for sex has dramatically decreased from €50 euro for 60 minutes down to “€2 for half an hour.“
Standard Disclaimer: Every cloud has its silver lining?
Honestly are peoples that dumb that they keep on choosing between two lousy parties and expect a different out come. Stop voting for either and maybe if you vote for the right one change will happen and each country can become independent from this crazy spider webb in which we have no voice at all..
CANADA's impoverishment has reached $0.73 due to USD Hegemony, motherfucking parasites.
No need to boost exports via any method.
You reduce usury costs to service local demand.
The function of production is consumption
Sure you import bananas or something that you cannot produce but that can be a fairly limited scale operation.
Irish farmers in the Golden vale are going bankrupt.
Incomes are down 9% already and set to crash in 2016.
They are going bankrupt because they listened to Dr Alan Ahearne - a prominent Irish economist with close connections to Greenspans Fed.
They decided to invest in mercantile activities as people living in Cork city had their purchasing power robbed.
Foregin markets have tanked (especially Dairy) leaving them with all those extra costs and no extra customers to offload those costs.
Another seventeenth-century fucktard bitching about "usury." Yes, keynesian ex/im management and mercantilism in general are retarded. No, you are no less a retard for thinking you can have a capitalist system without the intertemporal price coordination arising from market rates of interest.
You lost me in the space time continuum there bud
Sounds like Star Trek jargon to me.
I am looking at Irish national accounts at it is showing 21 billion 104 million of tax collected not respent in the Jurisdiction
This is usury, labour remittances (numbers not published) etc etc.
This unneeded tax adds to cost.
It is over half of the total tax take baby
It's all of Vat and half the income tax
Ít makes domestic stuff produced for the local market impossible despite the physical economic advantages ( little to no distribution Costs)
Re: Golden Vale
"In 2012, EU subsidies still made up 70 per cent of farm income..."
What could possibly go wrong? (sarc)
http://www.ft.com/cms/s/0/ff8b3294-3c3e-11e1-8d38-00144feabdc0.html#axzz...
It's amazing how often you will hear 'seasoned commentators' ie. government lackys, repeating the mantra that devaluation is "great for the economy". What they fail to mention is that for a net importer, like the USA or the UK, our cost of import increase overwhelms the gains in exports. We need 1.X units of import for every 1 unit of export. Ergo, this fallacy is plain stupid.
It's amazing how often you will hear 'seasoned commentators' ie. government lackys, repeating the mantra that devaluation is "great for the economy". What they fail to mention is that for a net importer, like the USA or the UK, our cost of import increase overwhelms the gains in exports. We need 1.X units of import for every 1 unit of export. Ergo, this fallacy is plain stupid.
http://www.rte.ie/news/2014/1202/664206-dairy-farmers/
Debt-based-fiat-currency has two fatal diseases.
1. It's very mode of production provides disicentives to material production by redistributing a portion of the proceeds to government, bankers, and their cronies. Shortly, it makes production less productive in financial terms.
2. Governments, bankers, and cronies outbid producers for the factors of production using producers own stolen wealth. This grows a non-viable synthetic economy, which DISPLACES an equal amount of real economy. Producers get crowded out progressively over time.
An intentionally weakening currency worsens both of these factors, but even worse REQUIRES their causes to become progessively more extreme over time to avoid collapse.
You can have life, or fiat. But in the long run you can't have both.
Those who support money printing just to boost assets values are no different than people who condone thugs mugging little old ladies just because they put some of the stolen loot into their investment accounts.
Of the many economic policies that are accepted as true yet are absolute nonsense, perhaps none is more achingly nonsensical than the notion that weakening a nation's currency will magically make that nation prosperous.
Who anywhere "accepts" that as true? When they do QE (monetization), they're not trying to create prosperity. They're bailing out their bad bets.
It was not a weak currency that will sink the Dairy farmers of Ireland.
Despite the weaker currency intermediate costs such as Diesel is down.
Nope.
It was overinvestment to capture foregin markets.
This is a repeat of the first Irish euro crisis.
The 1970s Eu farm overproduction crisis.
Leading to the implosion of the 80s
The EU replaced the small mixed farm of 30 to 50 acres with the 200 acre Specialised dairy ranch.
Many larger farms around Cork produced Barley for Stout.
This market immediately collapsed after Euro entry, more acreage went to Dairy export.
