Re: [gang8] Dollar Hegemony Revisited

["Gary Santos" <evs@xxxxxxxxxxxx>]

William,

You tell me why US Treasuries are being held. It is a matter of perception
unless you know what is going on in everyone's head. But, I don't think we
disagree really unless you don't think that the exchange rate between many
countries in Asia is not "fair". If there was some international mechanism
that prevented the competitive exchange rate adjustments in the 1997 Asian
crisis and, especially, if China revalues its currency to 5 then I would not
be complaining now.

And, no, US policy is not actively pursuing dollar hegemony. She appears to
me an accidental beneficiary of history. She was big, got bigger during the
two European Wars, became the technological leader, and, now, a superpower
far from the rest. Her current account deficit feeds off other countries'
trade surpluses but because of the disparity in currency exchanges
(resulting from too many suppliers catering to a single market) standards of
living abroad have gone down and will stay down. Is that America's chosen
destiny? To live rich while the rest wallow? I also think that in this
hegemony only the rich and big business and its management benefit. The
American people are losing jobs in manufacturing and, now, the jobs in the
service sector when allowed by new technology. The jobs being lost are not
being replaced by jobs in other sectors of the economy. The distribution of
income, instead of broadening, becomes skewed. I also take note of what John
Legge wrote in the second half of this post. You yourself point out the gap
between the CEO and the worker.

On Treasury rates, I stand corrected on the long term yields. But, you seem
to be pitting the situation of other dollar holders (the US public) to that
of those who hold the bonds in private, public and international portfolio
and reserves. What good will a solvent central bank be if its people have to
pay so much for needed foreign goods? Small benefit to earn 8% on dollar
reserves of $700 billion.

Finally, I have no General Theory to offer. I leave that to the economists
who think they have. But, I am distinctly getting the impression that the
whole idea of fiat system is and has been under attack since its departure
from a standard -- first a departure from a standard, barbaric as it may
have seemed then and now, then into a series of alternative exchange rate
regimes and, now, finally all this questioning on the value of the dollar.

Do we really disagree?

Gary Santos


----- Original Message -----
From: "William F Hummel" <wfhummel@xxxxxxxxxxx>
To: "Gary Santos" <evs@xxxxxxxxxxxx>
Sent: Tuesday, July 08, 2003 11:33 PM
Subject: Re: [gang8] Dollar Hegemony Revisited


> Gary Santos wrote:
>
> > Either way, dollar hegemony is embedded in history and things are
> not easily
> > changed. You define hegemony in a general sense. I use the term in
> the
> > context of all of the discussions in PKT and TNF I have read. More
> credit
> > extended by the US for current consumption. A lot of people are
> holding
> > these "net US financial assets" as one has termed it with no
> compelling
> > benefit from holding.
>
> If there is no compelling benefit from holding US financial assets,
> then you should ask why the creditors chose to hold those assets.  Are
> they victims of US policy?
>
> >These assets are predonimantly in the form of US
> > Treasuries. The amount is growing even as the issuing country has a
> growing
> > current account deficit, it's government is being funded with new
> debt, it
> > has projected an increasingly negative Entitlements cash flow soon,
> its real
> > estate is not cheap, its stock market is overvalued and interest
> rates are
> > historically, significantly low. Now who would hold a fiat currency
> whose
> > country it belongs to has these macro features? Yet, central banks
> around
> > continue to hold dollars afraid to hurt employment.
>
> Foreign central banks hold dollar assets because their governments
> promote a trade surplus. You have alluded to the reason why.  Their
> policies are designed to promote domestic employment as first
> priority.  The US current account deficit is the result, not the
> cause.
>
> >Your "hegemony", that
> > the dollar was already the dominant international currency, became a
> > "hegemony problem", in my mind, when the dollar was made
> inconvertible to
> > gold. If it were convertible, Sir, the composition of central bank
> reserves
> > would not be in their present composition. Neither will the price of
> gold be
> > $350 where it is today. It will be higher and have a strong place as
> a
> > central bank reserve. Yet, dollars are held as reserves and earning
> > practically nothing in the short term and 2-4% in the longer term.
>
> You are confusing current rates with average rates.  According to the
> Bureau of Public Debt, the average interest rate on US Treasury
> securities as of June 30, 2003 was 4.02% on notes and 8.23% on bonds.
> Foreign central banks hold a mix of bills, notes, and bonds totalling
> $711 billion as of April 2003.  Their earnings are far from nothing.
> >
> > There was a recent discussion on whether this "fiat exchange for
> current
> > consumption" was a credit or a debt. The distinction is an important
> one for
> > the credits (the dollars) are not being redeemed. For gold, for
> example. Or,
> > real estate. Or, equipment. Or, something. It is only being
> accumulated on
> > increasingly deteriorating terms. Meanwhile, more fiat claims are
> being
> > issued as more Treasuries are issued. There would be no problem
> hegemony if
> > that exchange for "gold" or "something" took place*. Or, for that
> matter and
> > importantly, if the fiat paid gave to people are able to have a
> decent
> > standard of living for their labor. Are we all talking about the
> same
> > hegemony?
>
> As Keynes noted, gold is a barbarous relic.  The notion that a
> commodity like gold could be a workable international monetary base
> was shown to be an illusion when the Bretton Woods system broke down,
> and decades earlier when the British sterling hegemony ended.
>
> William F Hummel
>
>
>
>