Always Remember That Floating Fx Reflects Policy Steps, Not Just Markets Presumed To Function In Isolation

(Commentary posted by Roger Erickson)

Naïveté = uncertainty.

There is no such thing as Free Trade. There are only policies affecting arbitrage opportunities for different people, disciplines and whole classes of citizens. 

Statesmanship means trying to track the long-term implications of policy for national options. Politicians are hired to NOT paint their electorates into corners which the people on the street can't possibly see coming.

Currency Wars: The Next Generation

(hat tip Art Patten)

Is Putin as clever as everyone thinks he is? His actions say NOT!

The pundits and the media are giving Putin all kinds of credit for having snookered the West and making a mockery of their "warnings" by rolling into Ukraine without even the slightest bit of hesitation.

But are they giving Putin too much credit? Is this guy really that smart?

First, we know he bought gold like crazy two years ago when it was near its highs. Russia is already one of the world's largest gold producers (if not THE largest), so why is he stocking up on gold? According to news stories, Putin believed that the Fed's asset buying program would weaken the dollar, so that's why he bought. In other words he was playing the market with the same misinformed views as many of the other idiots.

Dumb.

The next thing is this: If you want to show how strong you are and you want to give a display of your independence from the West then why do you peg your currency to the dollar? The ruble is (loosely) pegged to the dollar (and also to the euro). Today the Russian central bank raised interest rates to defend this peg. Dumb!

You're Putin, you believe Russia is a great power and it cannot be bossed around and it can do what it wants. So you "back" your currency with dollars?? Seriously???? I mean, come on, Vlad.

Finally, the guy believes he must sell his oil and gas to earn "revenue" from the West. Russia has a massive, massive, MASSIVE energy advantage over most countries. Cheap energy is priceless these days. Why are you exporting it? It's like the idiotic U.S. move of exporting its natural gas, which is just leading to higher domestic prices and an erosion of that advantage. Dumb, dumb, dumb.

If this guy really wanted power, if he understood a little bit of economics or, had somebody within his team who understood economics, he would let the ruble float, stop pegging it to the dollar or the euro or whatever and say "fuck you" to the West when it came to oil exports. The West would be on its knees in short order.

Thankfully he doesn't understand this, which means he's left himself exposed to the market "vigilantes" and his own stinkin' thinkin'.

My prediction: Russian troops will be out of Ukraine quicker than they left Georgia.

All Quiet On the Western Economic Front?

   (Commentary posted by Roger Erickson)



Glossing over the horrors - and rank stupidity - of Economic Trench Warfare.

Bill Mitchell's latest blog entries discussing the long run-up to the euro thoroughly remind us of a very simple yet unbelievably profound and neglected fact.

The entire western world, from Breton Woods to today, was completely intent upon "stabilizing" the Fx rates of their fiat currencies .... even though they all had originally admitted, circa 1933, that fiat currency Fx (foreign exchange rates) should float!

Insanity defined. Or rather, all nations worldwide never WERE in-paradigm!

The outcome is that our entire world economy is run to satisfy a narrow list of either oligarch, bank or industrial lobbies? And has been since the close of WWII? Pitiful! The remnants of feudalism & mercantilism still endure.

We've all been hearing of fiat currency, managed Fx rates, Breton Woods, monetary policy, and Class Warfare all our lives, as though they're independent variables. Yet the utter idiocy of presenting them as such never sinks in until someone has the temerity to call BULLSHIT! That hasn't happened since before WWII? We're still seeing the efforts of a prolonged effort to hush up an Inconvenient Truth?

The closest we ever came to distributed capitalism was when Hoover's & FDR's gov planning offices were allowed to run supreme, from 1929-1945? And apparently, that was ONLY in the USA!

Even after Nixon & Connolly closed the last faux, inter-gov gold-window in 1973, there was only a brief period until Reagan & Greenspan ramped up gold-oriented monetary policy again, to "stabilize" floating Fx rates. 

Why doesn't every organized nation consider the local unit of sovereign organizational accounting as THEIR currency, and everyone else's problem?

Ever seen a group of people even think about "stabalizing" their inter-personal blood pressures, fat reserves, or body temperatures? Standardizing intrinsic organizational variables across independent enties is specious and counterproductive. The only group that wants stable Fx rates are the merchant lobbies and personal hoarders. The vast bulk of every population would prefer to stabilize domestic organizational capabilities, and let the tiny merchant class fend for itself by being more, not less, agile.

You really can't make this up! We are capitalists in name only, and in reality still submit to a feudal, class-based system of rule by merchants. The recent national practice of bailing out bankers alone, but not the Middle Class puts paid to that premise!

And at the heart of all this idiocy, the entire field of orthodox economists are economists in name only! They're ignorant charlatans totally bereft of Situational Awareness! Data without context is meaningless, which makes data-dealers oblivious to context equally meaningless.

I wonder how much of today's insanity is simply the momentum of an academic, Luddite backlash to the pragmatic threat of planners like Marriner Eccles and the rest of the FDR Braintrust, and the theoretical threat of Douglas/Kalecki/Lerner/Keynes et al.

In retrospect, the last 80 years now looks like one, sordid period of trench warfare between social classes.

