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viking-warrior wrote:Oh come on Shaf - you are way too intelligent to post kak like that ...

A first year O level Economics student could tell you that the value of a currency is a function of the money in circulation (M0, M1, M2, M3 etc.) and the volume of goods produced, imported, exported or consumed locally, of the country in question.

The notion of a "Fort Knox" or "Bank of England" gold standard is bonkers in this day and age (unless of course you are stashing Gold under your bed) because if the world was to return to a gold standard the price of gold would probably go to $1 Million an ounce to satisfy the central banks requirements.

With real money flowing out of national economies to buy gold what happens to countries like Bangladesh - Spain - the whole of Africa, - yup economic disaster !

The standard that backs countries is the "trade" standard - the ability to consume and to service that consumption by paying, within a certain time period. (Ooh some now see where this is going .............)

Just like Portsmouth FC Like mom used to say "Eyes bigger than his tummy"

ok hands up time

I often wondered the same myself, why the BOE does not print more £'s. so i am backing Shaf, but thanks for the answer VK.

Actually - NO

I dont get it. Why, cant a central bank just slip a few billion into its coffers, then put that money either back into circulation or just pay off a debt, who gonna know anyway if its kept shhhhhhhhhhh.

Shafique pretty much clarified my concerns. There's not too much more for me to add, except that printing more money can lead to a serious inflation. History has shown this a few times during the last century. Thanks Shafique.

A lady who currently lives in Dubai informed me during the spring that 9/11 2001 wrecked Dubai pretty good. Apart from that and the heavily ambitious construction that has been occurring, I don't know too much about the area. That led me to join this forum. I can't be too ignorant.

The issue is really that the whole banking system is now largely based on confidence - it is not actually based on 'actual' money circulating.

It's a hard concept for laypeople to comprehend, let alone accept. It's all an illusion - but one that has its own terminology and logic. Fractional reserve banking is at its core - the creation of 'money' by banks who only have to hold 1/10 (roughly) of 'money' they lend out. In effect they create money out of nothing - and this is largely out of the control of governments.

The system relies on people/institutions 'believing' the money has value and treating it as such. Once there is doubt in the worth of the money, we have serious (even catastrophic) consequences such as the currency crises in the Far East and Russia not so long ago. A similar set of circumstances (beliefs) led to the financial crises seen recently in the 'west' - a 'the emperor is naked' moment in effect.

What the trillions of public money given to the banks exposed is the fact that the 'money' that disappeared was never there to begin with - it was conjured up out of thin air. No tangible 'thing' was manufactured that had value or increased in value, but the financial system fooled itself that it was creating loads of value. In effect it was a big Ponzi scheme (the system as a whole) which makes Madoff's theft pale into comparison - just look at the Trillions that the tax payers have had to pump into the banking systems just to stop it collapsing.

Just look back at what the politicians/bankers were trying to do - the key words are 'restore' and 'confidence'. People had to go back to believing that money that didn't exist could be used to buy things or as a store of wealth. Then banks could start giving this out again.


Then it comes to the Dollar - here logic seems to have gone out the window as well. The world is seemingly ok with accepting paper money printed by the worlds greatest debtor who can at any time just print out new notes to pay off the debt.

Of course, if the world thinks it will print money, then the money they hold in their coffers suddenly becomes devalued, but the US's debt 'vanishes' or 'reduces'.

The world thought it couldn't happen to Russia (defaulting on its debts) - but it did, caused a lot of short term pain for Russians holding Roubles - but it set the stage for Russia's re-emergence as an economic superpower. Now those who lost money lending to Russia are the ones looking silly.

So, I still await the convincing argument that the Dollar won't go the way of other debtor currencies of the past - the Pound, the Rouble etc. But hey - that's just me - if it walks like a duck, quacks like a duck - it's a duck!

Cheers,
Shafique

arniegang wrote:Actually - NO

I dont get it. Why, cant a central bank just slip a few billion into its coffers, then put that money either back into circulation or just pay off a debt, who gonna know anyway if its kept shhhhhhhhhhh.

Arnie - you are closer to the truth/reality than you may realise. For some years now, the UK Government has not published what the 'wider' measure of money in the UK economy is - and made it less transparent for people to know what 'money' is actually out there.

Where they recently nationalised banks, the money used didn't come from a fixed pile of dosh sitting in the BoE, they just created the money and said this was now available on the balance sheets of the banks they were buying.


I'm simplifying a lot - but in effect this is what happened. There is a reckoning, of course, that takes the form of the national accounts which tally up our 'national debt' - but the value of the currency is now in the hands of international speculators who decide whether they believe in the UK economy or not, and the pound's value moves accordingly.

