THE EXCHANGE RATE...

[um observador]

.... What I should have said is that the government should get their dirty hands off such matters and leave things to find their own, natural price. .....

Brazuca, my friend:
I finaly found somthing where I strongly disagree with you. this is a first!!

The money supply is one area where the government has tremendous responsibilities. The money supply is a basic part of the infrastructure of an economy, as are roads, a court system for interpreting contracts, a police department for protecting the peace, etc ....

The boom/bust cycle has always existed in economic markets. Human psychology plays a major roll in this. You might find it fascinating to study the price of tulips in Holland during the later half of the 18’th century.

With modern economies, a government has a few obvious levers to push/pull in order to reduce the extremes of the boom/bust cycle.

An overly simplified explaination goes like this:

If the economy is getting over heated, it will drastically over produce, at which point there will be a collapse, as business cannot sell that which they have in their warehouses. To prevent the economy from overheating, the government attempts to make it more difficult for a business to borrow money (by raising interest rates). A government also does this by raising taxes, which are then put to good use, but usually in a very inefficient way, further pulling money out of the economy.

If the economy is spiraling downward, a government will attempt to encourage business to invest by lowering interest rates and cutting business taxes. A government will also cut personal taxes in order to encourage people to buy things to heat up the economy. This is what has been happening for the past couple of years in the USA. The economy slipped into recession during the last couple of months of the Clinton administration. Bush and Greanspan have been focused on getting the economy out of recession using the above techniques.

As an economy does this, it effects the exchange rate with other world currencies. However, this is usually a secondary effect. It is usually not the primary intent (This is true, usually for the largest economy in the world, the USA).

[MarriedtoABrasileira]

to an observer

You wrote:
If the economy is getting over heated, it will drastically over produce, at which point there will be a collapse, as business cannot sell that which they have in their warehouses. To prevent the economy from overheating, the government attempts to make it more difficult for a business to borrow money (by raising interest rates). A government also does this by raising taxes, which are then put to good use, but usually in a very inefficient way, further pulling money out of the economy.

------

I would word the above paragraph slightly differently.

If the economy is experiencing price inflation, which doesn't necessarily mean over producing, but more likely over demanding. Too much demand going after too few goods, which pushes prices up. The Fed dampens demand by raising the cost of money (interest rates).

Now the earlier statement (not by you) that the government should adhere to a gold standard and get out of the market. does have merit. But could we ever go back? with the flow of currency, derivatives, etc. I wonder what would happen? The price of gold is holding relatively stable against the dollar. Plus, your point is that there would be much less power by the Fed to smooth out the boom bust periods.

[um observador]

If the economy is experiencing price inflation, which doesn't necessarily mean over producing, but more likely over demanding. Too much demand going after too few goods, which pushes prices up. The Fed dampens demand by raising the cost of money (interest rates).

Certainly what I posted did not tell the whole story, I was trying to keep things very very simple for readers with no experience. Even the details I include below, are only an effort to scratch the surface.

Regarding your addition ".... too much demand going after too few goods....". You are not wrong. However, in my opinion, high prices is not the problem.

Regarding manufactured goods, manufacturers will not gear up to produces anything unless there is pent up demand that is not yet satisfied. The problem is not high prices (again, I am talking about manufactured goods). Demand for products encourage manufacturers (due to high potential profits) to gear up to satisfy the demand. However, if it happens to quickly, there will be a switch from:

an under-supplied marketplace (boom times for the economy, as everyone is able to find work to gear up to satisfy the demand and workers pay serves to increase the demand, etc .... spiral upward, inflation)

to

an over-supplied marketplace (bust times for the economy, as business cannot make money by selling their products, there is no need for workers to manufacture the products. Since workers are unemployed they have no money further decreasing demand, forcing business to decreace prices, etc .... spiral downward, deflation)

The switch results from production outpacing demand. There are many reasons for this. Some of them simple, some complex, most of it psychological. All the reasons blend together making the problem nearly unfathomable.

Since the 1930's, in the USA (I do not know about the rest of the world), The US government and the Federal Banks have attempted to throttle back on the boom (making money harder to get) in an effort to fend off the bust. When bust does occur, they pump money into the system as a way of encouraging everyone to spend, increase demand and manufacture goods, higher employees, etc .....

Now the earlier statement (not by you) that the government should adhere to a gold standard and get out of the market. does have merit. But could we ever go back? with the flow of currency, derivatives, etc. I wonder what would happen? The price of gold is holding relatively stable against the dollar. Plus, your point is that there would be much less power by the Fed to smooth out the boom bust periods.

Any type of a fixed standard would be a mistake.

