Forbes Says, Devalue the Dollar. Bad Idea. 29 comments
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In undoubtedly the worst article I've ever read on Forbes.com (and there have been many candidates), writer Frank Beck suggests the world should instantaneously devalue all currencies by 30%, thereby increasing the dollar value of all assets. Debts then become manageable, and we all move forward with cleaner, leaner balance sheets. Right? Wrong!
Who in their right mind would ever lend money again? Knowing that in the next recession (yes, recessions will happen again) there is a high probability that the government will just devalue currencies, interest rates would permanently skyrocket: Even the best businesses, of which are there many, would find it prohibitively expensive to expand, which hurts all of us.
Instead of focusing on business problems like improving productivity and improving value for the customer, businesses in the future will be chiefly concerned with expectations for inflation, which is what happens when future inflation rates are uncertain.
Beck calls himself "a national authority on retiree planning", but consider how this plan would affect retirees! Primarily reliant on fixed incomes, this group would see an instant, permanent skyrocketing of their costs, with no corresponding increase in income!
Even those who lent money with sound practices to good businesses would get burnt by this plan. Basically, it would reward those who speculated with risky loans and purchases of assets, while those who lent appropriately and those who saved cash for a rainy day would get burned. What a perverse incentive system...imagine the long-term repercussions!
I do agree with Beck on one point (you can read his article here, if you can find it between all the ads): We should not throw good money after bad businesses. The auto bailout talk should never have reached this far. The Fed needs to lower interest rates (as it's doing) so that businesses in general have lower costs, with the strongest of them being able to expand. Business taxes should be (if only temporarily) lowered, so that the most profitable businesses have incentives to keep their workers and grow, instead of taxing the most profitable businesses to give to the least productive.
These levers do take time to work themselves through the economy, however. But let's not go overboard by implementing a solution that's worse than the problem.
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There's your single currency!
There's your ultimate one world currency.
You want every American to default on his/her mortgage? Cause thats what happens when you increase the value of the dollar.
Obviously no braincell available for simple 101 economics.
On Dec 13 08:08 AM Billgls wrote:
> Revalue the dollar for 150 percent of its present value
What this economy really needs is to get back to fundamentals. Adam Smith said there are two ways to increase wealth:
1. The development of as yet untapped natural resources
2. The development of new technologies that extend the useful life of existing natural resources
In the case of the US economy, we need a social change that will result in the elimination of "wealth-sucking," sectors of the economy (iPods, Video Games, mid-level chain retailers and restaurants, petrol consumption) and a focus on the development of sustainable economic efforts: small scale specialty manufacturing primarily-that can lead to stable growth.
The general public has already made a very good first step by reducing gasoline consumption. Less money spent on fuel means less money that ends up in the hands of OPEC and other oil producing nations and less money that ends up in the pockets of already gargantuan oil companies.
Playing games with currency manipulation can only lead to greater catastrophe.
What this economy really needs is to get back to fundamentals. Adam Smith said there are two ways to increase wealth:
1. The development of as yet untapped natural resources
2. The development of new technologies that extend the useful life of existing natural resources
In the case of the US economy, we need a social change that will result in the elimination of "wealth-sucking," sectors of the economy (iPods, Video Games, mid-level chain retailers and restaurants, petrol consumption) and a focus on the development of sustainable economic efforts: small scale specialty manufacturing primarily-that can lead to stable growth.
The general public has already made a very good first step by reducing gasoline consumption. Less money spent on fuel means less money that ends up in the hands of OPEC and other oil producing nations and less money that ends up in the pockets of already gargantuan oil companies.
Playing games with currency manipulation can only lead to greater catastrophe.
We ARE going to find what they think is best for their readership, however, but that is not always what is best for the economy which represents the rest of us.
I agree with your opinion that the major concern of business should be raising productivity which allows higher wages for workers and I think we citizens should, through government legislation, help businesses achieve better productivity through competition by enforcing and updating the anti monopoly laws and by encouraging more small businesses.
Business doesn't like competition and, in fact, it likes to kill competitors by all means possible, including currency manipulations. Once the competition is gone, they can charge any price they want and their productivity can fall through the floor, which it usually does.
A better idea: Instead of devaluing the dollar, we should start a land war with China and India to stimulate the United States economy. We could solve our prison problem at the same time by having them make their own military uniforms and after that, send them to India and China to fight the war. I thinks Forbes would like the idea but they would never admit it.
That the World's premiere reserve currency acts like a jo jo is quite unsettling. IMHO
On Dec 12 09:25 PM mathgeek wrote:
> I more wanted to comment on Chris B's comment... it is exactly right.
> Baby Boomers have consistantly failed to support a level of taxes
> to pay for their expected Social Security and Medicare benefits.
> I have little doubt that Baby Boomers will begin to support such
> tax increases when they are no longer earning and are living off
> the benefits... and continue to vote against anyone who threatens
> to cut their benefits.
