5 ms·

Floating currency is just a way to automatically renegotiate all of a country's contracts. It will not magically create more wealth or lower the costs of materi

by coryrc 8y ago

Floating currency is just a way to automatically renegotiate all of a country's contracts. It will not magically create more wealth or lower the costs of materials. In the end, if you're importing something for $1 and you earn $100/yr or it costs $3 because of your devalued currency but you earn $300/yr, nothing has changed. What sucks is the most productive people left and the already massive state obligations fell on those left. It wasn't the currency that did that.

Udik 8y ago
> It will not magically create more wealth or lower the costs of materials No, but it will lower the cost of labour. If you have low productivity, you need to pay your workers less. If you can't devalue the currency, you have to lower wages. If you lower wages, you create deflation: your money will be more valuable tomorrow than it is today. And so you stop spending and start saving, and consumption falls.
BenoitEssiambre 8y ago
No but a currency can be managed as to put a gridlock in the investment and financial markets, which prevents wealth from being created. See this: https://medium.com/@b.essiambre/the-world-deserves-a-pay-raise-302f25efd82a https://medium.com/@b.essiambre/the-world-deserves-a-pay-rai... This is what the ECB did.
Mirioron 8y ago
That automatic renegotiation is useful for poorer countries though. If a country exports a lot more than it imports then the valuation of their currency increases, meaning that buying from that country becomes more expensive (because you buy with their currency and there's more demand for the currency). This enables poorer countries to step in and offer to export similar goods for cheaper. It also means that poorer countries, where their imports exceed their exports will get more investments, because their currency is worth less. A simplified example of the above: Let's say that Germany kept the Deutsche Mark (DM) and Italy kept the Lira. Let's assume in this case that Germany's exports exceed their imports (trade surplus) and Italy's imports exceed exports (trade deficit). In the case of Germany, because their exports exceed imports, the value of the DM would go up, because there's more demand for the DM. This would make goods from Germany more expensive (your dollars can buy fewer DMs) and it would slightly diminish the exports of Germany. Due to the DM being more expensive it also means that foreign investment in Germany is more expensive, because your dollars can buy you fewer DMs. In the case of Italy, because their imports exceed their exports, the value of the Lira would fall, because there's less demand for it. This means that goods from Italy become cheaper (your dollars can buy more Lira) and it would increase Italy's exports. Due to the Lira being less expensive it's cheaper for foreign investors to invest on Italy, because you dollars can buy you more Lira. When both of these countries adopt the euro, you will have to add up their exports and their imports to find out whether there's a trade surplus or deficit. Let's say that when you add them up and compare you find that you have neither a trade surplus or deficit. This means that goods exported by Germany won't increase in price and the goods exported by Italy won't decrease in price. This is advantageous to Germany and disadvantageous to Italy. It also means that Italy won't gain an advantage in attracting foreign investments compared to Germany either (based on the currency). In reality, the topic is much more complex, but different currencies seem to have a balancing effect on exports, imports, and foreign investments. Strong exporters in the eurozone benefit from the countries that import a lot.
orbifold 8y ago
I think your last point needs more investigation and I don’t think the EU really wants to examine it in detail. Freedom of movement means that really productive and educated people can go wherever they want. I encounter groups of Italian and Spanish students everyday here in Germany. I’ve met a really bright Greek politics and law student that has now a job here. At one conference an Italian guy working in Switzerland told me at the company in England he was before the office was dominated by Greek and Italian developers. All of these anecdotes point to the same thing young successful people from these countries try to start a life elsewhere in the EU. It’s obvious that this is a huge benefit to Germany and the UK (which the Brexit supporters failed to recognize)
- heavenlyblue 8y ago
  >> At one conference an Italian guy working in Switzerland told me at the company in England he was before the office was dominated by Greek and Italian developers. Yeah, but it doesn't mean they are brighter than British ones. It just means it's cheaper to hire a Greek or Italian developer (that and culture differences that British people would also need to deal with). Saying this as a developer from Lithuania working in the UK.
  - behindmyscreen 8y ago
    Which is crazy.... in the US, a developer from Nebraska is just as expensive as one from California for any given company. The location of the company dictates the wages ( costs of living), not the source of the developer.... (unless we’re talking an H1B visa sham hire which isn’t the same as your situation)
    - taysic 8y ago
      If the developer from Nebraska plans to go back home after a period of time working in CA, they may be more likely to be content with lower salaries though. I wonder where these talented people in the EU plan to raise their kids/ retire.
jacobmoe 8y ago
Generally, freedom of movement is a good thing, allowing the most productive people to go to places that enable them to produce the most. The issue appears to be that the EU isn't a real country. Taxing winners and transferring resources to losers of the open borders/single currency zone turns out to be really important.
- behindmyscreen 8y ago
  Almost like MMT is real.
- keiferski 8y ago
  Good thing for who? Framed in another way, you’re simply talking about brain drain, which clearly isn’t a good thing for the source country.
  - jacobmoe 8y ago
    Good thing for the overall economy, so in this case for the EU as a whole. Increasing productive capacity overall is good because it means a society can afford more of the things it values. But again, the EU is in a difficult place because it's not a cohesive country. If you can't convince a German to value the well being of an Italian in the same way he values that of another German, then increasing the productive capacity of the EU as a whole doesn't help Italy at all.

by coryrc 8y ago

Udik 8y ago

> It will not magically create more wealth or lower the costs of materials No, but it will lower the cost of labour. If you have low productivity, you need to pay your workers less. If you can't devalue the currency, you have to lower wages. If you lower wages, you create deflation: your money will be more valuable tomorrow than it is today. And so you stop spending and start saving, and consumption falls.

