Dollar future?
I really appreciated Menzie Chinn’s presentation (and fredw’s comments) at econbrowser on the theories behind future dollar predictions; it’s a fascinating subject, very relevant to what will happen to the US, and I picked up a couple of concepts. Thanks Menzie.
First of all, the experts are predicting a continued rise of the USD/ED for the next 3 months, then it would seem the USD/ED begins its decline. In my opinion, not too soon… there’s a lot of US jobs at stake.
But, as I mentioned, I learned a couple of ways to look into the future of exchange rates that I want to share.
The easiest to understand, PPP, or Purchasing Power Parity; posits
that if you take two identical baskets of items (and services) in two
different countries, they should have the same value in a common
currency.
Let me explain, let’s say you go out and buy the same basket of
items in NY and Shanghai; if you bring back the basket from Shanghai to NY, which includes transportation and other costs, both baskets should cost you the same… And of course, they don’t, so you have an upward pressure on the Yuan/USD rate of exchange, – consider that the PPP affects this relation either by putting pressure on the Yuan to rise or the USD to fall…
Take a look at this interesting chart (you’ll find the updated chart from The Sauder School of Business, UBC here ), which references USD versus various other currencies; note the downward drag on nordic countries currencies, while Mexico and others have upwards lift due to the PPP effect.
Next, the UIP, or the Uncovered Interest Parity, tells us that it only makes sense to invest in either country if the returns are the same. If the returns are different, then there will be a pressure to compensate this difference through the exchange rates between these countries.
I would have one comment here, that we need to consider the different risks that investing in different countries imply; of course, we would expect a better return on our investments in Argentina than the US, for instance.
Finally, the effects of these pressures take over 5 years, so they are very slow to materialize in the exchange rates.
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NEW YORK, March 15 (Reuters) – The dollar weakened on Wednesday after a Treasury Department report showed that net capital inflows into the United States in January failed to cover that month’s record trade deficit.
Read this amazing historical story your teachers never taught you….
(Much of the following historical material is taken from a radio address given a half century ago by the late Congressman Charles G. Binderup, of Nebraska, and compiled by Mrs. Lucie Boulrice, 1133 Liberty, Springfield, MA 01104. For more information, you may write or call her at (413) 737-3080.
How America created its own money in 1750
Benjamin Franklin tells what made New England prosperous
____________________________
Colonies were more prosperous than the home country
Before the Declaration of Independence (1776) and the war that followed, the colonized part of what is today the United States of America was a Crown possession of England. It was called New England, and was made up of 13 colonies, which became the original states of the great Republic.
In 1750, this New England was very prosperous. Benjamin Franklin wrote: “There was abundance in the Colonies, and peace reigned on every border. It was difficult, even impossible, to find a happier and more prosperous nation on all the surface of the globe. Comfort prevailed in every home. The people, in general, kept the highest moral standards, and education was widely spread.”
When Franklin went over to England to represent the interests of the Colonies, he saw a completely different situation; the working population of the home country was gnawed by hunger and plagued by inescapable poverty. “The streets are covered with beggars and tramps,” he wrote. He asked his English friends how England, with all its wealth, could have so much poverty among its working classes. His friends replied that England was prey to a terrible condition; it had too many workers! The rich said they were already overburdened with taxes, and could not pay more to relieve the needs and poverty of this great mass of workers. Several rich Englishmen of that time actually believed what economist Thomas Malthus later wrote, that wars and epidemic disease were necessary to rid the country from “manpower surpluses.”
People in London asked Franklin how the American Colonies managed to collect enough money to support their poorhouses, and how they could overcome this plague of unemployment and pauperism.
Thanks to debt-free money issued by the colonial governments
Franklin replied; “We have no poorhouses in the Colonies, and if we had some, there would be no one to put in them, since in the Colonies there is not a single unemployed person, not a beggar nor a tramp.”
His friends could not believe their ears, or understand how this could be. They knew when the English poorhouses and jails became too cluttered, England shipped the wretched inmates like cattle, to be dumped on the quays of the Colonies if they survived the filth and privations of the sea voyage. (In those days English debtors went to jail if they could not pay their debts, and few escaped, since in jail they could not earn money.)
Franklin’s acquaintences, in view of all this, asked him how he could explain the remarkable prosperity of the New England Colonies.
Franklin told them: “Why, that is simple! In the Colonies, we issue our own paper money. It’s called ‘Colonial Scrip.’ We issue it to pay the government’s approved expenses and charities. We make sure it’s issued in proper proportion to make the goods pass easily from the producers to the consumers. In other words, we make sure there is always adequate money in circulation for the needs of the economy.
“In this manner, by creating ourselves our own paper money, we control its purchasing power, and we have no interest to pay, to anyone. You see, a legitimate government can both spend and lend money into circulation, while banks can only lend significant amounts of their promissory bank notes, for they can neither give away nor spend but a tiny fraction of the money the people need. Thus, when your bankers here in England place money in circulation, there is always a debt principal to be returned and usury to be paid. The result is that you have always too little credit in circulation to give the workers full employment. You do not have too many workers, you have too little money in circulation, and that which circulates, all bears the endless burden of unpayable debt and usury.”
