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As Sound As A Dollar? The World Hopes Not!

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The recently deceased economist Milton Friedman firmly believed that Governments should do little more than enforce contracts, promote competition, “provide a monetary framework” and protect the “irresponsible, whether madman or child”.

Just like the current occupant of the People’s Palace at 1600 Pennsylvania Avenue, Friedman failed at almost everything he espoused: school vouchers, legalization of drugs and prostitution, protecting Big Business from environmental protection, and directly targeting the rate of growth of the money supply to limit inflation.

In fact, the only real success he had was in the creation of payroll tax withholding.

Yes, that’s correct! That 30% or so the government takes away from your gross pay every week/biweek/month was Milton Friedman’s crowning achievement way back in 1942.

At least he had the decency to express regret over his error in judgment.

There is a great deal of concern over the recent fall in the value of a dollar relative to other currencies. The indications are the expanding weaknesses in the US economy – a housing slump, leading to declines in manufacturing employment (especially in the automotive sector), etc. – coupled with continued “stubborn” inflation, make the dollar a poor investment relative to other currencies such as the euro and the British pound sterling.

Even relatively weak currencies as the Japanese yen, the Malaysian ringgit and the Thai baht, are doing better versus the dollar.

This has the French very concerned, while their compatriots in Luxembourg aren’t too concerned at this point. They were more worried when the euro was where the dollar currently is.

There is even celebration in Israel, where the Israeli shekel has improved against the dollar to the point where the Israeli government has amassed “an enormous and little publicized budget surplus of more than $2 billion”.

Maybe they can spare us an equal amount out of the $3 billion the US taxpayers have sent over to Jerusalem every year since 1973. We could use it to rebuild New Orleans.

This detail is from a report prepared by economist Thomas Stauffer, which was commissioned by the US Army War College. But I digress.

According to the latest Anholt Nations Brand Index, the US (and Israel) have received low marks in each of 36 separate categories of the opinions of 25,903 individuals polled around the world.

Simon Anholt explains that the US and Israel share a common delusion: “to know us is to love us.” Anholt has found the opposite to be the case with those polled: the more they know about the US, the less they like it, and the same may well be true for Israel.

I expect now that I have stuck a pin in the balloon beliefs of Israelis and Americans, I will now be pilloried, hung, quartered and drawn in the comments. Sic Semper Cursor Indicium Pessimus. Or something like that.

Another piece of bad news that won’t make me the toast of the posters is the fact that foreign nations hold 52% of the $4 trillion in US debt and has been increasing that debt to the tune of amounts equal to 7% of our GDP. This puts our economy in a position subject to the tender mercies of our economic competition.

But Wait! That’s Not All!

In his latest book, Mind Set!, author John Naisbett holds that national currencies should be displaced by “virtual currencies”, which include such things as frequent flyer miles and those points one racks up using one’s credit card.

But this neo-liberal utopian concept is already proving to be a problem in China:

“Nowadays, “virtual” currency and “real” currency are nearing equivalence, in the sense that both will soon be able to circulate freely [online and offline]. In such a case, inflation is likely to spread from the world of “real” currency to the virtual world, which may in turn influence real-world currency stability.

“According to reports, in the city of Wenzhou alone there are seven or eight ‘virtual mints’ that employ up to 4,500 employees. Because these ‘mints’ operate independently, gaming operators are unable to control the issuance of virtual currency, leading ultimately to unchecked inflation.

“Recently, [China] Central Bank officials have said that although no plan has yet been formulated, official monitoring of virtual currency is in the works. It seems that in the new era, the government is obligated to regulate not only real-world currency, but virtual currencies as well.”

Milton Friedman did believe in the government “providing a monetary framework”, but he never saw virtual money coming.

Maybe that’s why the Bush Administration isn’t concerned about their deficit spending! They think it’s all “virtual” anyway.

This wouldn’t be so bad if the rest of the world did as well. They wouldn’t be about to abandon the dollar in favor of better returns elsewhere.

