Boring and Deadly

Feeling edgy and can’t sleep? Warm milk not bringing you to sleep-mode? Well, then, may I suggest that you read about the issues behind nations’ purposely acting in a manner to increase or decrease the value of the currency vis-à-vis the rest of the world. Feeling those eyelids pulling down yet? No? Well, let me help, but before you nestle into that comfy sleep pouch, may I suggest that whether or not you have a job, how much you earn and the quality of the life you actually live are exceptionally-linked to the value of your home currency versus the rest of the world.

The more valuable your currency compared to the buying power of others, the more you can afford to buy, and if you are like most folks with too much value in your currency, the call of luxury goods – we usually call them “imports” – tends to lure your spending habits. But the more your country imports, the worse the trade balance. Your nation might just be buying more overseas than it is selling overseas, which in time tends to pull down the value of your currency. This is slowly happening to the United States, and if the rest of the world weren’t so screwed up, it would be happening faster than it is. So if you want to sell more to overseas buyers, assuming you have stuff people want to buy, it does help if your currency is worth less than the buyer’s currency, making your goods cheaper and hence more attractive to a mass market.

This all goes FUBAR when the home country doesn’t really make stuff that is a valuable export. This is true of developing countries that supply raw materials, which generate lower aggregate value for the labor involved, but few manufactured goods. This malaise isn’t just inherent in poor Latin American, Asian or African nations; there are European countries where exports are anything but powerful. Take a look around your house. Tell me what you have, for example, that came from Portugal or Greece. Port? Olive oil? Cheese? Yoghurt that probably was made in the United States by ethnic Greeks? Picture a sleek Greek sports car or that high fashion line of women’s apparel or that finely-tuned Portuguese-designed and built kitchen appliance… Oh, there are aren’t any (well….), although some German companies (e.g. Bosch) have taken to using the relatively cheap labor in countries like Spain to manufacture some of their products.

In fact, because of the common “euro,” the inability to adjust (downward, of course) the currency of Europe’s severe underperforming economies (Cyprus, Italy, Spain, Portugal, Slovenia, Greece, etc.) as a way to allow such countries to cope with their relatively lower economic values and higher debt than the rest of Europe is what has given rise to the mandate (by the Nordic) power to effect that adjustment by other means: fire people, cut wages and raise taxes. And that is why those in Europe have come to loathe “austerity.” Currency drops at least allow you to keep your jobs, even if you cannot afford to buy nearly as much as you did before the fall. The actual reaction of those who have been “adjusted”? Think riots, protests and vast pools of unemployed and seriously unhappy citizens!!!

We’ve been battling with China, extolling them to let their currency rise to reflect the value of their super-hot economy. That would reduce the “buyability” of their exports to American buyers and help our trade balance. Centrally-controlled China, on the other hand, has only allowed token increases, since they really like dominating the export marketplace.

Japan has been stagnating since 1991, so when Prime Minister Shinzō Abe launched a campaign to devalue his country’s currency to make his exports more affordable to international buyers, the international financial community cried foul. “Finance ministers from leading global economies on [May 11^th] avoided a public rift with Japan over policies driving down the value of its currency, while keeping up pressure on Germany to help lift growth in Europe.” New York Times, May 11^th. For now, they’re buying his explanation that this is nothing more than a stimulus to the domestic economy, but skeptical international finance ministers are keeping careful tabs on these developments.

Made it this far through my blog? Sleepy? Or just edgy and scared out of your mind? Hey, it works for some folks!

I’m Peter Dekom, and all these little complexities can make your life filled with even more life-altering complexities!