"Carnival Barker" Krugman & The Inevitable Weimar Endgame

Tyler Durden's picture

Authored by Jeffrey Snider via Alhambra Investment Partners,

Who President Trump ultimately picks as the next Federal Reserve Chairman doesn’t really matter. Unless he goes really far afield to someone totally unexpected, whoever that person will be will be largely more of the same. It won’t be a categorical change, a different philosophical direction that is badly needed.

Still, politically, it does matter to some significant degree. It’s just that the political division isn’t the usual R vs. D, left vs. right. That’s how many are making it out to be, and in doing so exposing what’s really going on.

As usual, the perfect example for these divisions is provided by Paul Krugman. The Nobel Prize Winner ceased being an economist a long time ago, and has become largely a partisan carnival barker. He opines about economic issues, but framed always from that perspective.

To the very idea of a next Fed Chair beyond Yellen, he wrote a few weeks ago, “we’re living in the age of Trump, which means that we should actually expect the worst.” Dr. Krugman wants more of the same, and Candidate Trump campaigned directly against that. As such, there is the non-trivial chance that President Trump lives up to that promise.

Again, it sounds like a left vs. right issue, but it isn’t. The political winds are changing, and the parties themselves are being realigned in different directions (which is not something new; there have been several re-alignments throughout American history even though the two major parties have been entrenched since the 1850’s when Republicans first appeared). Who the next Fed Chair is could tell us something about how far along we are in this evolution.

What Krugman wants, meaning, it is safe to assume, what all those like him want, is simple: success. He believes that the central bank has given us exactly that, therefore it is stupid to upset what works.

In particular, both Bernanke and Yellen responded effectively to a once-in-three-generations economic crisis despite constant heckling from back-seat drivers in Congress and on the political right in general. And their intellectual and moral courage has been completely vindicated by events.

This is right here is the very central point of political difference that is pulling the world slowly apart. Krugman offers no evidence for his assertion, that the Fed has performed admirably and successfully, he just states it as if it was so (a common tactic in the mainstream, the fallacy of authority). Whenever challenged on this contention, the argument will always go back to “jobs saved.”

A worse counterfactual downside is not a rational standard for evaluation in any discipline or context. The only benchmark that should matter is recovery, as any economy facing recession, even an unusually severe one, has to make it back to the prior condition. On that score the Fed has utterly and unambiguously failed.

One reason for it is the one thing Economists like Krugman never bring up; the 2008 panic. How can anyone claim the Fed under Yellen or Bernanke performed even minimally well? The very fact that the panic happened at all is a direct indictment on monetary policy and the people who were there during it (you had one job to do!).

That’s not really what is at issue here, only it has become one battle in what is a larger war. That struggle is betrayed in Krugman’s own words by which he means to raise up both Bernanke and Yellen as examples of what needs to continue.

For more than a decade the Fed chair has been a distinguished academic economist — first Ben Bernanke, then Janet Yellen. You might wonder how such people, who have never been in the business world, who have never met a payroll, would deal with real-world economic problems; the answer, in both cases: superbly…

Given this track record, you might expect to see either Yellen reappointed or an equally qualified technocrat take her place.

This is all really about Economics. It has failed and most publicly so in the form of its principle public adherents in the Federal Reserve piloted by Bernanke and Yellen. The technocratic stars of the faith have been dramatically dimmed by events. Economists are not scientists, clearly, and so they are desperately seeking to circle the wagons by rewriting history; the last ten years weren’t all that bad, and they really could have been worse if it wasn’t for Economics.

The irrational, emotional defense for the ideology is what is driving political upheaval, including Donald Trump’s occupying the White House.

To most people, Krugman’s ideas and assertions are nonsense. They don’t have to know anything about QE’s effect on the TBA market and dollar rolls, how exactly McDonald’s was borrowing from FRBNY, or what it was that AIG did that ultimately made the Federal Reserve profits. People know the Fed did a bunch of stuff that didn’t work because they can tell there is something very wrong with the economy.

