Re: Central Banks and Deflation

[paul davidson <pdavidson@xxxxxxx>]

At 12:28 PM 5/22/03 , you wrote:

> The problem is not the relative value of the dollar, but the dollar's role
> as the dominant reserve currency for trade.  The use of exchange rates to
> manage trade is a destructive move, regardless who does it. Exchange rates
> need to be stable and to change only gradually and infrequently.  Trade
> needs to be structured to increase domestic wages rather than to push
> domestic wages down.  Pushing wages down decreases purchaing power
> domestically which directly contracts international trade.


Absolutely on target Henry!!  But the same neutrality of money axiom causes
orthodox international trade theories to "demonstrate" that changes in
exchange rates solve any international payments imbalance!  I have
presented an analysis of non-neutral money in international finance --
beginning with the first Edition of my book INTERNATIONAL MONEY AND THE
REAL WORLD in 1982


> Central banks must change their theology of protector of the value of
> money and start promoting full employment and rising wages worldwide and
> alter an economic system that rewards corporate policies of layoffs and
> cost cutting, to one that rewards job creation and expansion.


Ther real problem is that Central Bankers do not understand what the
function of a central bank is in a non neutral money economy despite
Keynes's advice in A TREATISE ON MONEY.

Paul Davidson.



> Henry C.K. Liu

Louise Davidson
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