From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Thu Nov 25 2004 - 14:05:33 EST
I had written yet again against the fear mongering about the US deficits voiced by Roach, post Keynesians and even OPE-L Marxists: At one level, I don't get this argument. The world is on a dollar not gold standard (as MacKinnon and Davidson have underlined). And as provider of the only near world money, the US is in fact obliged to increase the quantity of money to meet the growing international circulation of commodities. The US Fed is in some ways like the gold sector in Marx's reproduction schema: it's where the money comes from. The US therefore runs massive deficits (i.e. receives gratis real goods and services), but isn't that just the US' exorbitant privilege as issuer of (near) world money. Of course to maintain the dollar's global role Greenspan has to take steps (viz target Baker's commodity index) to insure global confidence that the dollar will remain as good as gold, i.e. it will not lose its value. To maintain its monopoly as near world money, the Pentagon ensures that the lifeblood of global industrial civilization remains priced in dollar and that US firms maintain a monopoly over the most advanced weapons systems. The global lustre of the dollar comes dripping in blood and petroleum. At 11:31 AM +0000 11/25/04, Paul Cockshott wrote: > >------------------------ >I am not convinced even on your own grounds that this >is true, You missed my explicit political reasons as to why dollar would remain more liquid, more in demand than the euro or the yen and thus likely remain the favored currecy for use in international transactions and reserve purposes. > the gold and foreign exchange reserves backing >the euro through its participant states are considerably >greater than for the dollar, and with much smaller >outstanding liabilities - check the IMF figures at >he links Jurrian posted earlier. >France and Germany each individually have higher foreign >exchange reserves than the US. Euro is backed by >reserves of E 300 Billion or so, the dollar by >reserves of $85 billion dollars which is a 5 to >one advantage to the Euro at present. That the Euro requires greater foreign exchange backing probably indicates how unprepared it is to ascend to world money. > >The Euro zone is also running a net balance of payments >surplus of around E 70 billion per annum. The US can safely run a deficit exactly because the dollar is world money. > >The treaty obligations on participant states also >makes it much harder for them to run significant budget >deficits than the US govt which is unencumbered by such >obligations. > >These obligations are almost certainly deflationary and >are depressing growth in the Euro zone, but from the >standpoint of ensuring the value of the currency they >are much more significant than a disputable wish by >the chairman of the Fed to shadow gold - which as >Allin has shown he has signally failed to do even >if he is assumed to have wanted to do so. It is not only the value of the currency but its liquidity that matters. The euro has also fluctuated wildly against baskets of price sensitive commodities in its short history so one can certainly not count against capital losses; and opportunities for profit through euro assets hardly inspire the international capital markets. Asian central banks are also more likely to count on the American rather than the European market and thus support the dollar. Moreover, given the great international investment already in the dollar, there are powerful inertial forces in favor of the dollar. If the dollar gives, it will not be because of the rise of the euro or yen. There will more likely be a flight to gold as store of value. > >It is worth noting that in some ways the result that >Alllin found was to be expected simply on staticstical >grounds in that a small bundle of commodities will >have much more noise in its price movements than >a large bundle such as that used to calculate the CPI Well let's say this basket is really comprised of truly price sensitive commodities; then targeting it means that Greenspan can preempt inflation and thus please the bond markets. Rakesh
This archive was generated by hypermail 2.1.5 : Fri Nov 26 2004 - 00:00:02 EST