And after ten years of being told not to worry about it, or that it was being expertly handled, the people are Fed up with the defense of ideology first at the expense of actual answers. That’s really where we are; Economics has no more solutions (more QE!), therefore Economists have been forced to re-evaluate everything but only along those lines. If Economics can’t solve the problem, then they believe this has to be as good as it gets. And everyone should just stop complaining and appreciate the heroic and inspired effort that “saved” so many “jobs.”

Trump’s candidacy, as Bernie Sanders’, as an ideal was a grave threat to the status quo because it started with the premise that, no, this isn’t as good as it can be and that we need to look for real solutions. Whether he forwards that ideal as President is and has been another matter, and who he picks as Fed Chair might be some small indication of where he currently stands consistent with that idea, or perhaps having second thoughts about it.

The technocracy doesn’t work because it isn’t technically competent (thus 2008).

That’s the real political debate in 2017 and going forward; technical incompetence where the defense of the technocracy refuses to even allow the suggestion that this might be true. I go back to Weimar Germany not because I expect a global hyperinflationary breakdown, but in how that one particular form of systemic breakdown exposed timeless flaws inherent in all economic and financial systems. They all run to some extent on trust and (good) faith:

In other words, German monetary officials, particularly Reichsbank head Rudolf von Havenstein and Minister of Finance Karl Helfferich, denied that Germany had an inflation problem at all – right up until the end. Minister Helfferich declared that Germany had better gold coverage after the war than before it, despite that more than quadrupling of currency volume. One economics professor, Julius Wolf, wrote in 1922 that, “in proportion to the need, less money circulates in Germany now than before the war.”

 

As much as the easy-to-see Versailles excuse played a part, there can be no doubt that beyond 1921 the German people themselves began to recognize that authorities had no idea what they were doing; worse, they came to see that even though policymakers were inept and incompetent, officials themselves would never admit as much and thus nothing would prevent Germany from its fate. That awakening meant an increase in danger that French occupation could never have unleashed on its own.

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Grandad Grumps's picture

It is not that authorities do not know what they are doing.

1. They have become hopelessly corrupted
2. They are TRYING to burn the system down.

J S Bach's picture

The difference between the "Weimar" days and today is that now all of the blood-sucking usurious perps and their hangers-on (like Krugman) have a "get out of jail free" card in a one-way ticket to their little pirate-state hideaway between Jordan and Egypt.  In the 1930s, the USA 'Murican Mutt and the USSR Communist Cur were the preferred dogs to which the parasitic (((fleas))) hopped after drawing too much ichor from their German Shepherd host.

greenskeeper carl's picture

If trump wants to be different, put Ron Paul in charge of the fed, and let him work his way out of a job as he disassembles the institution from within. Anything other than pulling a Jackson is just maintaining the status quo.

J S Bach's picture

I would just like to see a legitimate full-blown audit of EVERY SINGLE GOLD BAR in Fort Knox.  Whether Ron Paul or any other maverick appointee could accomplish this feat is doubtful.  In my opinion, the system itself has to be abolished entirely before such an undertaking would ever be allowed.

Pernicious Gold Phallusy's picture

Whom would you trust? It's impossible. The stakes are so high there is zero chance of an honest audit.

J S Bach's picture

Precisely.  That's why I wrote that the system has to be entirey abolished before any honest assessment can be ascertained.

robertsgt40's picture

Does anyone really believe Trump is "appointing" the next head of the Fed, a private corporation? Pleez

remain calm's picture

The system is going to collapse. The trick is who do you blame it on? Who or what is the black swan? China, Europe, NK, Iran, the debt. Lets see what becomes the scapegoat

Grandad Grumps's picture

Historically tradition has been to blame it on the Jews. I suspect that will not be the case this time unless the media gets humping pretty soon now.

Blue Steel 309's picture

Historically, the Jews were actually to blame.

rksplash's picture

Yes but the Jews have many allies. Lack of foreskin is not a prerequisite for being a greedy little butt kisser. I get the impression there is an ulterior motive for the Jew hating on this site. I smell Hummus.

