Topic: Hide your kids, hide your wife! (Read 3727 times)

As you said, that is just what they want you to 'think/believe'.

I was talking about Japan and in a more general way about exports oriented countries, which I made clear right from the start. I gave a simple example to show how it works for them. You said that the producers of the exporting countries in this case would get less value for their production while the importing country would pay less, and the loss would be on the former. I think I showed it pretty cogently that this is not true in general and the lower prices (which you assumed as a result of the money value manipulation) can actually increase domestic production, provide higher employment, etc. And this is especially true for exports oriented countries. In fact, that's what they are doing from time to time (devaluing their currency)

Your answer to economic problems in general is to lower the value of a country's currency.

This is irrational in two ways. 1: This can obviously not be done for all countries, you end up with a currency war. 2: It is not the money that is essential, the money is oil in the machinery, the real imports and exports are goods and services. Trying to manipulate the value of money is not helpful.

I don't get your point. You disagree with the current state of things or just find me wrong in describing it?

Clarify your stance

Not at all. I think I was clear. Do not engage in mercantilism. Use sound money. Let the markets work.

Yep, you seem to have pinpointed my whole idea, congrats! If the trade imbalances were fixed through the exchange rate, this would instantaneously kill the exports oriented economy of Japan. Now you have to make just another step ahead (out of logical necessity) and agree that the rational, thought-out policy of easing is not that evil on the economy scale as it may appear at first glance...

If the difference is just accumulated in foreign debt, it will not affect the exchange rate. I agree that accumulating foreign debt is quite common. It is a problem because it causes the market not to clear, and therefore suppresses changes in prices and therefore the signals to the market actors to change production and consumption.

As long as they can constrain inflation in reasonable limits as they do, it doesn't matter. In fact, the FED is fighting with deflation which is more dangerous for the economy (the Japan example is pretty evident, since they lagged with their QEs)...

Yes, this is a common practice which is obviously not applicable here and makes confusion only (and confuses people at that). We were "talking" (lol) about Japan and their counter parties (that would primarily be the USA) in which case the whole picture is aggravated not only by floating exchange rates (this could be dealt with), but also by the discrepancy in the trade balance which from the mid-1960s has been in Japan's favor ($60 billion in 1987). Apparently, this imbalance was made up for by an increasing accumulation of U.S. government debt. If you call that mercantilism, well, let it be so. But where's fallacy here?

Actually, I'm curious whether your post about mercantilism is referred to mine at all

I agree that in practice there are different dynamics, but to describe the phenomenon clearly, it helps to take away some variables, like having a common currency or having a steady exchange rate. Anyway, listen to the politician talk in Europe, they have in fact a common currency. The italians complain that the germans produce quality cars at a good price. They think that this fact makes the germans evil, when in fact both countries profit on it. The italians get good cars, the germans get good money for their effort to import useful stuff from other countries including Italy. Mercantilism is just stupid, and I have problems understanding why the public swallows it. Probably it is only special interest groups that have the necessary budget to drown the public with their publicity. People should just be critical to news and use their own basic reasoning power

The whole story is not that simple as you tell it here. It can actually be better as you don't take into account that the exporting country can in fact sell more (since the importing country pays less and thus can pay for more volume), so producing more wealth and profits, providing higher employment and fuller utilization of productive capacities even at lower prices...

Focus on raising export, reducing import, that is focus on the trade balance, is a fallacy called mercantilism. It is rampant today. Free trade is all about removing it.

The fallacy comes into the clear when it is explained this way:

Imagine first that you have world money, or, which is the same thing, the two countries' money is stable in regard to each other. It does not matter if the units have different value, just that the exchange rate is stable. Now, the people in one country wants the wares of the other country. To get that, they trade their own products. The more they can produce and export, the more they can import. The purpose of producing is to consume, either what they produce themselves, or imported goods traded for their own. The money is just oil in the machinery, the imports are paid with exports. There does not have to be any net inflow or outflow of money. Now if money flows out, the people in the country will want to repair their money loss, because they have a certain preference for holding money in reserve. Therefore they will produce more and export. Thus the balance is restored.

Now to devaluation. The government intervenes to reduce the value of their own money. This means that the producers get less value for their production, prices of the products go lower. Basically the importing country pays less, and the loss is on the producers in the exporting country. The corresponding imports will rise in price, making the imported volume lower. So the workers in the devaluing country gets less for their work and pay more for the imports. This is just bad for the people in the devaluing country. How can it be better? A number on the governments accounting books.

Now imaging that to reduce the value of a currency, there is in the end really one way to do it - to dilute the money with increasing the money supply. And where does the new money go? Whoever gets them, this is the people who wants the devaluation to happen. So for personal gain, they are willing to reduce the wealth of a whole population. That is evil.

Now to devaluation. The government intervenes to reduce the value of their own money. This means that the producers get less value for their production, prices of the products go lower. Basically the importing country pays less, and the loss is on the producers in the exporting country. The corresponding imports will rise in price, making the imported volume lower. So the workers in the devaluing country gets less for their work and pay more for the imports. This is just bad for the people in the devaluing country. How can it be better? A number on the governments accounting books

No, no! You misunderstand my perspective. You've stated it quite nicely. Perhaps numbers can be used to prove you right — and of course they can, or something is wrong! — but your premise is free of logical contradiction and stands well, numbers or not. Indeed, I read your words and see numbers, and they are right. I was merely admiring that, while I see it all with numbers, that you managed to state the truth clearly without breaking out a whiteboard. Not a popular trick at dinner parties, I assure you.

Feel free to dress it in numbers, if you think it is necessary.

…
It won't be in the hundred million range this time, it will be in the 1-3 billion deaths range.

That's the scary part. The financial pain ALWAYS causes subsequent deaths. It's the only constant in human history.