English Bankers impose poverty on the Colonies
Franklin should not have been so free with his advice, which soon came to the attention of the powerful English Bankers. They quickly used their influence to have the British Parliament pass a law that prohibited the Colonies from using their Colonial Scrip money. The new law ordered them to use only credit redeemable in gold and silver coins that were provided in insufficient quantity by the banks of England. And so began in America the plague of debt-based money, which has ever since brought as many hardships to the American people, as it has to Europeans.
The first law regulating Colonial money was passed by the British Parliament 1751, then expanded by a more restrictive law in 1763.
Franklin reported that only one year after implementation of the prohibition on Colonial Scrip, the streets of the Colonies were filled with unemployed and beggars, just like those he had seen in England, because there was not enough money to pay for their goods and work. The English Banker’s new laws had reduced the circulating medium by half.
Franklin added that this was “the original and true cause of the American Revolution;” and not the tax on tea or the Stamp Act, as has been taught our children for generations in “history” books. The Financiers (bankers) of every generation manage to have removed from school books any information that can throw light on their own schemes and fraudulent actions that protect their power over the people.
Franklin, one of the chief architects of American independence, put it clearly: “The Colonies would gladly have borne the little tax on tea and other matters had it not been for the poverty created by the bad influence of the English Bankers on the Parliament, which has caused in the Colonies hatred of England and the Revolutionary War.”
Other great statesmen of that era, including Thomas Jefferson, John Adams, and George Jackson confirmed this point of view held by Franklin; and later by Andrew Jackson and Martin Van Buren. Abraham Lincoln and John Kennedy both issued sovereign money, James Garfield tried, and all three died in office.
A remarkably honest English historian, John Twells, speaking of the money of the Colonies, their Colonial Scrip, wrote: “It was the monetary system under which America’s Colonies flourished to such an extent that Edmund Burke was able to write about them: ‘Nothing in the history of the world resembles their progress. It was a sound and beneficial system, and its effects led to the happiness of the people.’ ”
John Twells added: “In a bad hour, the British Parliament took away from America its own scrip money, forbade any further issue of such bills of credit, these bills ceasing to be legal tender, and ordered that all taxes should be paid in British coins. Consider now the consequences: this restriction of the medium of exchange paralyzed all the industrial energies of the people. Ruin took place in these once flourishing Colonies; most rigorous distress visited every family and every business, discontent became desperation, and reached a point, to use the words of Dr. Johnson, when human nature rises up and asserts its rights.”
Another historical writer, Peter Cooper, expressed himself along the same lines. After saying how Franklin had explained to members of Parliament the reason for the prosperity of the Colonies, Cooper wrote: “After Franklin gave explanations on the true cause of the prosperity of the Colonies, the Parliament enacted laws forbidding the use of this money in the payment of taxes. This decree, clearly in the interest of the British bankers who stood behind the Crown, brought so many drawbacks and so much poverty to the people that it was the main cause of the Revolution. The supression of the Colonial money was a much more important reason for the general uprising than the Tea and Stamp Acts.”
DANGER! The Scrip of the Bankers has Taken over America
Today, in America as well as in Europe, we are under the regime of the Scrip of the Bankers instead of the scrip of the sovereign nations. Hence the enormous public debts, everlasting interest (usury) charges, taxes that plunder purchasing power and rob the production of the people, with the result being more and more consolidation of the financial dictatorship.
Where shall we start to correct the fraud of the bankers?
The first step in the monetary reform being advocated by more and more action groups of educated and intelligent people is precisely the replacement of the banks’ debt money by debt-free money issued by the Constitutionally mandated sovereign government of the nation, the United States Congress, and elsewhere, the British Parliament, and similar governments. It is the duty of those governments to serve and protect their people, not allow financial robber barons to destroy them.
We must end the dictatorship of the moneyed interests!
It will soon become clear to you that we need to abolish the Federal Reserve Banking System as a privately owned central bank controlled partly by foreign interests. Check clearing must be taken over by the U. S. Treasury Department, and the commercial banks of our system must no longer be permitted to create and issue debt money by fractional reserve deposit expansion. A debt money system never provides money to pay interest, so the banks ultimately acquire all the People’s property by foreclosure, as Thomas Jefferson said they would. Learn more. Study this go-oaktree site until you begin to grasp the essentials of our money problem. Learn the truth, before it is too late. Find out how you can help yourself and your nation. Download these flyers and circulate them via copy machines to friends who do not have Internet access.$100 FOR 4 CENTS!That’s whayst the Fed pa.
“When a well-packaged web of lies has been sold gradually to the masses over generations, the truth will seem utterly preposterous and its speaker a raving lunatic.”
Early governments assumed the monetary power because they needed it to serve the people
– anonymous
“Give me control of a nation’s currency and I care not who makes the laws