Pernicious Gold Phallusy's picture

The various elected officials I have met, at all levels of government, know and care about absolutely nothing beyond their next election. Their every word and action revolves around fundraising. They don't listen to the meaning of anything constituents say. They listen for words programmed into their brains that trigger canned speechlets their pollsters have told them potential donors want to hear. They don't even notice if their speechlet disagrees with what the constituent just said.

Political aides are placed there by big donors who want the aides' nominal bosses, the elected officials, to divert taxpayer money to the donors. The aides know and care about absolutely nothing not involved with the narrow special interests of the donors, and their nominal boss's next election. Aides of various elected officials work together to enact donor's wish lists into law and policy. Elected officials are not involved with legislation, nor policy, beyond voting on bills. They do not know what is in the bills. They vote as their aides instruct them, in order to carry out the wishes of donors.

Appointed and confirmed officials are placed there by big donors. They know and care about nothing beyond the donor's wishes. Appointed officials view elected officials as vehicles, and pay them no attention.

There is no room in this system for consideration of coordinated strategy benefiting the nation, and so we have none. But neither is there room for malevolent conspiracies on the part of elected or appointed officials. Malevolent conspiracies could only be coordinated by a network of donors. Aides, elected and appointed officials can carry out discrete actions at the behest of donors, but the system prevents aides, elected and appointed officials from coordinating anything.

Government hirelings only care about not getting fired. It is exceptionally difficult for this to happen, so they are free to do as little as possible to keep their jobs. They realize they are free to engage in personal vendettas, however. Hirelings will have no interest in malevolent conspiracies.

Kickaha's picture

As somebody who has handled union and civil service matters on behalf of fired or disciplined civil servants, I long ago noted that those cases were never based upon anything remotely related to actual job performance in the sense of whether or or not the employee had performed the duties of their position effectively, or at least more effectively than average.  For lack of a better term, they always involved some sort of scandalous behavior unrelated in any way to their ability to competently perform their civil servant duties.

Either there was a general total ignorance as to what the civil servant's job entailed, and no idea as to what they were supposed to be doing in that position on a daily basis, which made it impossible for their superiors to ever evaluate their actual job performance, or there was an unwritten rule that nobody would ever suffer a true evaluation of their job and actual consequences for non-performance.  

Anybody near the apex of the bureaucratic pyramid was generally stuck at their position absent being able to find scandalous information about somebody above them in the pyramid.  There were no promotions to a higher pay grade absent retirement of a superior or his dethroning via somebody uncovering a scandal about him.  The stink of paranoia permeating the halls of these bureaucracies was palpable, with those in power terrified that their immediate underlings would throw him to the wolves at the first opportunity and eagerly ascend to the position he once held.  Having a high-paying job where nobody knows what the fuck you are supposed to be doing, or how to figure out if you are any good at it it, along with all sorts of legal protection for your position, for many people makes that job something to covet and protect.  To get to that point, though, you have to first abandon any thought of leaving the world a better place because you existed.

Sudden Debt's picture

The weimar example is such a usual example.

There's a lot more examples of how Europe restarted it's economy in the 60/80's.

Massive devaluations.

And it worked in the end. Europe has now surpassed America already quite a while.

So for America to survive, they'll need massive devaluations against other currencies.

And how fun it sounds, that means that America needs to sacrifice 2/3 of it's wealth and way of living before it goes all away by itself.

It won't be a Weimar inflation but it will be a 900% inflation

DjangoCat's picture

Gold at $13,000.  That is getting close to the price needed for China to be able to pay for oil with gold.

 

HRH Feant2's picture

If the gold, silver ratio were priced at 20:1 that would make the silver spot price $650. Sounds good to me. I have 100 pounds of the stuff. Would make me a millionaire at that price. I can't wait. Got stuff to do and places to go. Where? Hungary sounds great. White and Christian.

debtor of last resort's picture

But but, tokens and shit, when Aramco goes s&p and interest goes to 5, shale gets profitable, Xi goes back to the rice paddy,

TuPhat's picture

You can't stop this train wreck.

