5 ms·

The Specter of Protectionism: World Faces New Wave of Currency Wars

24 points by sasvari 16y ago

ajaxian 16y ago
Incidentally the US Federal Reserve is currently the world's second largest holder of treasuries after China (http://www.zerohedge.com/article/deconstructing-pomo-fed-becomes-second-largest-holder-us-treasurys-world http://www.zerohedge.com/article/deconstructing-pomo-fed-bec...) and is on track to become the single largest holder in about a month. I'm not sure what the long-term implications of this are, but I'm guessing they're not good...
Tichy 16y ago
"Within just a few months, the pound had lost nearly a third of its value against the dollar. This produced the desired effect: The British economy recovered quickly." Isn't that just economics for simple minds? I don't know why the economy recovered, but it seems dangerous to assume it was just a single factor.
- chopsueyar 16y ago
  I believe the article said that was because the British 'unpegged' their currency from the gold standard. Why couldn't the British have simply printed more money? Back to today... Is the real problem China, or is the US printing too much money and auctioning off too many t-bills/bonds?
  - Tichy 16y ago
    I guess they couldn't print more money as long as they had the gold standard. Still, money is just a tool. It increases the efficiency of the economy, but somehow I doubt that it is the only determining factor. If people were able to produce and consume, they would find ways around a scarcity of money (for example exchanging things directly). Come to think of it, how did banks work back then? Seems to me even with a gold standard it should have been able to work with credit. So if somebody wanted to buy something from you, they could just give you a note that they owe you 100GBP? It's only the government that had to be able to present the gold, after all? Of course working with credit has risks, but that is just the efficiency I mean. But how much more efficient is an economy with money? 10% or 1000%? If they claim that "freeing the money" rescued the economy, it sounds as if it was more on the 1000% side of the equation. Somehow I doubt it.
    - bryanlarsen 16y ago
      It increases the efficiency of the economy, but somehow I doubt that it is the only determining factor. If people were able to produce and consume, they would find ways around a scarcity of money (for example exchanging things directly). At the end of the article they mention that the US dollar has depreciated by approximately 30% against a basket of currencies with no appreciable affect, and they predict that further depreciation will do no good either without other changes. In other words, this upcoming trade war will have no winners, only losers.
    - gaius 16y ago
      The clue is the text on the note "I promise to pay the bearer on demand the sum of..." - you could walk into the Bank of England with a note and get the equivalent in gold (theoretically anwyay!)
      - Tichy 16y ago
        That's what I said - you can't print more money as long as you are on the gold standard.
        gaius 16y ago
        Yes you can - you're just gambling that there won't be a run on the bank. That the fact that someone knows they could convert your note into gold meaning they never actually do it.
- sethg 16y ago
  During the Great Depression, Japan, Britain, Germany, the US, and France all went off the gold standard, in that order. The countries that abandoned the gold standard sooner were also the ones whose economies recovered sooner. (http://krugman.blogs.nytimes.com/2009/10/09/modified-goldbugism-at-the-wsj/ http://krugman.blogs.nytimes.com/2009/10/09/modified-goldbug...) It’s not that the devaluation itself caused the recovery, but tying your currency to the gold standard makes certain recovery-stimulating activity difficult or impossible.
  - Tichy 16y ago
    Also these countries might have had more open minded/ruthless/rational/whatever governments. In other words, could have been a correlation. Not advising against abandoning the gold standard (I don't know). I just don't like it if articles slip theories by me in such a way.
sethg 16y ago
From the article: The US Federal Reserve still continues to print dollars to finance skyrocketing government debt. The fact that this erodes the value of the US currency is something that the Americans seem not to care about. What erosion? US inflation has been below 3% for all this year, and in 2009 we actually had deflation. (http://www.inflationdata.com/inflation/inflation_rate/currentinflation.asp http://www.inflationdata.com/inflation/inflation_rate/curren...)

24 points by sasvari 16y ago

Incidentally the US Federal Reserve is currently the world's second largest holder of treasuries after China (http://www.zerohedge.com/article/deconstructing-pomo-fed-becomes-second-largest-holder-us-treasurys-world http://www.zerohedge.com/article/deconstructing-pomo-fed-bec...) and is on track to become the single largest holder in about a month. I'm not sure what the long-term implications of this are, but I'm guessing they're not good...

Tichy 16y ago

"Within just a few months, the pound had lost nearly a third of its value against the dollar. This produced the desired effect: The British economy recovered quickly." Isn't that just economics for simple minds? I don't know why the economy recovered, but it seems dangerous to assume it was just a single factor.

chopsueyar 16y ago
I believe the article said that was because the British 'unpegged' their currency from the gold standard. Why couldn't the British have simply printed more money? Back to today... Is the real problem China, or is the US printing too much money and auctioning off too many t-bills/bonds?
- Tichy 16y ago
  I guess they couldn't print more money as long as they had the gold standard. Still, money is just a tool. It increases the efficiency of the economy, but somehow I doubt that it is the only determining factor. If people were able to produce and consume, they would find ways around a scarcity of money (for example exchanging things directly). Come to think of it, how did banks work back then? Seems to me even with a gold standard it should have been able to work with credit. So if somebody wanted to buy something from you, they could just give you a note that they owe you 100GBP? It's only the government that had to be able to present the gold, after all? Of course working with credit has risks, but that is just the efficiency I mean. But how much more efficient is an economy with money? 10% or 1000%? If they claim that "freeing the money" rescued the economy, it sounds as if it was more on the 1000% side of the equation. Somehow I doubt it.
  - bryanlarsen 16y ago
    It increases the efficiency of the economy, but somehow I doubt that it is the only determining factor. If people were able to produce and consume, they would find ways around a scarcity of money (for example exchanging things directly). At the end of the article they mention that the US dollar has depreciated by approximately 30% against a basket of currencies with no appreciable affect, and they predict that further depreciation will do no good either without other changes. In other words, this upcoming trade war will have no winners, only losers.
  - gaius 16y ago
    The clue is the text on the note "I promise to pay the bearer on demand the sum of..." - you could walk into the Bank of England with a note and get the equivalent in gold (theoretically anwyay!)
    - Tichy 16y ago
      That's what I said - you can't print more money as long as you are on the gold standard.
      - gaius 16y ago
        Yes you can - you're just gambling that there won't be a run on the bank. That the fact that someone knows they could convert your note into gold meaning they never actually do it.
sethg 16y ago
During the Great Depression, Japan, Britain, Germany, the US, and France all went off the gold standard, in that order. The countries that abandoned the gold standard sooner were also the ones whose economies recovered sooner. (http://krugman.blogs.nytimes.com/2009/10/09/modified-goldbugism-at-the-wsj/ http://krugman.blogs.nytimes.com/2009/10/09/modified-goldbug...) It’s not that the devaluation itself caused the recovery, but tying your currency to the gold standard makes certain recovery-stimulating activity difficult or impossible.
- Tichy 16y ago
  Also these countries might have had more open minded/ruthless/rational/whatever governments. In other words, could have been a correlation. Not advising against abandoning the gold standard (I don't know). I just don't like it if articles slip theories by me in such a way.

sethg 16y ago

From the article: The US Federal Reserve still continues to print dollars to finance skyrocketing government debt. The fact that this erodes the value of the US currency is something that the Americans seem not to care about. What erosion? US inflation has been below 3% for all this year, and in 2009 we actually had deflation. (http://www.inflationdata.com/inflation/inflation_rate/currentinflation.asp http://www.inflationdata.com/inflation/inflation_rate/curren...)