Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
After 8 Terrific Weeks for Stocks, What’s Next? - 16th Feb 19
My Favorite Real Estate Strategies: Rent to Live, Buy to Rent - 16th Feb 19
Schumer & Sanders Want One Thing: Your Money - 16th Feb 19
What Could Happen When the Stock Markets Correct Next - 16th Feb 19
Bitcoin Your Best Opportunity Outside of Stocks - 16th Feb 19
Olympus TG-5 Tough Camera Under SEA Water Test - 16th Feb 19
"Mi Amigo" Sheffield Bomber Crash Memorial Site Fly-past on 22nd February 2019 VR360 - 16th Feb 19
Plunging Inventories have Zinc Bulls Ready to Run - 15th Feb 19
Gold Stocks Mega Mergers Are Bad for Shareholders - 15th Feb 19
Retail Sales Crash! It’s 2008 All Over Again for Stock Market and Economy! - 15th Feb 19
Is Gold Market 2019 Like 2016? - 15th Feb 19
Virgin Media's Increasingly Unreliable Broadband Service - 15th Feb 19
2019 Starting to Shine But is it a Long Con for Stock Investors? - 15th Feb 19
Gold is on the Verge of a Bull-run and Here's Why - 15th Feb 19
Will Stock Market 2019 be like 1999? - 14th Feb 19
3 Charts That Scream “Don’t Buy Stocks” - 14th Feb 19
Capitalism Isn’t Bad, It’s Just Broken - 14th Feb 19
How To Find High-Yield Dividend Stocks That Are Safe - 14th Feb 19
Strategy Session - How This Stocks Bear Market Fits in With Markets of the Past - 14th Feb 19
Marijuana Stocks Ready for Another Massive Rally? - 14th Feb 19
Wage Day Advance And Why There is No Shame About It - 14th Feb 19
Will 2019 be the Year of the Big Breakout for Gold? - 13th Feb 19
Earth Overshoot Day Illustrates We are the Lemmings - 13th Feb 19
A Stock Market Rally With No Pullbacks. What’s Next for Stocks - 13th Feb 19
Where Is Gold’s Rally in Response to USD Weakness? - 13th Feb 19
US Tech Stock Sector Setting Up for A Momentum Breakout Move - 12th Feb 19
Key Support Levels for Gold Miners & Gold Juniors - 12th Feb 19
Socialist “Green New Deal” Points the Way to Hyperinflation - 12th Feb 19
Trump’s Quest to Undermine Multilateral Development Banks - 12th Feb 19
Sheffield B17 US Bomber Crash 75th Anniversary Fly-past on 22nd February 2019 Full Details - 12th Feb 19
The 2 Rules For Successful Trading - 12th Feb 19 -
Financial Sector Calls Gold ‘Shiny Poo.’ Are They Worried? - 11th Feb 19
Stocks Bouncing, but Will They Resume the Uptrend? - 11th Feb 19
EURO Crisis Set to Intensify: US Dollar Breakout Higher
Stock Market Correction Starting? - 10th Feb 19
Gold Stocks Gather Steam - 10th Feb 19
Are Gold Bulls Naively Optimistic? - 9th Feb 19
Gold, Silver Precious Metals Update - 9th Feb 19
The Wealthy Should Prepare to Be Soaked - 8th Feb 19
US Business Confidence Is Starting to Crack - 8th Feb 19
Top Myths and Facts about ULIP Plans - 8th Feb 19
A Major Stocks Bear Market in 2020? - 8th Feb 19
Gold Market Extremes Test Your Mettle - 8th Feb 19
The Venezuela Myth Keeping Us From Transforming Our Economy - 8th Feb 19

Market Oracle FREE Newsletter

The Real Secret for Successful Trading

Floating Exchange Rates, Scheme to Embezzle the Dollar Balances of Surplus Countries

Currencies / US Dollar Jul 06, 2010 - 02:38 AM GMT

By: Professor_Emeritus

Currencies

Milton Friedman's theory of floating exchange rates, on which the international monetary system has been based since 1971, has given rise to a coercive regime in the sense that IMF statutes forbid member countries to stabilize the value of their currencies. A country attempting to do that is branded "a currency manipulator" and is threatened with trade sanctions. The prohibition is understandable. It is designed to protect the scheme whereby the dollar balances of the surplus countries are stealthily embezzled. It works as follows.


The United States lures the unsuspecting surplus country into the black hole of currency revaluation against the dollar. As their currencies are floating upwards, a part of the surplus countries' dollar balances are appropriated by the U.S. In effect, the U.S. is forcing its trading partners running a surplus to grant, unwittingly, a partial debt abatement. This exhausts the concept of embezzlement. The U.S., bankers to the world, conspires to short-change its depositors using the smoke-screen of floating foreign exchange. This regime, based on plunder, cannot endure. The only equitable monetary system is the one based on fixed exchange rates. And the only durable way to fix exchange rates is to make the currency redeemable in gold.

Friedman's theory is a blot on science and on the good faith of the United States in its dealings with its neighbors.

Floating versus fixed exchange rates

In putting pressure on China to follow Japan's example to revalue the yuan the American money doctors fail to point out that they are in effect asking China to take a loss, similar to those of Japan amounting to hundreds of billions of dollars, on her holdings of U.S. Treasury paper. China carries her books in yuans, not in U.S. dollars. Therefore every change in the yuan price of the dollar will have an immediate and predictable effect on the value of China's portfolio of U.S. Treasury paper. In particular, a decrease in the yuan price of the dollar results in a loss in the yuan value of China's dollar balances.

