Re: Sobering Thoughts on Export Policy

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

"J. Barkley Rosser, Jr." wrote:

> Henry,
>       Of course the main debtor here is the US
> itself.  That is the seignorage essentially, that
> the rest of the world accepts the debt instruments
> of the US on and on.  Not clear how much longer
> that will go on.  Last time it broke down was 1971.
> Barkley Rosser

Prior to 1971, there was no US seignorage advantage, since the dollar was
pegged to gold at $35 an ounze.  The Plaza Accord of 1985 artificially pushed
the dollar down to reduce US trade deficit, with Japan and Germany as the main
target.  These two defeated nations had no option but to obey.  But in 1985,
the Cold War was still on.   Since then, the US has figured out that the US
trade deficit can fuel dollar hegemony therough finance markets globalization
- the big bang.  Japan and Germany wwere slow to catch on and they thought
that they were handed a great deal with the US  willing tolerate a perpetual
trade deficit.  This turned the globalized foreign exchange market into an
engine for the development of strucutred finance which gave birth to
derivatives and hedge funds, which in turn spilled over from financial
instruments (mostly interest rate swaps), at first designed to handle risks of
currency fluctuation caused by CB interrest rate disparity, to derivative
markets for all kinds of commodities, including electricity.

The dollar now is pegged to US geo-political powess, no longer bearing any
relationship to the state of the US economy.  This is a summary return from
scientific economics to political economy.  Economics not longer has anything
to do with markets nor trae has anything to do with comparative advantage.

Dollar hegemony will cease if and when exporters demand payment for their
goods in their own local currencies.  This iwill happen soon by operational
default, not by theoretical verity.  In operational terms, world trade will
soon return to a payment regime in which only the currencies of those who have
goods to export have any value.

Henry C.K. Liu