The Usury costs in a pint of Beer is enormous, there is Vat, excise, pub licence tax, both the brewery and publican must pay tax on labour and energy.
These costs must be recovered in sales.
The costs became too large after Euro entry.
The beer market in Ireland has totally collapsed despite its tight distribution dynamic.
Now the farms have neither a domestic or foregin market. t
Tst
Those demanding that the purchasing power of the currency be devalued are impoverishing everyone who holds the currency.
HAHAHAHA! How much cash savings does the median household have? Now how much USD debt does the median household owe?
WINNING!
Carlos says:
I had a dream, But it turned to dust
What I thought was love, That must have been lust
I was living in style When the walls fell in
When I played my hand I looked like a joker
Turn around; Fate must have woke her
'Cause lady luck she was
Waiting outside the door
I'm winning
I'm winning
I'm winning
And I don't intend on losing again
https://www.youtube.com/watch?v=_Q_DA66hIeY
I knew it was Big Hughie before I clicked on the header!
Time for the Fed to shock da monkey!???
Once upon a time, the goose drank wine;
the monkey chewed tobacky on the streetcar line;
the line broke;
the monkey done choked;
they all went to heaven in a little rowboat;
At least 2 thirds of the price of a pint is captured in both direct and indirect taxes ( income tax on labour and energy taxes)
In the pubs nearest to the brewery ( only one large brewy emains Now) it would be possible to distribute it at 50 cent to 1 Euro a pint depending on the volume of the business, enough profit for both both the publican and brewery if all e taxes were elimind.
The cheapest pint in Cork is currently 3.50~
Chill. Distill. Swill!
http://www.hillbillystills.com/product/turn-key-distillery-with-hs5500/?...
You have identified the process exactly, Dork. Government consists of useless eaters who have discovered the way to live by the work of others hands is to capture the legal process and use it to confiscate the work product of the productive. This process works pretty well initially, when there are lots of productive workers and few zombies/parasites, thus the welfare state is small and taxes are low. As more and more productive folks go Galt, the wagon eventually stops, because we now have all riders, and no one left to pull the wagon. This process has another effect, which is to dumb down the sheeple, and destroy their ambition, making it easy for the cabal to create huge monopolies by repressing competition with regulations and bureaucracies. The statists' objective is total control, but the only economic condition that can be totally controlled is total collapse. Total control is a static concept, and the best static condition is dead. So that is where we are headed (Tyler picked the right name for this site). Alternatively, if you consider game theory, what we have now is a proliferation of hawks preying on a smaller segment of doves. The advantages of being a hawk dwindle fast at this stage, meaning the cabal will soon turn cannibalistic, there being few sources of wealth left to plunder.
Fishhawk
Except, they do not need many workers.
The workers were in the service industry.
The service industry in Ireland was the pub.
Farm hands were replaced many many decades ago.
The machines do the work, one man can run a 200 acre dairy farm, impossible 50 YEARS AGO.
Same goes for secondary Industry.
You can go Galt or whatever all you want baby.
The real boses could not give a fuck.
Taxation through inflation. Inflate your debt away. These two tricks stopped working.
They will correct this with the previously planned "kill the dollar" scheme. Problem solved.
kill the dollar and...?
Starting WWIII?
The answer is here but knuckleheads refuse to hear it: BitCoin and the blockchain. The problem has been solved. BitCoin can kill fiat once and for all.
" BitCoin can kill fiat once and for all."
What do you think Bitcoin is? Only difference is one is paper fiat and the other is electronic fiat.
Both have zero intrinsic value.
Nope. Your statement proves you do not know what BitCoin is. Go educate yourself.
No you must prove up! Not the doubters. Because its very rare to be able to prove a negative. That burden is on you. The one claiming the affirmative.
Thank you Mr. Smith. Just about everyone I talk to believe that bullshit propaganda that is put out by the Bank and government so when they devalue the currency we smile and say Thank You!
When productive citizens get wise to this swindle, they stop treating the national currency as either a unit of account or a store of value. Then the only effect of devaluation is an across-the-board pay cut for all government employees, pensioners, and welfare parasites. This really does stimulate the economy by freeing up more resources for the private sector.
Dave A
Productive citizens....
You crack me up.
It's the machines that are productive.
We consume their productivity.
When last did you clear a field by hand?
I fixed the machine that fix the machines that plow the fields and transports the fruit. Does that count?
sure it does
It all counts.
You get enough to increase your social.status.
Me - I just want beer.