There are many forms of wealth. Most wealth is not mined out of the ground. Most wealth is created out of nothing by people! The society is economicaly wealthy when the overwhelming majority of persons are reasonably active, have their basic physical needs met, and are optimistic about the future. The gold standard is a standard that is unrelated to real economic wealth.

That is my opinion, anyway.

[Brazuca]

an observer, here's a link to a short book which is a summary by Dr North of Ludwig von Mises' economic philosophy. I haven't actually read this book but have read North's books and he uses Mises for much of his inspiration. Since this one's quite short, I figure it's better than linking you to another one of North's longer books. It basically goes agains your views and finds in government interference the problems in our economies. I've found North's thesis cogent.

http://www.lewrockwell.com/north/mom2.html

[um observador]

an observer, here's a link to a short book which is a summary by Dr North of Ludwig von Mises' economic philosophy. I haven't actually read this book but have read North's books and he uses Mises for much of his inspiration. Since this one's quite short, I figure it's better than linking you to another one of North's longer books. It basically goes agains your views and finds in government interference the problems in our economies. I've found North's thesis cogent.

http://www.lewrockwell.com/north/mom2.html

Brazuca:
I will give it a read.
cheers

[MarriedtoABrasileira]

to an Observer

I understand your point about the effect on the manufacturing secor, but (and I may not remember correctly) the service sector is now larger than the manufacturing section in the US, so the Fed is looking at a wider range of factor than they did 10-20 years ago.

[MarriedtoABrasileira]

to Brazuca,

I just started reading your web link, this does look interesting. Thanks!

MarriedtoaBrasileira

[um observador]

to an Observer

I understand your point about the effect on the manufacturing secor, but (and I may not remember correctly) the service sector is now larger than the manufacturing section in the US, so the Fed is looking at a wider range of factor than they did 10-20 years ago.

Yes, certainly, I agree!

[Jeromy.]

an observer, here's a link to a short book which is a summary by Dr North of Ludwig von Mises' economic philosophy. I haven't actually read this book but have read North's books and he uses Mises for much of his inspiration. Since this one's quite short, I figure it's better than linking you to another one of North's longer books. It basically goes agains your views and finds in government interference the problems in our economies. I've found North's thesis cogent.

http://www.lewrockwell.com/north/mom2.html

Some of the past glories of Laissez-faire economics. Slavery, child labor, 80 hour work weeks, monopolies, enviromental damage, extreme health hazards to workers, low wages, etc. It was fully embraced during the 1920's, the result, THE GREAT DEPRESSION. It since the Reagen administration has been followed.
The result World Bank president James Wolfensohn declared: "The financial turmoil of the last two years has dealt a blow to the expectations we had for reducing poverty. Just a short time ago we had confidence that the international development goal of halving poverty would be met in the next 20 years in most areas of the world. Today, countries that until recently believed they were turning the tide in the fight against poverty are witnessing its re-emergence along with hunger and the human suffering it brings."
Real (in terms of purchasing power) average weekly wages for American workers peaked in 1973, at $308.03 (1982 dollars), and by 1991 had fallen to $260.37, a decline of 15.5 percent. Yet the productivity of American workers increased by 11 percent over the same period. From 1951 to 1974 unemployment averaged 4.65 percent; from 1975 to 1993 it averaged 6.97 percent. The average work week for labours increased in the U.S..
According to Business Week magazine CEO compensation went up from 85 times more than the average blue-collar worker made in 1990 to 475 times more than the average blue collar worker made in 1999. . In Japan the average difference is 11. In 1979 1 percent controlled 20.5 of the U.S.'s wealth. In 1989 it was 35.7. In 1997 it was 40.1. I have recently heard it was over 50 percent, but that is unconfirmed. asstated before wages for the average worker decreased, and the average work week increased. On top of that inflation increased, or in other words the cost of living went up. So of course poverty increased, and if you look at the stats THAT IS WHEN THE VIOLENT CRIME RATE WENT UP. That is the exact thing that happen in the U.S. in from 1900 to 1930, that led to the Great Depression. This is why we are in a recession now, and will soon I predict be in another depression.

All this because Big Business said leave us alone, and the government complied. George W. Bush the grand champion of the rich upper class, the comforter of the already comforted, and the afflictor of the alreay afflicted. His new tax cuts that give charity to the rich. It as many economist predict will led us into a fiscal train wreck (see http://www.usatoday.com/news/nation/200 ... usat_x.htm
http://www.fiu.edu/~gummerso/KrugmanA%2 ... 0Wreck.htm), which will aggravate the present recession we are in, and as I said continue us down the path to depression. This will cause an economic collapse the will effect the world economy.

