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Saturday, December 13, 2008

Is devaluating currencies the right way out?

It would just be going where we are headed a little bit faster...
Printing money has the same effect, but in a hidden way.
If the offer is more than the demand the natural consequence is inflation and inflation means currency devaluation.

"Currency devaluation proved effective in ending the Great Depression. In 1930, Australia was the first to leave the gold standard, immediately devaluing the aussie by more than 40%, and the economy quickly recovered. New Zealand and Japan followed suit in 1931, each with the same result. By 1933, at least nine major economies had enacted a devaluation of their currency by removing it from the gold standard, all of whom emerged from depression."

Currency devaluation is the only way to save capitalism.
To gratify the ones who invested and to convince the ones who didn't to do it in the future.
If you want capitalism survive, you have to have "capitals".
And you have "capitals" if they bring a revenue.

"Only debt would remain the same. All other assets would immediately be worth more (in nominal terms), whether it be a home, a stock, an ounce of gold or a used car. Bank balance sheets would immediately improve, as many loans would be moved from non-performing to performing status. Banks would be paid with devalued dollars, but they made millions creating the mess. "

"Businesses would instantly become more profitable, and workers' pay would increase, allowing each to pay their debts more easily, even while sending more tax dollars to Washington, without raising tax rates"

"Wouldn't you like to wear $1,000 suits and smoke $100 cigars?"
The problem is that a $1,000 suit will be just the value on the label, if you care to read more carefully you will certainly find:

Made in CHINA.
It is the same old story, one thing is the price and another is the value.
What I see is:
People will earn more and consequently pay more taxes (at least in Europe, the more you earn, the more you pay) with the difference that in reality they will EARN the same and PAY more.
House will cost more, the house maintenance will cost more, the house taxes will be more, and in the end... the houses value WILL always be the same.

We have to find the right balance between price and value.
What brought us to this was that the value was less than the price. And devaluating would be going into this direction...
People went out of the depression not thanks to the currency value, but with their honest daily work...
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