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About pessimist

  • http://www.diablog.us Dave Nalle

    Realist, keep this stuff up and you may have to change your name – actually, based on your other articles you should have changed it long ago. I’m recommending ‘pessimist’ or ‘negativist’.

    One subject for you to mull on for now. Let’s just consider the dollar.

    First off, the dollar is higher right now relative to the Euro than it was at this time last year. This time last year it was at 7.534 against the Euro. Today it’s at 7.617. The fact that it dropped in the last week doesn’t mean it’s tanking. Other major currencies aren’t necessarily faring better than the dollar. Constrary to what you claim in the article, the dollar is up substantially in comparison to the Japanese Yen which was at 103 to the dollar a year ago and is now at 115 to the dollar.

    Admittedly the dollar is down compared to the many currencies over the much longer range, but that’s because once you go back a bit farther you run into the recession. One of the ways that Bush pulled us out of the recent recession – which some economists are now saying could have become as bad as the Great Depression – was to lower the value of the dollar intentionally to stimulate investment in the US. Businesses who might have spent their money elswehere have been coming to the US for hiring and to establish offices and to purchase commodities specifically because of the weak dollar, and this has been good for the economy.

    To fix this problem all we have to do is stop printing so damned much money. We’ve got about 800 billion in circulation right now. That’s up 60% from 10 years ago. Start gradually printing a bit less money and a significant portion of the problem is solved. And BTW, the number of bills being printed has been reduced somewhat during the course of this year, and the total amount of money in circulation may seem to be up dramatically in the last decade, but one of the reasons for that is that during the Clinton administration they cut back substantially on the money supply. On a per capita or GDP basis, if you go back and compare our current money supply with the 80s it’s hardly up at all.

    dave

  • http://www.gweissestate.com/blog/gweiss Gina Weiss

    To fix this problem all we have to do is stop printing so damned much money.

    To fix this problem we need to abolish the Federal Reserve and eliminate illegal/unfair taxation, allowing The People to retain the dollars they’ve earned from their labor; in turn, reinvesting into the economy as consumers.

  • Bliffle

    The prudent citizen is well advised to not count on the value of the dollar and to make international plans which don’t depend on good judgement from this administration.

  • RedTard

    I don’t understand why a weak dollar is so bad. In the worst case scenario we’ll be reduced to equal status with other nations in trade.

    They already sent us valuable capital and durable goods and we sent them (possibly) useless paper that they can’t cash in. A weak dollar hurts them at least as bad as us.

    For a simple analogy let’s say you have a nice car. I’ll print 10K redtardollars and trade you for the car. Later I’ll admit that redtardollars are really worthless. I’ll still have the car and you’ll have nothing. The only bad thing for me is I won’t be able to trick anyone else into giving me a car, you lose a tangible product, I lose the ability to buy on credit.

  • Maurice

    Three cheers for Dave and Gina! It is so nice to read comments from people that actually understand economics.

  • Clavos

    Dave writes:

    On a per capita or GDP basis, if you go back and compare our current money supply with the 80s it’s hardly up at all.

    Which is one of the reasons why inflation is not out of control, despite the runup in oil prices earlier this year.

  • Lumpy

    I was always told on my grandpa’s knee that a mild and gradual inflation was a sign of a good economy.

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    Lumpy, you must have been one hell of a precocious kid and your grampoa mst have been a perfessor.

  • Lumpy

    Gramps was a big fan of alexander hamilton.

  • Bliffle

    When Bush took office the dollar got one about 1.2 Euros, but now it only gets .75 Euros. Looks like a devaluation of about a third, which is huge.

    If that devaluation was part of a plan to devalue the dollar it was unannounced: a stealth devaluation.

    The economic trend of the Bush years is less a cyclical recession, which one expects to lead to recovery, than a long term secular down trend.

  • Arch Conservative

    This may come as somewhat of a shock to you Bliffle but there are many other factors that greatly influence our economy aside from who currently occupies the white house.

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