You may direct comments to Raul via email at Horseppl@aol.com.
For Americans, who have enjoyed the strongest world currency for nearly a century, the intricacies of currency devaluation are a novel theme, even for bankers.
There are many reasons for currency devaluation.
Most currencies devaluate for reasons outside the control of the issuing government, this includes things like high national debt and high deficit. Both of these apply to the US.
Sometimes governments devaluate currencies as a hedge against a trade deficit and to protect national manufacture from aggressive marketing and dumping practices from foreign manufacturers. This is also the case in the US. Part of this is directed against the very unusual case of China, which under valuates its currency to promote exports, internal economic activity and gain market share, which constitutes an augmented form of dumping.
This is how it works: We know that, in order to gain market share, support employment and maintain or increase economic growth, manufacturers in certain foreign countries sell their products at very low and even at or below cost, such is the case with Chinese and with a number of Japanese products, American's have become used to buying these "good deals" in vast numbers. Additionally, Americans have also been keen in buying high end foreign imports from Europe and Japan, particularly Mercedes, BMW, Lexus, Jaguars, and the like. This has been a drain on our own national production and has greatly contributed to a huge trade deficit. Devaluating the dollar has made all imports much more expensive and, therefore, less of a good deal, while at the same time making our nationally produced goods a much more appealing buy, and promotes our own national economic growth and employment.
Both the deficit and the national debt are expressed mostly in negotiable instruments, namely notes and bonds, all of which are set at a fixed number of dollars and earn an interest at a fixed percent. For example's sake, let's say that the sum total of the deficit amounted to 2 billion dollars, but the Treasury only had 1 billion to pay the debt. However, the US Treasury has and controls the plant that prints dollars, so the government prints an additional billion and legally pays its debt. Now, those holding the notes and bonds did get paid but not with dollars that were worth as much as when they acquired them, for now there are more dollars in circulation not properly backed by assets. Thus, they are paid, but not likely to invest in Government bonds or notes IF THEY CAN HELP IT. As we actually did this and thus vastly reduced the deficit, the dollar is on the rise and, as a result, oil has started to go down.
Those are the benefits of the dollar being devaluated.
On the down side, a devaluated currency forces all cost of goods to rise, particularly imports, which in many cases have no national substitutes, so consumers have to pay more at the store or pump. This is particularly hard on the general public as national wages and earnings cant be increased at the same pace as prices in stores. Resulting from this are rises in the Minimum Wage and wages in general, which increases the cost of doing all business, thus prices have to be increased, and wages have to again be raised, and..............you guessed it, INFLATION REARS ITS UGLY HEAD AND PROGRESSES UNTIL THE BUBBLE BURSTS as huge numbers of people and businesses go into bankruptcy, government takes on austerity and fair trade measures, with financial institutions, management and labor cooperating with each other in order to bring up economic stability and growth with sound monetary policies.
Now...lets note that the NATIONAL DEBT (WHICH IS NOT THE DEFICIT, BUT ITS CUMULATIVE EFFECT AND THE RESULT OF SMOKE AND MIRRORS BUDGETING) , CURRENTLY STANDS AT ALMOST 10 TRILLION DOLLARS. Of that, about 2/3rds of the debt is held by US nationals or institutions (such as the Social Security Administration, resulting from Democratic budget finagling to support LBJ's Great Society and other "governmental largess") and 1/3 by foreign individuals or nations mostly Japan, China and Saudi Arabia.
We are about to fall into economic abyss, unless we address this issue and do it soon, taking many harsh and unpopular measures, including, but not limited to:
* banning money transfers by illegal aliens (they constitute, among other things, 1/3 of Mexico's national income);
*strongly taxing imports of those countries who tax ours;
* enforcing "dumping legislation" and banning the importation of such products;
* cutting all trade with China until they bring up the valuation of their currency to international valuation standards;
* NO PORK AND LIVE WITHIN OUR MEANS AS A NATION, which will permit us to work out a moratorium and payments with creditor nations and repay our national holders of the debt.
If the shoe were on the other foot, there would be no hesitation by any of the nations involved, starting with Mexico.
I do not pretend this to be other than a very basic and simplified look at a very complex issue, which is very intermingled with other influencing factors, both nationally and internationally. My intent was to give those who have not had education in this field a basic insight of the world of currency valuation and why is it real important that they be aware of just how it will impact their lives and how can they, as citizens that vote, start to make demands from their representatives.
As I related in the past, I was the prize disciple of a former President of The World Bank, I did not state that I also learned from my father, who represented Cuba at the International Conference of the Coin, after WWII, as Undersecretary of Treasury and who wrote Cuba's Central (National) Bank Law, where the Cuban Peso was at par with the US Dollar, until Castro saved the nation from continuing with the 3rd highest standard of living in this Hemisphere.
Raul
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