LetThemEatRand's picture

This article is a textbook example of framing the debate in a manner consistent with the status quo.  The debate SHOULD be whether we need a Fed at all, not who should be the Fed chair.  The debate over who will chair the Fed is akin to debating whether the MIC budget should grow by 1% or 10%, or whether we're bombing the Middle East enough.  If Trump really wanted to drain the swamp, he would start by talking about getting rid of the Fed.  Can you imagine a tweet from Trump:  "we need to End the Fed.  Who's with me?  #endtheFed"  Neither can I.  Because that would start a real debate about real issues that matter.

Åristotle's picture

You may be on to something. Principles first, then their measurements/quality.

WHAT is it?
what IS it?
what is IT?

We must begin by answering what it is. The beginning is more than half of the knowing. That which is last in the order of analysis is first in the order of becoming. And so we ask the question everyone no longer asks, WHAT IS IT?

What is a bank?
What is money?
What is it from which it comes to be?

When we have answered these questions be deducing them back to their first principles, we then compare our own conclusion to that which is claimed to be a bank or money. Is there a contradiction? If so why? What is true and what is false, and why?

If what they claim to be a bank is not and if what they claim to be money is not, then:
WHAT IS IT?

MEFOBILLS's picture

Banks create Credit, not money.  The credit they create is evidence of debt.  You sign a new debt instrument that was created from nothing.  This debt instrument is then used to hypothecate new credit.

The credit ends up in your account.  Actually you loaned to the bank as it is your signature authority upon which the credit issued forth.  

Your new credit is a mark of liability to the banker.  To you, your new credit appears as an asset.

Banks are in the business of creating new debt instruments.  Once the debt instrument is created, effectively they buy it from you with new credit.

In the first cycles of the loan (debt instrument) virtually all of the interest you pay, passes through your ledger and lands on the bank's ledger.  You paying back of the loan is structured as usury, where the bank gets first fruits of your labor value.  Only at the end of the loan, when purchasing power has been degraded, does your re-payment decrement the principle.

Upon decrementing principle, the banks liability (your credit), becomes extingished.  Your liability (the debt instrument) and banks liability (the credit) disappear simultaneously.

What came from nothing returns to nothing.

Yes, it is a giant con, and only extremely (((devious))) minds could conceive of something so diabolical.

www.sovereignmoney.eu

Kickaha's picture

The "money is debt" cult around here is really quite tiresome to endure.  The contortions of the language foisted upon we comment readers in the perusal of these posts kills brain cells grappling with those distortions.

The bank gives me a loan.  I then have money and a debt to repay.  The fact that I must repay the debt does not negate the fact that I now have money.  It looks like money.  It spends like money.  I can buy cool shit with it.  Chicks all of sudden dig me.  It quacks like money.  It is money.  Don't waste your time trying to convince me otherwise.

The weakest point in your presentation is the "presto!" moment when you proclaim there never was any money because once the debt is repaid, nothing is left on the balance sheets for either side of the loan transaction, ergo, I never had any money, and all of the stuff I bought with it and the nights I got laid because of it therefore never really happened.

Next up:  The sheer idiocy of the "infinite growth cannot continue indefinitely on a finite planet" worthless garbage cult.

 

 

ipso_facto's picture

'Debt' can become money if it is used to create a net profitable enterprise (receipts-expenses [including debt repayment]).  Otherwise it should act as a millstone around your neck.

Kickaha's picture

Very true, overall.  But the money still existed at all times prior to repayment of the debt.  I think we have a definitional dispute, but we are not the first to have it.  Is "money" a store of value or a medium of exchange?  I would agree that a man who acquires money via taking on a debt in like amount has received nothing of value, unless he can parlay that money into a profit of some sort after wisely applying the money he obtained via the loan.

BTW anything accepted as money is at the same time both a store of value and a medium of exchange.  The two concepts are unavoicably intertwined and cannot be separated.  Just as you cannot conclude that debt=money unless you first see what the recipient of the loan did with the money he received thereby.

WallHoo's picture

You said "The "money is debt" cult around here is really..."

 

He said "Banks create credit,not money..."

 

Why is it so hard for you to grasp the difference,not only you are completely ignorant on the subject,you try to play smart ass by giving us "convensional wisdom", "if it looks like money...it is money".Well guess what dumb ass its not.You could have company scripts in your pocket and do the same thing but those would not be money jackass...