BenoitEssiambre 8y ago

No but a currency can be managed as to put a gridlock in the investment and financial markets, which prevents wealth from being created. See this: https://medium.com/@b.essiambre/the-world-deserves-a-pay-raise-302f25efd82a https://medium.com/@b.essiambre/the-world-deserves-a-pay-rai... This is what the ECB did.

Mirioron 8y ago

That automatic renegotiation is useful for poorer countries though. If a country exports a lot more than it imports then the valuation of their currency increases, meaning that buying from that country becomes more expensive (because you buy with their currency and there's more demand for the currency). This enables poorer countries to step in and offer to export similar goods for cheaper. It also means that poorer countries, where their imports exceed their exports will get more investments, because their currency is worth less. A simplified example of the above: Let's say that Germany kept the Deutsche Mark (DM) and Italy kept the Lira. Let's assume in this case that Germany's exports exceed their imports (trade surplus) and Italy's imports exceed exports (trade deficit). In the case of Germany, because their exports exceed imports, the value of the DM would go up, because there's more demand for the DM. This would make goods from Germany more expensive (your dollars can buy fewer DMs) and it would slightly diminish the exports of Germany. Due to the DM being more expensive it also means that foreign investment in Germany is more expensive, because your dollars can buy you fewer DMs. In the case of Italy, because their imports exceed their exports, the value of the Lira would fall, because there's less demand for it. This means that goods from Italy become cheaper (your dollars can buy more Lira) and it would increase Italy's exports. Due to the Lira being less expensive it's cheaper for foreign investors to invest on Italy, because you dollars can buy you more Lira. When both of these countries adopt the euro, you will have to add up their exports and their imports to find out whether there's a trade surplus or deficit. Let's say that when you add them up and compare you find that you have neither a trade surplus or deficit. This means that goods exported by Germany won't increase in price and the goods exported by Italy won't decrease in price. This is advantageous to Germany and disadvantageous to Italy. It also means that Italy won't gain an advantage in attracting foreign investments compared to Germany either (based on the currency). In reality, the topic is much more complex, but different currencies seem to have a balancing effect on exports, imports, and foreign investments. Strong exporters in the eurozone benefit from the countries that import a lot.

orbifold 8y ago

I think your last point needs more investigation and I don’t think the EU really wants to examine it in detail. Freedom of movement means that really productive and educated people can go wherever they want. I encounter groups of Italian and Spanish students everyday here in Germany. I’ve met a really bright Greek politics and law student that has now a job here. At one conference an Italian guy working in Switzerland told me at the company in England he was before the office was dominated by Greek and Italian developers. All of these anecdotes point to the same thing young successful people from these countries try to start a life elsewhere in the EU. It’s obvious that this is a huge benefit to Germany and the UK (which the Brexit supporters failed to recognize)

heavenlyblue 8y ago
>> At one conference an Italian guy working in Switzerland told me at the company in England he was before the office was dominated by Greek and Italian developers. Yeah, but it doesn't mean they are brighter than British ones. It just means it's cheaper to hire a Greek or Italian developer (that and culture differences that British people would also need to deal with). Saying this as a developer from Lithuania working in the UK.
- behindmyscreen 8y ago
  Which is crazy.... in the US, a developer from Nebraska is just as expensive as one from California for any given company. The location of the company dictates the wages ( costs of living), not the source of the developer.... (unless we’re talking an H1B visa sham hire which isn’t the same as your situation)
  - taysic 8y ago
    If the developer from Nebraska plans to go back home after a period of time working in CA, they may be more likely to be content with lower salaries though. I wonder where these talented people in the EU plan to raise their kids/ retire.

jacobmoe 8y ago

Generally, freedom of movement is a good thing, allowing the most productive people to go to places that enable them to produce the most. The issue appears to be that the EU isn't a real country. Taxing winners and transferring resources to losers of the open borders/single currency zone turns out to be really important.

behindmyscreen 8y ago
Almost like MMT is real.
keiferski 8y ago
Good thing for who? Framed in another way, you’re simply talking about brain drain, which clearly isn’t a good thing for the source country.
- jacobmoe 8y ago
  Good thing for the overall economy, so in this case for the EU as a whole. Increasing productive capacity overall is good because it means a society can afford more of the things it values. But again, the EU is in a difficult place because it's not a cohesive country. If you can't convince a German to value the well being of an Italian in the same way he values that of another German, then increasing the productive capacity of the EU as a whole doesn't help Italy at all.