The Great Depression Online




Great Depression Online Archive Issue:

Outer Space Economics

Great Depression Online
Long Beach, CA
November 12, 2010

Inside This Issue You Will Discover…

*** G20, Currencies and Trade
*** Finger Pointing and Name Calling
*** Outer Space Economics
*** And More

G20, Currencies and Trade

Today the G20 nations are concluding their discussions in Seoul, Korea, on the global economy.  The main issue is really simple…the global economy is unbalanced and unsustainable.  How to correct it is in dispute.

Trade deficit countries want to cheapen their currencies to make their exports more competitive overseas.  Trade surplus countries, of course, take issue with this.  Then there’s the matter of the Federal Reserve’s recent scheme to buy $600 billion of U.S. Treasuries over the coming months.  Apparently this doesn’t sit well abroad…

“Tensions over currencies and trade gaps are simmering ahead of a summit of global leaders this week as America’s move to flood its sluggish economy with $600 billion of cash triggers alarm in capitals from Berlin to Beijing,” reported AP prior to the meeting.

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“Major exporting countries such as China and Germany are complaining about the Federal Reserve’s decision to buy more Treasury bonds to try to lower interest rates, spur growth and reduce high unemployment in the United States.  They say the Fed’s plans are driving down the dollar’s value and giving U.S. goods an unfair competitive edge in world markets.

“Other countries such as Thailand, Brazil and Indonesia fear the Fed’s action will send cash into their markets in search of higher returns.  That risks raising their currency values, squeezing their exporters and inflating bubbles in stocks or other assets that could destabilize their financial systems.”

What a mess…

Finger Pointing and Name Calling

A stable money supply, one resting on a foundation of gold, would limit the monetary gimmicks and tinkering.  Yet a gold standard is thought to be for simple minded simpletons.  Only goofballs and fools consider gold to be money.  After all, Keynes called it a barbarous relic long ago.

Still, with the global currency crackup upon us, gold’s stabilizing advantage is being considered by more than just fruits and nuts.  Last week World Bank President Robert Zoellick said, “The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”

Like a carpenter telling you to measure twice and cut once, what Zoellick said is perfectly reasonable and rational.  But a day later, Keynesian zealot, Brad DeLong, called Zoellick the “stupidest man alive.”  After that, Paul Krugman, Keynesian zealot extraordinaire, said this was “much too kind,” as he proceeded to lambast Zoellick.

Here at the GDO we’re not above finger pointing and name calling…particularly of those who want to get their hand in our wallet. 

DeLong and Krugman are buffoons.  History will not rule favorably on them.

Outer Space Economics

You see, the world wouldn’t have to deal with any of this currency crisis nonsense if there was a stable money supply.  Prices would rise and fall by supply and demand.  Economies would boom and bust with the business cycle.  But the price changes and booms and busts would all orbit around the sun…a solid, unchanging, supply of money.  They would not spin uncontrollably into the outer space galaxies.

Countries that ran deficits too big and for too long would eventually run out of money.  Their central banks couldn’t just keep adding more water to the cabbage stew to keep the pot from running dry.

Perhaps floating currencies, in theory, are fine.  But like buy and hold stock market investing, in practice, they’re a disaster.  Floating currencies are open to manipulation and hostility between nations.  And when currencies are manipulated for too long crazy things happen…  

Distorted trade imbalances pile up, disfigured economies dysfunction, entire cities without residents are constructed, and absurdities like the Burj Khalifa show up in the Arabian Peninsula.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  It’s an exciting time in the Forex world.  Since the high in early November, the Euro has declined sharply against the U.S. Dollar.  Does this mean that a top is in place?  

Find out here.

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