 

Credit dissapearing is something natural dumb ass,he is not going against credit creation but against money as debt that exist today only because the state can run indefinite budget deficits...Also he is saying that credit with theire short span should be chaneled to wealth producing industries,since this is the purpose of credit,above that we no longer talk about lending,we talk about usury and rent seeking.

 

All in all you should not have any credit in youre hands to buy cool shit and fuck chicks with you small dick and big car...Go to the gym,build some muscles,be a man and the chicks will come...

Åristotle's picture

Preposterous!

When the credit hits your account AND THEN YOU SPEND that currency, WHAT is it? WHAT is THAT CURRENCY?

What comes from nothing is not, since nothing can come to be from that which is not. IT comes from something. The return of IT comes from productive work, THE SOMETHING, of the one who exchanges their goods for THAT CURRENCY that you claim comes from nothing. It IS a currency which is real.

It does not come from nothing nor can it return to nothing. This is akin to saying that when the stock market crashes all the wealth mysteriously disappears and returns to nothing. This is false.

Kickaha's picture

I heard it depends upon what the meaning of "is" is.

BigJim's picture

+$4 trillion.Or whatever the fuck their balance sheet is these days.

Scuba Steve's picture

Probably would also start the internal debate of how many pieces they blow DJT and his kids heads into ...

just sayin.

Pernicious Gold Phallusy's picture

Parallel to the "health care" debate. "Health care" is not mentioned in the Constitution as a function of the Federal government. It is left to the individual States.

Kickaha's picture

Except that no politician in power ever seeks to resect any political organ that augments his power in any way.  Here is what you might get, at best:

Trump:  Get me Dimon on the line.

One of many lackeys:  Yes, Boss!

Dimon:  Mr. President!

Trump:  I'm thinking of abolishing the Fed.  What do you think about that?

Dimon:  How would you like a $10M contribution to Trump2020?  And have you thought of setting up a charitable organization?  I could provide the initial funding for that, too!

Trump:  Well, if you really feel that strongly about the issue, and I need to see that money to know you are sincere, maybe I can just keep the Fed as is, at least for the time being.

Dimon:  Thank You!, Mr. President.  The checks will be sent over by courier this afternoon.  God Bless America! (click!)

Trump to lackeys:  OK, who's next on the list?

Atomizer's picture

Good job Tyler. Two Krugman stories is one two many for me. Good graphic illustrated facts. No comment! 

max2205's picture

Stock charts just shouldn't look like a commodity chart 

HRH Feant2's picture

"That’s the real political debate in 2017 and going forward; technical incompetence where the defense of the technocracy refuses to even allow the suggestion that this might be true. I go back to Weimar Germany not because I expect a global hyperinflationary breakdown, but in how that one particular form of systemic breakdown exposed timeless flaws inherent in all economic and financial systems. They all run to some extent on trust and (good) faith."

I quoted that particular paragraph because of the use of one special word: technocracy. Where did I first hear that word? In the book, "Between Two Ages" by Zbigniew Brzezinski. That word is not in common usage. It is a word that remains because Brzezinski used it. (Correction: the word Brzezinski used was technotronic.)

The FRN (federal reserve note) also exists due to the full faith and credit of the US government.

So sorry. Some of us have given up being tax mules and have gone Galt.

I can't wait to see this whole system go up in flames and die a horrible death. Ready and waiting.

I watched the movie, "Open Secret" this morning. I am watching the movie, "They Live," now. I hate to admit I had never watched "They Live" before. Wow. Talk about being red pilled. And I thought I was awake. There is some seriously evil shit happening in the world. I am grateful for being naive. There are some people that are nothing less than pure fucking evil.

BarnacleBill's picture

This probably sounds ridiculously ignorant, but I can't quite see what the USD is going to devalue against. The usual answer is "the Chinese yuan", but China can't afford to allow its currency to rise much against the dollar, because it has to keep its manufactured exports up, and the same applies to other manufacturing nations. Countries that export minerals and (maybe) oil could weather some rising of their currencies against the USD, I guess, but they are all vulnerable to political pressure from the US. Gold and silver, no (except as a speculation); Bitcoin no (ditto). Assets such as land & buildings and stock-market shares and bonds have already absorbed as much dollar-devaluation as they can cope with.