----------------------...
In 1983 Congress raised the SS withholding tax to 15.5% which resulted in a $185 billion a year SS surplus which was to be put aside for boomer retirement. That would have worked out to approximately $4.5 trillion, but with the Reagan, Bush I, Bush II tax cuts for the rich and deficits don't matter policies, it was all squandered and now Reaganomics has handed down a $12 trillion debt to future generations. The republican strategy of dividing the country over religious/social issues, pseudo patriotism and exagerrated welfare stories allowed them to succeed with their main goal, less taxes for the rich no matter what the cost. After realizing the consequences and with so much at stake for the younger generations you'd think they'd make a special effort to vote. Maybe now that we're facing economic armeggedon they'll finally wake up and get themselves to the polls.
On Dec 12 04:07 PM sheople wrote:
> Chris B, It wasn't just "the self-serving budget-busting decisions
> made by the baby boomer generation." The baby boomer generation
> is not the one that decided they could make more money by sending
> manufacturing out of our country. Albiet, the baby boomers have
> sat quietly ny while it was done and then fell in line with the fiscal
> spoon feeding that was generated by Wall Street and the Federal Reserve.
> There is plenty of blame to go around, but the initiators were Wall
> Street and the Federal Reserve. Now they'll just be running the
> country openly. On all else, agree with you.
As far as the auto bailout, who is next? The airlines, insurance companies, big suppliers, truckers, newspapers? Where does it all end and who is going to pay for all of these trillions of dollars.being foolishly spent?
All of this government intervention (and inventions) are just prolonging the recession. Paulson has previously stated (2002) that the treasury could and would print their way out if commodities got too low.
Has anyone had compassion on the seniors who are living solely off of SS. They worked and saved for years but their interest from that savings (which is mostly for emergencies and nursing home in their final days of life), has dwindled down to nothing because the feds have lowered the interest rates to nothingl
We don't need a change, we need a complete restoration to constitutional authority and the free enterprise economy.
Congress figured out in the 1950s that you get re-elected by spending more than you tax. We haven't had a real budget surplus (i.e., the national debt goes down year-over-year) since Eisenhower was president.
Apart from that, Chris B is right on.
Do you really we're ever going to really repay $11T (officially -- actually much higher) by voluntarily reducing our consumption and taxing ourselves higher than the current cost of government? When did that last happen?
The US dollar cannot stay at its current level, with a current account deficit of $750 billion a year as far as the eye can see. America is just not competitive. We are financing an overindulgent lifestyle by selling off finite assets. The dollar will have to be devalued a bunch, say 50% as a first guess.
Merry Christmas Bob
When they did this in 1933, they made a serious blunder at the same time by abandoning (for internal purposes) the gold standard. It's easy to debase real money. The fiat/central banking system makes it much easier to control the amount of money in circulation - and especially to increase it - but much harder to control its value directly. The irony is delicious. When money is real, the numbers on it are easy to change. When money is nothing but someone else's debt, it's pretty much impossible to do without dramatically altering both current levels of relative wealth and the rules for future competition. This is why central bankers find it so easy to get into feedback loops, and why only circulating physical gold and silver measured in ounces, not "dollars" subject to fiat manipulation, is the only system of exchange that can be made stable.
Going through Bankruptcy would have revealed their status. 12 million jobs taken and more being lost every day as more cross the border to take already scarce jobs.
I am really sorry but as a Nation in the current dire environment, we cannot continue to look the other way.
Take Adrena's comment to heart. We are the Community in trouble and do not need additional mouths to feed until we are able to feed our own.
IMHO
When I visit my adult children in U.S., I notice too many lights at night, too cold at their homes from A/C (Arizona summer time), too warm from central heating in winter, too much use-once throw-away items, too much driving to shop or to recreate or to work, too much toys, too much junks of various kinds, too much flying around, and too large homes to take care of. Of course, all of these are relative; the rest of the world is relatively thrifty in use of resources.
Because of democracy, the average people in U.S. can pretty much consume so much natural resources, not just the very well to do's. I told my children that when we have such big economic problems, there must be a lot of people not doing the right things. The Wall Street people and big failing corporations have their responsibilities to bear, but they are kind of what resulted from a excess of wasteful consumption in the society.
Before returning to U.S. to see my adult children for Christmas, I had a small home party with several relatives, something that is infrequent as people are always too busy working to earn a living. Without too much thoughts, we bought disposable plastic plates and chopsticks, the kind that is nice looking for the holiday season. After the party, when I gathered up the disposables to throw away, I became aware that I was behaving like a "wasteful" American. I could not recall our local relatives and friends throwing so many disposable but resuable items away.
Recently, I read an article that claims that if all drivers in U.S. will abstain from driving one day a week, then the savings will be enough to pay for the annual deficit. Cutting away wasteful use of resources can be the first thing that everyone can do.