[Foundation-l] OT: The economics of debt and exchange rates (Was: Relocation announcement)

Sun Sep 23 01:03:26 UTC 2007

Anthony wrote:
> On 9/22/07, Thomas Dalton <thomas.dalton at gmail.com> wrote:
>   
>>>> That's a good point. Nevertheless, it's still a short term
>>>> consideration - purchasing power and exchange rates will converge over
>>>> time (and then diverge again, of course, but there's no way to know
>>>> which direction they'll go in next time).
>>>>         
>>> That's not a given.  It depends on getting the economic fundamentals
>>> right at the national level, like not depending on debt to fuel
>>> spending.  It will work as a short term tactic, but cannot be sustained
>>> as a long term strategy.  Exchange rates merely reflect purchasing
>>> power, and that in turn is a composite of a number of factors.  Some
>>> countries have gone bankrupt in the past, and the old currency became
>>> worthless.
>>>       
>> The modern world economy is based almost 100% on debt. Pretty much
>> every unit of currency in existence exists because someone lent it to
>> someone else (ie. all money is in the form of an IOU and is not backed
>> by anything - the gold standard went the way of the dodo years ago).
>> There is nothing wrong with debt, it's just unserviceable debt that's
>> a problem. The current economic difficulties were caused by banks in
>> the US giving mortgages to people that couldn't afford to pay them
>> back. If they'd been able to pay them back, there wouldn't have been a
>> problem.
>>     
> If you're interested in a challenge to this theory that the problems
> we're having were caused solely by banks giving mortgages, Alan
> Greenspan's new book is good reading.  It's obviously not written from
> an NPOV - of course, neither is the theory that the current economic
> difficulties were caused solely by banks.  Mortgages played a role, to
> be sure, but a far bigger IOU not backed by anything is the national
> debt, in the form of treasury securities.  Google "deficits must
> matter" for a preview.
I at least agree with you that the current mortgage crisis is not THE 
problem.  The U.S. did recover from the S&L crisis a few years back, and 
that did have some similarities to the mortgage crisis.  Perhaps even 
the failure of the dot-coms was a related phenomenon.  They were all 
motivated by good old-fashioned greed.  A government that has its 
economic house in order can weather these storms.

Conservatives who have for years complained about "tax-and-spend 
liberals" don't exactly deserve a pat on the back for going half way.  
They have controlled taxes, but have not controlled spending.  Who is 
coughing up the funds for the expensive luxury of a war if the taxes to 
pay for it have not increased?  Somebody is cutting the cheques to the 
military's industrial partners.  A lot of it is based on borrowing money 
from China and is secured by increasing US investment in Chinese 
manufacturing.

I just read a paper, published in 2005, discussing the possibility that 
the international reference currency might change from the U.S. dollar 
to the Euro. http://www.saag.org/%5Cpapers16%5Cpaper1597.html . That 
author seems to feel that that possibility is at least a generation 
away, but he does make an interesting observation: "No single factor can 
ever bring the dollar down. It will be a host of factors (some listed 
above) and others include, shear single-minded foolish US behavior of 
expensive outside wars, excessive manufacturing imports (from China & 
elsewhere), expensive life style at home and a huge trade deficit will 
ultimately so weaken the Dollar that alternatives will look 
attractive."  Hmmm!

I could go on, but I don't want this to seem too much like a rant. ;-)

Ec