Tag Archives: Currency

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


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


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


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


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

Adopt a gold-backed dollar? This is what happened the last time we tried

By Benn Steil – Under the Bretton Woods system [2, 3, 4, 5], currencies were tied to the U.S. dollar at a fixed rate, and the dollar was in turn tied to gold +0.61%  at $35 an ounce. Today there is much nostalgia about Bretton Woods — a belief that the quarter-century from 1946 to Aug. 15, 1971 (when the system collapsed) was a golden era of monetary stability. But the reality was very different.

The fundamental problem was that the United States couldn’t simultaneously keep the world adequately supplied with dollars and sustain the large gold reserves required by its gold-convertibility commitment.

The logic was laid bare by economist Robert Triffin [2, 3] in his now-famous 1960 congressional testimony. There were, he explained, “absurdities associated with the use of national currencies as international reserves.” It constituted a “‘built-in destabilizer’ in the world monetary system.”

When the world accumulated dollars as reserves, rather than gold, it put the United States in an impossible position.

Foreigners lent the excess dollars back to the U.S. This increased U.S. short-term liabilities, which implied the U.S. should boost its gold reserves to maintain its convertibility pledge.

But here’s the rub: if it did so, the global dollar “shortage” persisted; if it didn’t, the U.S. ultimately wound up hopelessly trying to guarantee more and more dollars with less and less gold. This became known as “the Triffin dilemma [2].” more> http://goo.gl/yaZtSB

Revenge Would Be the Wrong EU Response to U.K. Exit

By Mark Gilbert – The EU should regard the referendum result as a wake-up call. Discontent with how the bloc operates isn’t restricted to Britain.

A survey of more than 10,000 voters across Europe published by the Pew Research Center earlier this month showed rising dissatisfaction. The proportion of French respondents with a favorable view of the EU, for example, slumped to 38 percent from 69 percent in 2004; in Spain the deterioration was to 47 percent from 80 percent.

The most sensible EU response would be a retreat on at least some of the issues that were at the forefront of the U.K. referendum but are also pressure points across the bloc — immigration, the centralization of decision making and the broader agenda of trying to impose “ever closer union” on a reluctant populace.

An alternative solution, however, might see the EU accept the reality of a two-speed Europe. more> http://goo.gl/1N4uNB


What You Need to Know About the Future of Money

By Jason Dorrier – Finance has been computerized for decades. An ungodly number of daily trades are executed by algorithm. The speed of the market is superhuman—on the order of microseconds—and finance’s population of wonks is probably second only to tech.

Fintech is more about how the ethos of startups, apps, the internet, and all things digital has begun to infiltrate Wall Street, taking aim at long-standing business models. It’s the promise that small teams coding software can be corporate killers.

According to Catheryne Nicholson, CEO and cofounder of BlockCypher, no distributed ledger like blockchain would work without the incentive to validate transactions—and digital currency (in the form, for example, of Bitcoin mining) is that incentive.

Blockchain and digital currencies may mean no more fees for ferrying cash between pockets, a vastly simplified financial back office—which today is consumed by clearing and validating transactions—and even companies that fund and then run themselves.

Middlemen. Who needs ’em? more> http://goo.gl/peMhAz


Brexit vote is about the supremacy of Parliament and nothing else: Why I am voting to leave the EU

By Ambrose Evans-Pritchard – Stripped of distractions, it comes down to an elemental choice: whether to restore the full self-government of this nation, or to continue living under a higher supranational regime, ruled by a European Council that we do not elect in any meaningful sense, and that the British people can never remove, even when it persists in error.

We are deciding whether to be guided by a Commission with quasi-executive powers that operates more like the priesthood of the 13th Century papacy than a modern civil service; and whether to submit to a European Court of Justice (ECJ) that claims sweeping supremacy, with no right of appeal.

We do not know who exactly was responsible for anything because power was exercised through a shadowy interplay of elites in Berlin, Frankfurt, Brussels, and Paris, and still is. Everything is deniable. All slips through the crack of oversight. more> http://goo.gl/74dQd3