Tag Archives: Currency

Fiscal Policy Remains In The Stone Age

By Simon Wren-Lewis – Or maybe the middle ages, but certainly not anything more recent than the 1920s. Keynes advocated using fiscal expansion in what he called a liquidity trap in the 1930s. Nowadays we use a different terminology, and talk about the need for fiscal expansion when nominal interest rates are stuck at the Zero Lower Bound or Effective Lower Bound.

When monetary policy loses its reliable and effective instrument to manage the economy, you need to bring in the next best reliable and effective instrument: fiscal policy.

The Eurozone as a whole is currently at the effective lower bound. Rates are just below zero and the ECB is creating money for large scale purchases of assets: a monetary policy instrument whose impact is much more uncertain than interest rate changes or fiscal policy changes (but certainly better than nothing). The reason monetary policy is at maximum stimulus setting is that Eurozone core inflation seems stuck at 1% or below. Time, clearly, for fiscal policy to start lending a hand with some fiscal stimulus.

You would think that causing a second recession after the one following the GFC would have been a wake up call for European finance ministers to learn some macroeconomics. Yet what little learning there has been is not to make huge mistakes but only large ones: we should balance the budget when there is no crisis. more>

How Bitcoin Ends

By Douglas Rushkoff – Bitcoin was a clever idea. Idealistic, even. But it isn’t working out quite as its developers imagined. In fact, once all the coin has been mined, bitcoin will simply reinforce the very banking system it was invented to disrupt.

Watching the bitcoin phenomenon is a bit like watching the three-decade decline of the internet from a playspace for the counterculture to one for venture capitalists. We thought the net would break the monopoly of top-down, corporate media. But as business interests took over it has become primarily a delivery system for streaming television to consumers, and consumer data to advertisers.

Likewise, bitcoin was intended to break the monopoly of the banking system over central currency and credit. But, in the end, it will turn into just another platform for the big banks to do the same old extraction they always have. Here’s how.

Central currency is not the only kind of money that ever existed. For many centuries, gold and other precious metals served as money.

In essence, bitcoin is money built and maintained by nerds, based on the premise that good nerds will outnumber the bad nerds. Sure, bad actors can dedicate all of their processing power to fake transactions, but they will be outnumbered by those who want the token to work properly.

What is the incentive for people to spend millions of dollars on computers and power once there’s no more kickback of coin? more>

‘No Cash’ Signs Everywhere Has Sweden Worried It’s Gone Too Far

By Amanda Billner – “No cash accepted” signs are becoming an increasingly common sight in shops and eateries across Sweden as payments go digital and mobile.

But the pace at which cash is vanishing has authorities worried.

“If this development with cash disappearing happens too fast, it can be difficult to maintain the infrastructure” for handling cash, said Mats Dillen, the head of the parliamentary review.

Sweden is widely regarded as the most cashless society on the planet. Most of the country’s bank branches have stopped handling cash; many shops, museums and restaurants now only accept plastic or mobile payments. But there’s a downside, since many people, in particular the elderly, don’t have access to the digital society.

In response, the central bank is considering whether there’s a need for an official form of digital currency, an e-krona. A final proposal isn’t expected until late next year, but the idea is that the e-krona would work as a complement to cash, not replace it completely. more>

Bitcoin Energy Consumption Index

Digiconomist – Ever since its inception Bitcoin’s trust-minimizing consensus has been enabled by its proof-of-work algorithm. The machines performing the “work” are consuming huge amounts of energy while doing so. The Bitcoin Energy Consumption Index was created to provide insight into this amount, and raise awareness on the unsustainability of the proof-of-work algorithm.

Note that the Index contains the aggregate of Bitcoin and Bitcoin Cash (other forks of the Bitcoin network are not included). A separate index was created for Ethereum, which can be found here.

To put the energy consumed by the Bitcoin network into perspective we can compare it to another payment system like VISA for example. According to VISA, the company consumed a total amount of 674,922 Gigajoules of energy (from various sources) globally for all its operations. This means that VISA has an energy need equal to that of around 17,000 U.S. households. We also know VISA processed 111.2 billion transactions in 2017.

With the help of these numbers, it is possible to compare both networks and show that Bitcoin is extremely more energy intensive per transaction than VISA. more>

Would Free Trade Be OK If The U.S. Had A Trade Surplus?

By Nathan Lewis – There are a lot of issues surrounding trade – for example, the tendency of trade agreements to come attached with globalist institutions that erode national sovereignty. The European Coal and Steel Community (1951) not only allowed trade in coal and steel, it introduced a whole new supranational government structure, including three branches of government and a parliamentary body, that later grew into the European Union. This sort of thing should be avoided with extreme prejudice.

Today’s environment of floating fiat currencies introduces new problems. The devaluation of the Mexican peso in 1995, shortly after the passage of the North American Free Trade Agreement in 1994, caused all sorts of hardship for U.S. competitors that cannot be attributed to any meaningful “comparative advantage.”

At present, gross exports of goods and services are about 80% of gross imports. The 20% difference is the “trade deficit.” Today, gross exports of goods and services are greater than at any time before 2007 – around 12% of GDP. We don’t seem to have any trouble selling our wares to foreigners. We are selling more to foreigners than ever. In the 1960s, when the U.S. had a trade surplus, total exports were about 5% of GDP. Imports, of course, were less than this.

If the amount we sell to foreigners has been steadily rising, why can’t we manage to run a trade surplus? more> https://goo.gl/oiM9eC

Deficits In Trade And Deficits In Understanding

By Omar Al-Ubaydli – To see why the current trade deficit is benign, we need to understand the relationship between trade and the dollar’s value. Greenbacks are like any commodity in that the more people want to possess them, the higher their price. People acquire dollars primarily for two reasons: buying American goods and investing within the United States.

If the United States is importing more than it exports, then American consumers are exchanging dollars for foreign currencies to buy foreign goods more than foreigners are doing the reverse, meaning that foreigners are accumulating lots of dollars that they’re not using to buy American goods.

So why has America been recording a large, persistent trade deficit, and why isn’t the dollar devaluing? It’s due to the second major difference (from 1970s): The investment-based demand for foreign currencies—which we momentarily set aside—has ballooned. People no longer exchange currencies just to buy foreign goods.

Consequently, the dollar no longer corrects trade imbalances. more> https://goo.gl/L1VHHr

The Curse of Cash

BOOK REVIEW

The Curse of Cash, Author: Kenneth S. Rogoff.

By Kenneth S. Rogoff – The world is drowning in cash—and it’s making us poorer and less safe.

Even as people in advanced economies are using less paper money, there is more cash in circulation—a record $1.4 trillion in U.S. dollars alone, or $4,200 for every American, mostly in $100 bills. And the United States is hardly exceptional. So what is all that cash being used for?

The answer is simple: a large part is feeding tax evasion, corruption, terrorism, the drug trade, human trafficking, and the rest of a massive global underground economy.

The Curse of Cash offers a plan for phasing out most paper money—while leaving small-denomination bills and coins in circulation indefinitely—and addresses the issues the transition will pose, ranging from fears about privacy and price stability to the need to provide subsidized debit cards for the poor. more> https://goo.gl/QRtRgz

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The Cashless Society Is a Creepy Fantasy

By Elaine Ou – t’s fun to imagine a world without cash.

Money belongs to its current holder. It doesn’t matter if a banknote was lost or stolen at some point in the past. Money is current; that’s why it’s called currency! A bank deposit, however, grants custody of money to the bank.

An account balance is not actually money, but a claim on money.

This is an important distinction. A claim is only as good as its enforceability, and in a cashless society every transaction must pass through a financial gatekeeper. Banks, being private institutions, have the right to refuse transactions at their discretion. We can’t expect every payment to be given due process.

The crime-fighting case against cash is overstated.

The one benefit of replacing cash with claims on cash is that a claim can be discounted, canceled or seized. That doesn’t sound terribly beneficial to most people, but this attribute is attractive to a growing contingent that wants to send interest rates into negative territory.

Money may be a shared illusion, but cash abolitionists are in a hallucination all their own. more> https://goo.gl/F8bsrp

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A Weaker Currency Is No Longer Economic Elixir It Once Was

By Susanne Barton and Chikako Mogi – A weaker currency, once the cure-all for ailing economies around the world, isn’t the panacea it once was.

In fact, since the turn of the century, the ability of exchange-rate movements to affect trade and growth in major economies has fallen by more than half, according to Goldman Sachs Group Inc.

The findings suggest that weaker currencies may not provide much assistance to officials in countries like Japan and the U.K. that are relying on unprecedented easy-money policies to help boost tenuous growth and inflation.

On the flip side, the data also indicate that concerns the U.S. recovery will be derailed as rising interest rates drive investors into the dollar are also overblown.

A shift in the structure of advanced-economy trade to less price-elastic goods and services, combined with the prolonged effects of the financial crisis, have stunted the sensitivity of trade volumes relative to global exchange rates, according to Goldman Sachs analysts led by Jari Stehn. more> https://goo.gl/D8qm9u

Europe’s long cycle of crisis, and why German economics is different

BOOK REVIEW

Globalization and its Discontents, Author: Joseph Stiglitz.
The Euro: How a Common Currency Threatens the Future of Europe, Author: Joseph Stiglitz.

By Matt Phillips – Going back to the founding of the euro zone, it was premised on two ideas.

One is that it would bring greater prosperity, and the success of the euro zone would reinforce European solidarity. And then that would lead to the next stages of European political integration.

It was the moment of the time. It was just after the defeat of communism, the fall of the Berlin Wall. It was a moment to be seized.

The world could now move closer together. And there were a whole set of initiatives that came together. The WTO was founded in 1995, for example.

So it was a moment of global triumphalism and a wrong interpretation of what the fall of the Berlin Wall meant. It wasn’t the victory of capitalism, it was the defeat of a flawed system.

When they thought about how are we going to make this disparate group of countries share a currency, they said, “We’ll limit deficits to 3% of GDP, debts to 6% of GDP.”

There was no economic theory behind this. But this was the conservative, neoliberal agenda to constrain the hand of government. And the idea was that governments were the source of instability. If we constrain government, all will be well.

Basically, it’s the nature of who gets drawn into political life. I (Joseph Stiglitz) would say if anything, matters are worse because of the distortions to our society brought about by the financial sector. more> http://goo.gl/VUXpGd