Middle Class rebellion was gathering steam from the 1890s on, with Upper Class resistance triggering two World Wars. Starting with Breton Woods, a counter-offensive by the upper looting class began rolling back much of the gains of the Middle Class. Why? Only because the Middle Class snatched defeat from the jaws of victorious progress, by sending the same old Luddite, Upper Class Looters to negotiating tables like Breton Woods!

Our Middle Class has to cease, forever, the practice of deferring to the very class of imbeciles we're constantly trying to get rid of. It's self defeating.

Today we're left with a stark question. Will the class warfare and very existence of class hegemony finally dwindle and disappear, like slavery and racism? Or, will we have some more, very ugly episodes of economic trench warfare to go through?

So far, it's seemingly All Quiet On the Western Economic Front? Nevertheless, today's economic attrition rate in the trenches is horrendously reminiscent of history, especially throughout the Balkans, all over again, even though the war is entirely economic, and not yet physical. There wasn't even a Christmas Truce this year.

As an analogy, maybe someday in the future, historians will unearth the frozen remains of Balkan economies, and finally offer them as a stark warning against class warfare? Better late than never?

Worse, the Upper Looting Class is still intent on repeating Churchill's crime, by extending an Economic Blockade in an insane attempt to permanently remove the Middle Class' capacity to reduce human Output Gaps. In the idiot savant minds of merchants and the wealthy, Luddite families they spawn, increasing Aggregate Demand constitutes rebellion?

"Structural Adjustments" are a euphemism for "A Very Perfect Instrument" of economic blockade of the Middle Class by the Upper Looting Class.

When will the 99% worldwide simply stop cooperating with the 1%? The most productive thing for all humans to do is to simply stop the mindless class warfare, and instead turn to return-on-coordination. Who would have thought that something as simple as letting floating-Fx Fx actually float would be so instrumental? Overtaxing and under-funding the Middle Class is just one, mindless consequence of merchant lobbies insisting on trying to manage floating-Fx. You really couldn't make up this degree of stupidity.

The Upper Looting Classes of faux sophisticates are still looting the very nations that support them. For human culture to advance, it sure seems like the brief window of "Permanent War Chiefs" has to end, forever, and any form of class structure as well. Whatever happened to the simple idea of a pass-through economy and complete meritocracy based on service to aggregate? Why bother with so much personal hoarding?

More of the same, misguided crap about money printing. This time from RT.

Business RT spoke to leading Moscow financial expert (whatever the heck that is) Chris Weafer, a senior partner at Macro-Advisory.com.

(RT is nothing but the same, misinformed ideological crap. They had a chance to be different and they blew it.)

Here we go...

RT: Why can’t they simply print more dollars and pay their debt?

There is no debt. Treasuries are dollars (reserves) with a maturity and a coupon (interest). To "pay off" the Fed debits securities accounts and credits reserve accounts. This was done to the tune of $61.5 trillion last year and interest rates didn't spike, the dollar didn't collapse, there was no hyperinflation, in short, the world didn't come to an end.

Leading Moscow Financial Expert: No economy in the world can simply turn on its printing presses and create as much cash as it wishes, as this would make its currency worthless.

Absolutely wrong. Spending by government adds to income and savings of the non-government and that income is spent and the savings are invested, creating more productive capacity and demand for more goods and services, which entrepreneurs and businesses are glad to meet. If the quantity of goods and services increases with the money supply, which it does, this does not cause the exchange value of the currency to depreciate. Why would it? In a normal, competitive economy, government spending (money printing) does not and cannot create inflation.

Leading Moscow Financial Expert:If the amount of currency in issue is not sensibly related to the strength of the economy, then foreign trade partners will … devalue the currency quickly,” Weafer explains.

He sounds very confused when he says, "if the amount of currency is not sensibly related..." The fact of the matter is, the amount of currency is always related to the economy in that the spending (which creates the money) adds to demand, which leads to an increase in output or in other words, the strength of the economy.

Leading Moscow Financial ExpertIf you have one asset and income source which allows you to issue one dollar, and then you print one more dollar, everybody else will see what you have done and will value your one dollar at only fifty cents.

I have no idea what he means when he says, "If you have one asset and one income source that allows you to issue one dollar???" Makes no sense. The U.S. gov't is a monopolist and can issue as many dollars as it wants. Like so many Austrian/hard money people he fails to understand that M does not equal P (quantity of money does not equal price). The equation is MV=PT and they're all VARIABLES! That means, if M goes up, but V goes down and T goes up, then price goes down.

Leading Moscow Financial Expert:Some countries have done that in the past, but in those cases people soon had to use suitcases just to carry enough currency to buy a loaf of bread.”

In every single one of those cases the countries either had broken economies that were unable to raise production or, they were on a gold standard or some fixed exchange regime or had debts denominated in other currencies. There is not a single example in history of a currency issuing nation that had floating FX/non-convertibility with debts denominated in its own currency, that had inflation of the kind he described.

Leading Moscow Financial Expert:Under the Bretton Woods financial system, established in 1944, the amount of currency in circulation was linked to gold reserves. But in 1971, the US abandoned this system and started to include a number of other economic factors, based on a recognized ability to service debt and prevent inflation, and maintain orderly trade with the rest of the world.

Yes, the gold standard was abandoned, just as it was abandoned by most of the world duing the Great Depression because it created repeated episodes of panics and depressions and debilitating deflation. In short, it has always been abandoned because it doesn't work.