Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
How Binance SCAMs Crypto Traders with UP DOWN Coins, Futures, Options and Leverage - Don't Get Bogdanoffed! - 20th Jun 21
Smart Money Accumulating Physical Silver Ahead Of New Basel III Regulations And Price Explosion To $44 - 20th Jun 21
Rambling Fed Triggers Gold/Silver Correction: Are Investors Being Duped? - 20th Jun 21
Gold: The Fed Wreaked Havoc on the Precious Metals - 20th Jun 21
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

US Economy and China's Currency -- What Gives?

Economics / US Economy May 07, 2007 - 10:57 AM GMT

By: Gerard_Jackson

Economics "Currency manipulation places American workers, farmers and businesses at a competitive disadvantage and this Congress will work with the administration to hold trading partners accountable to the rules of trade," said House Trade Subcommittee Chairman Sander Levin (D - MI). (And some readers still wonder why I have such intellectual contempt for most politicians, especially the likes of Levin). The basic problem for the US economy is not an undervalued Chinese currency but monetary policy.


It is still being said that the world is awash with surplus savings. Complete and utter rot. What the world is really awash in is bank-created credit. The idea of surplus savings can be traced back to Jeremy Bentham who had the good sense to drop it once James Stuart Mill explained to him how fallacious it was . It was resurrected in 1829 by Wakefield in his Letter from Sydney .

It was then largely relegated to the margins of economic thought. Later in the century J. A. Hobson tried unsuccessfully to rehabilitate the theory. He did , however, succeed in passing it on to Lenin who then made it part of his absurd theory of imperialism. I think it is therefore fair to label the erroneous idea of surplus savings the Wakefield-Hobson fallacy. So instead of genuine savings we have money flows between countries that are seriously distorting international prices, a process that can badly distort a country's production structure. Now Austrian economics is very strict on the definition of saving, stressing that

Capital formation arises out of the application to productive purposes of that part of income which is saved. The refraining of an individual from consuming part of his income does not of itself lead to capital formation. If there is to be capital formation the postponement of consumption ("waiting" or foregoing of present goods) needs to be supplemented by the creation of means of production ("investment," or production of future goods). In a money economy, when an individual refrains from using part of his money income as present purchasing power and saves it by putting it aside in a stocking or a money box, or by leaving it idle on current account at his bank, capital formation fails to take place, and saving by the individual does not give rise to saving from the point of view of society as a whole. (Fritz Machlup, The Stock Market, Credit and Capital Formation , William Hodge and Company, LTD, 1940, p. 26).

It's clear that these international funds are anything but savings. One argument has it that the deficit is showing that the US economy's production structure is not big enough relative to consumer spending to accommodate the demand for consumption goods. True and irrelevant. No matter how big and sophisticated a production structure is it will always fail to produce sufficient consumer goods to satisfy consumer demand if the central bank has implemented an inflationary policy. Another argument is that the US is running a deficit because it is not saving enough while Chinese savings are massive relative to its GDP. This is a first cousin to the long refuted necessities fallacy.

No matter how strong a desire the Austrians [or Americans] may have for foreign bread, meat, coal or sugar, they can satisfy this desire only if they can pay for them. If they want to import more, they must export more. If they cannot export more manufactured, or semi-manufactured, goods, they must export shares of stock, bonds, and titles to property of various kinds. (Ludwig von Mises, The Manipulation of Money and Credit , Dobbs Ferry, NY: Free Market Books, 1978, p. 36).

It follows from the above that the savings argument collapses once we realise exchange is a two-way street. If America is not saving then by definition it cannot be accumulating capital. If this were case then we would have to consider the possibility of capital consumption. As for Chinese savings: So what? If the Chinese choose to invest a huge chunk of their income, that's their business. What needs to be understood is that no matter how much capital China accumulates, it has no direct bearing on the American production structure: that in turn is the result of US savings, tax, regulatory and monetary policies.

I suppose I must not be too hard on Sander Levin's economic illiteracy considering that Washington is swimming in it. Nevertheless, politicians need to properly inform themselves on economics. A difficult task, I grant you, but a necessary one if Western countries, and the US in particular, are to continue to prosper. Mr Levin could start by considering the role of monetary policy in distorting the pattern of international commerce. And while he is at it, he might also consider how the Chinese economy is also being damaged by loose monetary policies and currency manipulation. Whichever way we turn, therefore, we find ourselves confronted by monetary policy and the nature and role of savings.

Last week I promised to introduce readers to Boyd's Law of Money . And so I shall. In A Letter to the Right Honourable William Pitt on the Influence of the Stoppage of Issue in Specie at the Bank of England on the Prices of Provisions and Other Commodities Boyd triggered what became known as the Bullion Debate. It was in this letter that Boyd defined money:

By the words 'Means of Circulation, 'Circulating Medium', and 'Currency', which are used almost as synonymous terms in this letter, I understand always ready money, whether consisting of Bank Notes or specie, in contradistinction to Bills of Exchange, Navy Bills, Exchequer Bills, or any other negotiable paper, which form no part of the circulating medium, as I have always understood that term. The latter is the Circulator; the former are merely objects of circulation.

Boyd's definition is essential to any debate on monetary policy. If only today's commentators on monetary policy had Boyd's insight.

Gerard Jackson
BrookesNews.Com

Gerard Jackson is Brookes economics editor.


© 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