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| Moderated by: Joe Kelley |
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| BBC | Rate Topic |
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| Posted: Tue Dec 19th, 2006 04:56 pm |
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1st Post |
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Joe Kelley Administrator
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http://news.bbc.co.uk/2/hi/6190865.stm
Currency reserves: http://www.google.com/search?hl=en&q=Currency+Reserves http://en.wikipedia.org/wiki/Reserve_currency I am looking for common sense stuff. Answers to questions like this: Who benefits? Who pays? Please borrow my thinking: The ability to control the worlds currency (money) can be a huge advantage for anyone or any group of people owning this ability. Consider two angles of view: Micro-economics is one angle of view. Think in terms of the smallest community. Macro-economics is the other angle of view. Think in terms of the largest community. Micro: Consider three small families living in three isolated locations somewhere in time on the planet earth. Each small family uses currency (money) to help make trade easy inside the family. Dad trades with Uncle Bill. Uncle Bill trades with Aunt Ann. Aunt Ann trades with Mom. Everyone uses dollars and Dad has the ability to control the family currency (money). Please hang in here and offer feedback as needed (he he). I'm soooooo stupid. The reasons for looking at this currency reserve question, from these angles of view, are many and not the least of which is a reason called demystification. The idea is to know, beyond any reasonable doubt, that normal people can understand how currency (money) works – from a banker’s point of view. Anyone can be a banker. Not everyone can be a Federal Reserve chairman or the president of the international monetary fund. Banking is banking. Banking is not rocket science. Dad can print money. When Aunt Ann needs money, then, Aunt Ann borrows money from Dad. When Dad runs out of money, then, Dad prints more money. Dad prints dollars. Don’t even think about arguing with the fact that Dad prints more money when the money runs out. This is important to understand. Dad has the power to print money. Think. Use your brain. If the power to print money exists, then, there is a reason for that power to exist. We won’t go into the reason why Dad stops printing money yet. Be certain, absolutely certain, beyond any reasonable doubt, that, the power to print money exists for the purpose of printing money. Again; this isn’t rocket science. When Dad runs out of money, then, Dad prints more money. End of argument. Over the river is another family. That family prints the euro. Hansel has the power to print the euro. When Aunt Gretel needs more money, then, Aunt Gretel goes to Hansel to borrow more money. If Hansel runs out of money to loan to Aunt Gretel, then, Hansel prints more money. End of argument. Over the river and through the snow is another family. That family prints yuan. Bruce has the power to print the yuan. When Aunt Zhang needs more money, then, Aunt Zhang goes to Bruce to borrow more money. If Bruce runs out of money to loan to Aunt Zhang, then, Bruce prints more money. End of argument. Who benefits? Who pays? This is important. Suppose that the dollar works out really well for Dad and his family. Everyone cooperates (except for Uncle Fred) and life is good. Dad stopped loaning money to Uncle Fred because Uncle Fred kept buying booze and visiting every family causing all kinds of hardship. Fred is now begging for another drink and he gets only bread, water, and a cardboard box. Everyone else is doing fine. Houses keep out the cold. People are fed. There is more than enough for everyone. Everyone has spare time. Everyone is looking for new things to trade. Everyone has stuff to trade. Suppose that the euro works out really well too. Hansel managed to keep Adolf from messing things up. Almost everyone else is happy. Some people leave to go over the river. Some people leave to go through the snow. Almost everyone has stuff to trade and almost everyone is ready for a good bargain. The yuan is a little different. There are a whole lot of people in that family and they are really anxious to trade. The family can produce so much stuff so quickly that the mere concept escapes rational thought. That isn’t all. That family is extremely frugal. That family can live on almost nothing and therefore anything extra is ready for trade. That family needs a whole lot of stuff too. That family is just beginning to learn how to use money. That family already knows, very well, how to deal with Uncle Mao. Three families, three different currencies, and each of the three families are ready to trade. Which currency is the reserve currency? Which family causes the need to print more money? How controls the printing of money? Uncle Fred? Uncle Adolf? Uncle Mao? What happens when one country starts printing up too much money? What happens when one country starts producing almost everything and almost nothing is left to produce except, perhaps, movies, television shows, and oil? What is left for the other families to trade in exchange for all the stuff produces (at very low prices/costs) by the extremely industrious family? Answer: The extremely industrious family (that produces more than consumed and produces very efficiently and therefore produces at very low costs) will need to print more money (if their population grows) AND their money will be worth more than any other family’s money (because they have more stuff and less expensive stuff to trade for less stuff and more expensive stuff). I jumped into the Macro-economic viewpoint and it may be a good idea to jump back into the micro-economic viewpoint to make sure this thinking is somewhat true – if not precisely true. Suppose that Dad figures out a way to avoid working. Suppose, for example, that Dad discovers oil and this new stuff can be used to replace Dad’s horse tending business. Soon the whole family drives cars, trucks, tractors for farming, and the family uses oil to run machines for making things. Dad and the rest of the family automate their labor in a big way. The whole family learns how to work less and make more stuff. More stuff is made, so efficiently, that more and more people can afford to work less and less and still get more and more stuff. Some people learn better than others, in the family, of course but for the most part the advantage of oil does help the family produce more, much more, and oil helps the family consume more, much more, and oil helps the family make enough extra to trade much more stuff for much less cost. Meanwhile the other two families are not quite as prosperous. Dad, and his family, have so much cheap stuff (good quality too), that the other families are hurting just to find enough extra stuff laying around to trade for all that new, good quality, cheap stuff offered by Dad – and his family. Hansel tries different ways to get his family back on track. What Hansel needs, however, is oil. Hansel tries synthetic oil. That is a long story itself. Hansel buys oil from Dad. Does Dad give the oil away? No. Dad doesn’t give the oil away. There is only so much oil. Giving the oil away would be just like giving prosperity away. Dad would have to gather up the family and announce the coming economic depression. Like this: Dad: I’m going to give away the oil. We will have to get back to work. The family isn’t too upset. The family is spending oil money on diets by now; anyway. This is the fantasy part. Dad gives the oil to Hansel. Dad does not give the oil to Bruce. So what happens now? Hansel receives the free oil. Hansel and his family can start making all kinds of new stuff and Hansel and his family can make this new stuff with high quality and at very low costs (cheap oil). Hansel can throw away all those get rich quick plans because cheap oil makes industry a lot cheaper to run. Every member of the family needs less euros each time they fill up their cars, trucks, tractors, and even their electric generators (when the wind isn’t blowing and the sun isn’t shining). Less family members are asking for loans. More family members are making more stuff with less money. The euro, like magic, becomes more and more valuable. Meanwhile Dad is starting to get more and more family members showing up for more and more money. Dad tries something new. Instead of printing more and more money to keep up with all the borrowing, Dad, tries something exciting and really new. Dad stops giving away the oil. Dad starts charging more and more money for the oil. Hansel and his family are pissed! Meanwhile Bruce is barely getting by with his large family and his family is getting larger. It is odd that way. When times are hard; people make babies. Who benefits. Who pays? More kids that work means less work for Dad no? Hansel built up a pretty large reserve of stuff when oil was cheap. The family made enough stuff to trade for more oil for awhile and the increase in cost of oil didn’t cause too much hardship on the Hansel family. The family learned to make other energy work in place of oil; including the synthetic stuff; really. They really did make the synthetic oil stuff work. The family members working at the synthetic oil factories were not paid well. Some might say that those workers worked themselves to death. Others point the finger at Adolf. It is a long story. So the reserve currency story, from the micro-economic viewpoint, does involve an imagination. I want to know. Suppose things become rather stable between the families for a time. Dad continues to fuel his family’s economy with cheap oil and Dad sells extra oil to Hansel at a high price. Dad’s family becomes so prosperous, for a time, that Hansel’s family members begin to ask for Dad’s money instead of Hansel’s money. Who benefits? Who pays? Hansel, the guy who has control over the printing of the euro, thinks: This is very odd behavior. Why would anyone in my family, Hansel asks himself, why would they, anyone, want Dad’s money? Answer: to buy oil. I may edit or continue: This stuff doesn’t buy oil.
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