So. I'd be genuinely grateful for readers' thoughts on the subject.

LetThemEatRand's picture

The USD will not likely devalue as compared to other currencies.  All CBs are doing the same shit.  The dollar has devalued against PMs even if not reflected in the spot price due to futures manipulation.  Ask any miner what it costs to get their product out of the ground and the razor thin margins.  It has clearly and spectacularly devalued against stocks.  It has devalued against real estate and food.  It has devalued as compared to healthcare and insurance expense.  It has devalued as compared to education expense.  Why do you say Bitcoin "no?"  Bitcoin has gone up hundreds of percent in a short time.  National debt has also grown massively, which is a kick-the-can type of inflation that we will feel later.

Wages have not risen in dollar terms because none of the freshly printed dollars are flowing to Main Street, and wages are held down by wage arbitrage with foreign populations in a global economy.  Oil prices have stagnated for a lot of reasons including fracking and a decision made by Obama/Saudi Arabia to drop oil prices to rein in Russian resurgence on the global stage.

We are experiencing classic stagflation.  The average guy pays more for everything that matters (food, housing, healthcare, insurance) while his wages stay the same and his pension is wiped out, and asset prices for things out of reach for the average guy like stocks skyrocket.  The prognosticators who predicted hyper-inflation in US dollars were wrong because they tried to compare non-reserve currencies with the world's reserve currency.  At some point the dollar will stop being the world reserve currency, and then the shit will hit the fan.  Until then, it's a slow bleed.

 

 

Yen Cross's picture

 Rand has been doing his homework, and I'm impressed.

BarnacleBill's picture

Rand. I don't think Bitcoin's hyper-evaluation indicates anything other than it's a speculation. It seems to be a modern version of the 17th-Century "tulipmania". As for the price of gold - well, on the market it's the same price as gold certificates; how realistic that is, I don't think anybody knows. As for the stock markets - I don't think their excessive rise indicates that the USD has devalued, any more than the excessive rise of famous paintings does.

Your examples of food, housing, healthcare and insurance are valid enough - although those tend to be regional in their prices. Using my own family expenditure as an example: food hasn't gone up that much - maybe 2% a year on average during the past forty years. That still means a doubling of prices, but 2% takes a long time to result in a Weimar situation. Housing - regional; healthcare - people my age tend to be anti-medication, so we're not so affected. (Also, we don't eat junk food!) Insurance - also regional, largely.

I appreciate your taking the trouble to answer my posting - and you may well be right. And thank you. But I think my point is still out there. What will the USD devalue against sufficiently to put it into a state of collapse?

Savvy's picture

What will the USD devalue against sufficiently to put it into a state of collapse?

The Fed?

Arnold's picture

If I could throw my two cents in here.

The simplified example to look at is the NEF of Venezuela.

With out going into a book length comment, it is simply not accepted anywhere in the world for exchange purposes.
Venezuela foreign exchange has gone commodity based (oil).
Aside from the speculative price, the quantity and quality of Venezuelan oil export has gone into the gutter.

The death spiral is simplified and apparent in Venezuela..

The US dollar death spiral is not so apparent, because of the reserve currency status. There is a vested interest in keeping it propped, particularly in first world economies.

The Euro is similar, as it is cross traded as a base across much of Europe, yet propped up as well by injections of indirect central bank buying.

No one has the Truman desk sign, 'The Prop Stops Here'.
Despite appeasement rhetoric to the contrary to make us losers feel like there is something being done, coating the results with white wash, it is the only thing they know how to do.

And dammit, they are going to continue to do it in one form or another.

Arnold's picture

Perhaps the recovery of the Ruble , after the fall of the Soviet Union is an example to be looked at.

We have to do a correct action to shut off the cockpit voices in our heads that are screaming 'Pull up, pull up, pull up...', or hit the ground hard and fatally.

Seeing Red's picture

+100 for being so comprehensive.  Not "news", but still -- a great post.