The question arises: by what right does the U.S., a country with chronic deficits and a history of reneging on her foreign debt -- as on August 15, 1971 -- demand that China write off a part of the American debt to China?

There is more. If China yielded to American pressure to let the yuan float upwards, it would mean not just a one-shot abatement of debt, but a standing commitment to grant further automatic abatements as new debts are being incurred by the U.S. This would make mockery out of the idea of independent nations trading with one another for mutual benefit. It would make China a vassal of the U.S., a role China in all dignity could not accept.

It is incumbent on the debtor, not on the creditor, to make the necessary adjustment in case of a persistent imbalance. The contrary position, advocated by Keynes, is a fallacy. It turns logic upside down. It penalizes hard work and thrift, while it rewards indolence and prodigality.

Water torturing Japan

Immediately after making the dollar an irredeemable currency the U.S. started running trade deficits on an ever increasing scale. Using Milton Friedman's spurious theory according to which floating exchange rates were supposed to make the currency of a surplus country stronger, the U.S. started twisting the arms of its trading partners running a surplus, first and foremost, Japan, to revalue their currencies upwards. Thus the unsuspecting trading partners of the U.S. were lured into the black hole of currency revaluation. In listening to the sweet siren song from Washington these surplus countries were oblivious to the fact that they were in effect taking a loss -- as they were granting a debt-abatement to the U.S. proportional to the their dollar balances they held as a currency reserve.

For example, when the Japanese yen rose to the level where one dollar was worth three times less (say, 100 yens as compared to 300 earlier), this actually meant an abatement of the American debt to Japan in the ratio of 2/3 or 66 percent, without anybody recognizing what was going on. It was trumpeted as "free market on the go". It was not. It was embezzlement, pure and simple. The U.S., bankers to the world, embezzled Japanese funds held in dollar accounts to the tune of 66 percent.

Embezzlement on that scale has consequences. In fact, it bankrupted Japan, one of the strongest countries financially. As Japan fell upon hard times and wanted to draw on her foreign exchange reserves, it couldn't, for the simple reason that the funds were not there. At that point American money doctors rushed in and explained to the Japanese that, rather than paying their bills by drawing down their dollar balances, they should start running budget deficits and finance their needs through debt. Up to that point Japan was practically debt free. By now, Japan's debt is so huge that it is stifling the Japanese economy.

The U.S. has played the role of the bully-boy of international trade long enough, bluffing that the irredeemable dollar is "an ultimate extinguisher of debt". It is none too soon that someone call the bluff - after so many countries have succumbed to pressure and suffered huge losses on their foreign exchange reserves as a consequence. Maybe China will stand up. If China is the first country opening her Mint to gold, thereby resolving the gridlock, then the U.S. will be forced to give up her monetary leadership in the world.

Calendar of Events

August 9-20, 2010, in Budapest, Hungary. The New Austrian School of Economics, the first 20-lecture course offered, entitled: Disorder and Coordination in Economics -- Has the world reached the ultimate economic and monetary disorder? For more information, see the website www.professorfekete.com or contact szepesvari17@gmail.com

Preliminary announcement: a session in Hong Kong in late October is on the drawing board, followed by more events in New Zealand in November. Stay tuned.

By Professor Antal E. Fekete,
Intermountain Institute for Science and Applied Mathematics

"GOLD STANDARD UNIVERSITY" - Antal E. Fekete aefekete@iisam.com

For further information please check www.professorfekete.com or inquire at GSUL@t-online.hu .

We are pleased to announce that a new website www.professorfekete.com is now available. It contains e-books, archives, news about GSUL, and material of current interest

Copyright © 2010 Professor Antal E. Fekete
Professor Antal E. Fekete was born and educated in Hungary. He immigrated to Canada in 1956. In addition to teaching in Canada, he worked in the Washington DC office of Congressman W. E. Dannemeyer for five years on monetary and fiscal reform till 1990. He taught as visiting professor of economics at the Francisco Marroquin University in Guatemala City in 1996. Since 2001 he has been consulting professor at Sapientia University, Cluj-Napoca, Romania. In 1996 Professor Fekete won the first prize in the International Currency Essay contest sponsored by Bank Lips Ltd. of Switzerland. He also runs the Gold Standard University on this website.

DISCLAIMER AND CONFLICTS - THE PUBLICATION OF THIS LETTER IS FOR YOUR INFORMATION AND AMUSEMENT ONLY. THE AUTHOR IS NOT SOLICITING ANY ACTION BASED UPON IT, NOR IS HE SUGGESTING THAT IT REPRESENTS, UNDER ANY CIRCUMSTANCES, A RECOMMENDATION TO BUY OR SELL ANY SECURITY. THE CONTENT OF THIS LETTER IS DERIVED FROM INFORMATION AND SOURCES BELIEVED TO BE RELIABLE, BUT THE AUTHOR MAKES NO REPRESENTATION THAT IT IS COMPLETE OR ERROR-FREE, AND IT SHOULD NOT BE RELIED UPON AS SUCH. IT IS TO BE TAKEN AS THE AUTHORS OPINION AS SHAPED BY HIS EXPERIENCE, RATHER THAN A STATEMENT OF FACTS. THE AUTHOR MAY HAVE INVESTMENT POSITIONS, LONG OR SHORT, IN ANY SECURITIES MENTIONED, WHICH MAY BE CHANGED AT ANY TIME FOR ANY REASON.

Antal E. Fekete / Professor_Emeritus Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules