[PLUG-TALK] Currency - was, rising prices

[Keith Lofstrom]

On Thu, Dec 08, 2016 at 04:50:25AM -0800, Vedanta Teacher wrote:
> What you are probably seeing is the devaluation of the currency.

Relative pricing (Freddie's to other Portland stores,
or to other Kroger chains elsewhere) isn't currency
devaluation, though I agree that can be a problem.

-----

The US is in an "interesting" position.  Like the British
pound sterling before it, the US dollar is now the
international reserve currency.  Rather than storing gold
in vaults to pay off loans, other nations keep electronic
dollars in bank accounts in "Manhattan" (actually, rural
US data centers).

If those other nations find themselves in a credit crisis,
such as foreign creditors demanding immediate repayment of
loans, they can pay those loans with the digital dollars
and keep their currency from inflating.

Otherwise, they get hammered like Venezuela, where Hugo
Chavez kept himself in office by passing out "free"
goodies to his constituents, and paying for the goodies
with oil revenue.  When the easy-to-extract oil ran out
(nationalizing foreign-owned oil wells means they don't
drill more), he borrowed money to pass out more goodies,
and hyper-inflation inevitably resulted.

More responsible countries, like South Korea, have found
themselves in credit crises as well.  Korean leaders are
also nuts, but Korean citizens work their butts off to 
pull themselves out of the holes their idiot leaders dig.
South Korea's spending problems aren't free goodies for
the masses, it is construction in Seoul, then defending
that construction from an enormous hostile army half an
hour to the north.  The Koreans collect a lot of US
dollar reserves, when they can.  Most other responsible
nations do as well.  They give us screens in return.

The world went off the gold standard and to the reserve
currency system more than a century ago, when Britain
realized that the gold British sovereign was deflationary. 
Global wealth and population was expanding much faster
than the metal supply.  Deflation can be worse for
economies than inflation; loan payback, wages, inventory,
all sorts of stores of value need a constant monetary
yardstick to work properly. 

Being able to print money and give it to other countries
and get "free" goods in return (as Britain did, and the
US does now) seems like a Neat Trick.  However, Britain
learned that "free" imports displace local manufacturing.
That puts workers out of work and puts domestic companies
(large and small) out of business.  Giving citizens some
of the free money (as a dole) ruins the spirit of
responsible adults, creates invidious competition for
the government goodies, and can tear a nation apart.

Sound familiar?

The US took over responsibility as global reserve currency
from the Brits in 1944 (Bretton Woods Conference) because,
at the time, Brit factories had been pounded to rubble and
their best workers were dead.  They could not afford to
provide the world with reserve currency.  In 1944, the
US had built the most prodigious industrial system in the
world.  The US kept the factories humming for decades,
first rebuilding a war-ravaged world, then continuing the
Forever War with the assistance of the Soviet Union.  When
the Soviet Union fell apart, so did the rationale for the
factories and pseudo-jobs sustaining the Forever War,
in both countries.  

The US is still printing dollars like crazy, and Asian
economies are squirreling them away, giving us throwaway
consumer goods in return (remember me complaining about
3 year replacements for 16 year old fax machines?). 

The real crisis for the US awaits.  Not hyperinflation,
but the invention of something like Bitcoin that does
not depend on gold or reserve currencies, and is more
resistant to fraud and mismanagement.  Heck, it might
be invented by an economics-savvy open source
programmer from Portland (as Bitcoin probably was). 

Let's call it "Brainbucks" for reference; perhaps it
will be pegged to public education levels.  Teachers
will be the titans of the new economy. :-)

As nations sell dollars and generate Brainbucks, the
international purchasing power of the dollar will
plummet.  What happens next?  Imports will vanish.
We will make most of our own stuff again ... like we
did before the 1980s.

In spite of China's phenomenal growth, the US still has
prodigious resources: food, minerals, talent, education,
universities.  American English will remain the global
"linguistic standard".  We are not Venezuela. 

Military spending is a surprisingly small part of the
federal budget today; if it plunges we are neither
threatened or jobless.  We will not be able to afford
to project force into the eastern hemisphere (boo hoo),
but our neighbors are friendly.  Worst case, a staredown
over the Bering Strait with Russia, but I doubt we will
go to war over the Diomede islands. 

If all the cheap Asian-import TV screens and "smart"
phones wear out and fail, we still make the best damned
computer chips in the world in Hillsboro.  If we can't
afford screens, we'll implant the chips in our brains,
and build new medical schools to teach our kids how to
do it.  Note: our existing med schools will be full of
foreign students spending the remaining worthless
dollars piled up back home.  They'll learn to prescribe
US sourced drugs - gullible fools.

I don't worry about money.  I worry about people.  We
have crippled ourselves with weapons of mass distraction.
When we can no longer afford those, it will not be the
end of the world, but the beginning of a better one.

Who needs $100K college loans?  We can be the best
university in the world, for each other.  I'll teach
you electronics if you teach me C++.

Bring on the crisis.  I can't think of a better bunch
of people to solve it with than the people of PLUG,

Keith

-- 
Keith Lofstrom          keithl at keithl.com