Hubbs's picture

This time, unlike the Titanic, there are no lifeboats for anyone.
An equal opprtunity drowner for all countries.

BidnessMan's picture

Need to remember the locations of my boating accidents.

BigJim's picture

Thinking that devaluing your currency will help you compete with foreigners is a commonly held belief but it's horseshit. In a contended market, what you charge for something reflects ALL the costs of the resources required to create it, plus your profit margin. When your friendly currency authority debases the value of your currency, the prices of your inputs go up commensurately. The only thing that doesn't is your wage bill. But as the costs for your employees rise, so does their demand for higher wages.

American workers can't compete with foreign workers because the costs of production in the US - in REAL terms, ie, resources - is higher. Why? Because of taxes, regulations, minimum wage laws, the USD's WRC status making the dollar artificially expensive (Triffin's Praradox), you name it.

The average American can't compete with the average Chinaman, because that average Chinaman doesn't have to charge for supporting the world's most expensive military, tens of millions of welfare queens, and an absurdly expensive healthcare system. No matter what happens to the currency, until those government-imposed millstones are removed from his neck, he hasn't got a snowball's chance.

BarnacleBill's picture

"Thinking that devaluing your currency will help you compete with foreigners is a commonly held belief but it's horseshit."

Jim. You may be right; but the Chinese government apparently thinks that it will. As for all those costs of production you mention - I don't think they make the USD itself expensive, do they? I can't make that connection.

BigJim's picture

Think what would happen if the USD were devalued 30% overnight (does this seem extreme? Remember what FDR did after the Feds confiscated everyone's gold back in 1934?)

Do you think USD-denominated exports would drop in USD price by 30% as well? Maybe initially; the stuff that had been paid for in pre-debased USD could be sold for its previous dollar price. But anything produced after the devaluation would see its price reflect the fact that material inputs would have risen in price by 30%.

The only thing that won't go up immediately is the wage of anyone involved in making the good. But all (well, most) of their costs have gone up by 30% too - electricity, gasoline, food, etc. Which means they have less to spend on imports - the price of which have gone up by 30% - and domestically produced goods, which will have gone up by 30% minus the labour component.

Devaluation provides a brief fillip for exporters at the expense of local labour and anyone selling goods domestically. And it's only a brief fillip because the surge in exports causes demand for labour in export markets which in turn pushes up the price of labour for those companies, so they wind up having to charge the same amount (in foreign currency terms) as they did before the devaluation. Meanwhile, the devaluation will have made some domestic-oriented companies go bust, so, actually, big currency movements tend to be bad for economies because there is some "stickiness" involved in re-allocation of capital. The country, on the whole, is worse off. As people become unemployed, even if only for a few weeks before they get a job at an export-oriented company.

The Chinese peg their currency to the USD because it's the biggest market for their goods and they understand that large variations will destroy wealth... though it might be politically expedient for the elites there to do so under certain circumstances.

The Chinese government make their moeny off the renminbi/yuan difference; ie, they tax emports. This is why they are export-oriented; their revenue-raising is largely invisible to the average Chinese citizen, who would otherwise be pissed-off at how little they got from their government in terms of services if they were taxed directly.

Atomizer's picture

DNC is repeating bullshit. They love to mince words to sound non partisan. Fucking lemmings and liars. We have a few bad Republican apple's on our side. I know. Let's drain the swamp. Hope we can work together. We love the United States of America. Let's make it great again without Brussels global worldwide government mantra. Bozos running a whore house. 

Prora - the National Socialist holiday resort - YouTube

https://m.youtube.com/watch?v=ugfMbsETLsg

SHADEWELL's picture

Krugman has been sucking Hillary's dick for too long

What a fucking douche bag..Paul you fucking schmeg...your peeps are out of power and the more you criticize trump at every turn the more you reveal what has been behind the curtain that the public never sees

Fuck you

Atomizer's picture

Well, if you can't understand German. Fuck you SJW. 

It was a camp to indoctrinate liberal shit heads like yourself. Didn't happen. Now turned into high scale apartments. 

Neues Prora - Eigentumswohnung Prora Kaufen -Neues Prora ...