[MAttER]

The great depresion was not caused by inflation, it was caused by deflation. the us went through a boom that ended with deflation. the result of the depresion was unchecked inflation.

[Jeromy.]

The great depresion was not caused by inflation, it was caused by deflation. the us went through a boom that ended with deflation. the result of the depresion was unchecked inflation.

http://www.gusmorino.com/pag3/greatdepr ... index.html

It is quite remarkable to see the similarities between those times and now.

[um observador]

MattER, Jeromy, and Brazuca:

With this post, I am not adding more insight, just providing my opinion.

I fear big government as much as I fear big business. Often, there is not much difference between the two: business and government. They both want power.

I want government to act as a throttle on the economy, as I want the government to maintain roads and highways, sewage systems, a military and police systems, etc ...

But, I also fear government. If world has taught me anything it is this. Over time, the collective government of a society usually ends up with most of the power. The government becomes a government of the governors, by the governors, and for the governors (rather than a government of the people, by the people, and for the people). When this happens (we are not there yet), there will be civil war, again.

[Jeromy.]

MattER, Jeromy, and Brazuca:

With this post, I am not adding more insight, just providing my opinion.

I fear big government as much as I fear big business. Often, there is not much difference between the two: business and government. They both want power.

I want government to act as a throttle on the economy, as I want the government to maintain roads and highways, sewage systems, a military and police systems, etc ...

But, I also fear government. If world has taught me anything it is this. Over time, the collective government of a society usually ends up with most of the power. The government becomes a government of the governors, by the governors, and for the governors (rather than a government of the people, by the people, and for the people). When this happens (we are not there yet), there will be civil war, again.

We are not even close to that now. The reality is we are more government for the corporations and by the corporations.

[um observador]

an observer, here's a link to a short book which is a summary by Dr North of Ludwig von Mises' economic philosophy. I haven't actually read this book but have read North's books and he uses Mises for much of his inspiration. Since this one's quite short, I figure it's better than linking you to another one of North's longer books. It basically goes agains your views and finds in government interference the problems in our economies. I've found North's thesis cogent.

http://www.lewrockwell.com/north/mom2.html

Hey, Brazuca:
This is interesting. very interesting.
cheers

[Brazuca]

to Brazuca,

I just started reading your web link, this does look interesting. Thanks!

MarriedtoaBrasileira

Hey, I'm reading it, too. I've read the stuff before but from North himself, who writes it from a Christian perspective -- something you might be interested in, an observer. His main expertise is in Christian Economics, which sounds kinda weird initially until you read it. I'm finding the more I read him the more I tend toward libertarianism, though of course his version would be Christian libertarianism. At this stage in life, though, I strongly disagree with his a priori stance against the recent war in Iraq -- indeed, pretty much any war. But then again, his knowledge is greater than mine, having a personal library of thirteen thousand books!

Hey, Brazuca:
This is interesting. very interesting.
cheers

No worries. If you click on North's archives at the bottom of the page and go to his articles, you'll see a link to his website where you can access all of his books online -- the ones that are explicitly Christian. He's the guy part of who's e-mail correspondence I posted on another thread explaining why Australia and New Zealand had historically shown less regard for race than other Germanic countries. Although relatively unknown, he and a handful of other Christian scholars have exercised a massive influence over the social landscape of the United States, his late father-in-law in particular, and they in general, being responsible for Protestantism's stance against abortion, the rise and continuing rise of creation science, the home-school movement, Christian involvement in politics, etc. (ironically, most of their influence has been with fundamentalists, whom they routinely ridicule for their ignorance, naivety and lack of intellectual rigour).

Lew Rockwell, the guy who provided that e-book, has a site exclusively dedictated to Mises' philosophy, and providing (I think) all his books online( http://www.mises.org/mises.asp ). I haven't gotten to reading them as I first intend reading all of North's books and perhaps fixing up my maths to an extent that I can delve into all this economics stuff with facility (Math Magic by Scott Flansburg is GREAT! Why do things the hard way when you can do it the easy way?).

[pbrazil]

On a personal note, my wife would rather make 2% in the US than 15-18% in Brazil, I don't agree, but I haven't lived through all of the changes in currency that she has.

Ask her about the time the government "borrowed" the money ... my rent doubled in a day but after about 60-90 days things stabilized.

A word of caution to all about money and rates and what not. Be very, very careful.

Right now I think we are getting good value for the dollar in Brazil. It wasn't this good for most of the 90s. I knew should have bought some real estated when the dollar was above 3.50 and maybe even now. But then I got to remember my paragraph above.

Anyone here ever make money when the commercial dollar was half the parallel? Those were some interesting times.