If the currency value did move in relation to fundamentals about prospects for UK inc - then the pounds value would move smoothly up or down. Or similarly, if 'monetarist' theory is correct (as argued by VK), then the pound's value will increase/decrease when the UK gov prints more money or buys up bonds/gilts etc. The problem now is that the government only controls a fraction of the money supply, and that the pound's value is really at the mercy of the 'market'.

The 'market' was supposed to know what it is doing. This fallacy was also exposed a year ago - when governments had to step in to bail it out, precisely because the market had failed.


Cheers,
Shafique

Things are surely looking up if df is anything to go by.
Shafique is revealing his interest in money (and considerable knowledge I might add... are you sure that you are not Jewish Shafique:)).
Arnie, the prodigal son, has returned from financial crisis exile with renewed vigor (and humor).

benwj wrote:Things are surely looking up if df is anything to go by.
Shafique is revealing his interest in money (and considerable knowledge I might add... are you sure that you are not Jewish Shafique:)).
Arnie, the prodigal son, has returned from financial crisis exile with renewed vigor (and humor).

Financial crisis exile??? Sounds a bit dubious.

I don't quite comprehend ur analogy Shaf

Are you advocating socialism here?

C'mon we all know what wrong, thanks for Econ 101 lecture, but whadya propose is done about it?

The last great depression took place in essence because of the gold standard, wherein the dollar was pegged, velocity of money was at an all time high and the government could not inject money into the system.

This time round through the bailouts which you so lambast, the government may have have infact averted a great depression.

So what exactly is the value of the Dollar? This is wheer I'm kinda blank...

Economics would suggest that there needs to be enough dollars in circulation to enable GDP to grow at a constant rate.
Essentially the root of the problem was that America was consuming more whilst producing less...(Cheap Credit)

A turnaround would entail that Industrial output and the services needs to go up a few notches. Yet to nullify the deficit USA would have to increase it's exports by 70% according to Morgan Stanley. Well that's not happening. But I hear America might subsidize university education for Americans? That would definately create skilled manpower.

So what works for America?

A major financer of America's trade deficit were central banks from around the world, including China.

The advocates of China-bashing, are well aware of the growing dependence of American financial markets on the flow of funds from the Chinese central bank. But they believe that the Chinese authorities have nowhere else to place their money and that the recessionary consequences of any significant withdrawal of funds would rebound on the Chinese economy. In other words, they consider that what former Treasury Secretary Lawrence Summers once called the “balance of financial terror” will operate in favour of the US.

Imagine what the dollar would do if global currency traders glanced at CNBC one morning and saw the American president, surrounded key congressional leaders, standing in front of a podium at the White House—and then heard the nation's CEO says the following: "A strong dollar has long been a symbol of America's economic strength and vitality. So shall it be again. To that end, the White House and Congress have agreed to the following: first, a plan to make Social Security forever solvent without massive tax increases; second, the elimination of investment taxes for middle-class folks and a 50 percent cut for wealthier Americans; third, a limit in the growth of nondefense spending to the prevailing inflation rate minus 1 percent; fourth, a ban on all earmarks; fifth, a cut in the corporate tax rate to 25 percent; sixth, the creation of government-funded innovation prizes to help meet our nation's grand scientific challenges; seventh, linking federal higher education funding to schools' ability to produce many more skilled scientists and engineers. Hey world, check us out!"

I don't think I would want to be short the dollar that day
http://www.usnews.com/money/blogs/capit ... the-dollar

The current account may have problem Shaf, but the US capital account is still strong. People are still investing in the US.

FInally,

What is the long-term future of the dollar as the preferred reserve and trading currency?

The risks of a speculative crisis are never zero in any market that depends so much on expectations. But the situation is not quite what it was when Soros mounted his famous 1992 raid on the pound.

The dollar is more widely held and the resources available to fight off a bear run are substantial. In any case, the real problem for the dollar is whether market factors and policy responses will allow it to depreciate as much as US authorities would want.

As for the yuan, speculators would dearly love to mount a bull run on it, but cannot, because it is far from being a freely traded, widely-held currency.

Oh and a quip update for this year alone Chines bank lending was almost equal to 25% of it GDP. I don't think they are in any position to play around with their interest rates.

Although I do admit it may be difficult to secure a soft landing with exchange rates realigned and macro policies readjusted so that growth momentum is maintained in the US, reduced in China, and enhanced in Europe and Japan.

But do take some time out to read this kicka$$ article
http://www.rediff.com/money/2005/feb/16guest1.htm

is it just me or are there other engineers out there who cant make head or tail out of this shite!!
Am I glad i joined the science stream. ignorance really is bliss

ok