The Concept of Ownership

[lowglider]

They could, but this way they wouldn`t become cheaper and thus have more exports which would boost their economy.

It is a lot easier to be economically flexible with your own currency than when some higher and foreign authority sets the rules of what you can and cannot do, especially when they fail to be competent and this is the case of EU right now.
It does piss me off because Greeks have taken advantage of other EU members, basically they are having an all expense paid for party which is paid for by us who cannot party and must work.

What makes it worse is that media along with the politicians, bankers and other financiers make such a mess of this whole thing that I think most people do not actually understand what is really going on. And in this chaos it is very easy for some individuals to take slices from these enormous pies of "crisis relief money".
Just like in the States when 700 billion USD went from the Treasury to mostly the hands of big bankers. And as always, it will all stay this way unless more people start using their brain.

[Thymeclock]

Originally Posted by jamesqf

Got to admit I don't really understand most of that. (Guess I should've stuck to quantum mechanics :-)) Devaluing as a way of escaping debt seems just a sneaky way to declare bankruptcy without actually calling it that: "Yeah, we're just going to pay ten cents on the dollar of what we owe you, but you're going to get just as many of our shiny new devalued pesos, so it's ok."

As for devaluation letting them compete on price, wouldn't any sensible person just raise the price as measured in new, devalued money so as to receive the same value?

We had this discussion in another thread. Price inflation is the direct result of devaluation of any currency. It brings to mind the anecdote about the devaluation of the German mark in the 1930's. The story goes that someone needed a wheelbarrow full of paper mark currency to go shopping, leaving the wheelbarrow outside the shop. While inside, someone dumped the currency on the ground and took the wheelbarrow, as it was worth more than the devalued paper money.

But when it comes to exchange rates of currency that is factored into transactions. If the currency is worth less (or worthless) you will need to spend a lot more of it to compensate for its lack of value.

When all else fails, the government will crank up the printing presses and print more money. Devaluation is the cruelest tax of all.

[jamesqf]

Originally Posted by lowglider

They could, but this way they wouldn`t become cheaper and thus have more exports which would boost their economy.

Sure, but if they wanted to become cheaper, the obvious way is to lower the price :-)

Besides, we're talking about two different entities here. Say government devalues the peso so it's worth half of its previous value. Why doesn't every widget manufacturer immediately respond by doubling the price of widgets?

Not to mention that if I was an international banker loaning money to governments, I'd make sure the repayments were in dollars - or better yet, Swiss francs.

[Thymeclock]

Sure, but if they wanted to become cheaper, the obvious way is to lower the price :-)

Besides, we're talking about two different entities here. Say government devalues the peso so it's worth half of its previous value. Why doesn't every widget manufacturer immediately respond by doubling the price of widgets?

Ultimately, that will happen automatically over time. The intrinsic value, or even the market value of an item is not related to its price. The manufacturer will either have to double the price of the widget or take a financial loss in selling the item. He cannot produce more at the same price with a currency that has lost half its value, compared to other international currencies.

Not to mention that if I was an international banker loaning money to governments, I'd make sure the repayments were in dollars - or better yet, Swiss francs.

That is indeed the point. However, it is a matter of degree, or "compared to what?". The US dollar is backed by nothing - except the government's 'promise to pay'. But when compared to a third world nation issuing pesos, the US looks strong, because of its status as a superpower.

As you said, "better yet, Swiss francs". Any currency backed with precious metals to any degree is more stable that one that is backed with mere promises.

[jamesqf]

Originally Posted by Thymeclock

As you said, "better yet, Swiss francs". Any currency backed with precious metals to any degree is more stable that one that is backed with mere promises.

Though the franc hasn't been exactly stable of late. A few years ago, when I was working there, it was at about 1 CHF = $0.85 USD. A few months ago it had gone to something like $1.30, now it's back down to $1.08.

[Patrick]

Originally Posted by jamesqf

Though the franc hasn't been exactly stable of late. A few years ago, when I was working there, it was at about 1 CHF = $0.85 USD. A few months ago it had gone to something like $1.30, now it's back down to $1.08.

Maybe it's not the franc that's moving, but the dollar.

[jamesqf]

Originally Posted by Patrick

Maybe it's not the franc that's moving, but the dollar.

Except that it's moving about the same WRT the Euro and other currencies.

[Thymeclock]

Originally Posted by Patrick

Maybe it's not the franc that's moving, but the dollar.

The same can be said about the 'price of gold' or of any other scarce or precious commodity.

We think that the 'price of gold' has risen dramatically, as expressed in dollars.

But turn the telescope around: It's too unnerving or disturbing to think that the value of the dollar has dropped dramatically as compared to precious metals.

Maybe that's why they are called 'precious'.

[jamesqf]

Originally Posted by Thymeclock

We think that the 'price of gold' has risen dramatically, as expressed in dollars.

Of course it's hard to find any fixed reference standard, but when the price of gold goes up against all currencies, not just the dollar, and the price of your loaf of bread or bowl of rice stays pretty much the same in your currency, then it's a pretty good bet that its the price of gold that's changing.

[Thymeclock]

Originally Posted by jamesqf

Of course it's hard to find any fixed reference standard, but when the price of gold goes up against all currencies, not just the dollar, and the price of your loaf of bread or bowl of rice stays pretty much the same in your currency, then it's a pretty good bet that its the price of gold that's changing.

Back when gold was priced at $400 per oz. the price of both a loaf of bread and a pound of rice was much less than it is now. The correlation of rise in price between precious metals and other commodities not always immediate, but over time it applies. If your paper money doesn't buy as much as it used to, that's a loss of purchasing power, which is inflation.

There's an old saying: "some know the price of everything and the value of nothing."