Most businesses like to separate their costs into Labor, Rent, Electricity, Taxes, Fines, ect. The Truth is, all costs are labor. There is almost no cost that does not have to do with labor. Whether it is the cost of paying rent, or the cost of setting up factory equipment, or the cost of purchasing materials. All goods and services are produced by labor.
Machines and tools do not get paid a salary. A cashier gets paid a salary, a cash register does not get paid a salary. However while the store owner does not pay an hourly wage to the cash register, the manufacturer of that cash register must still get paid a salary to have it delivered to the store owner.
The tailor gets paid a salary, the linen cloth does not get paid a salary. But the individual who produced the linen cloth gets paid a salary.
Thus in the end, all goods and services, the entire global economy comes down to the price of human labor.
Sunday, October 31, 2010
Saturday, October 30, 2010
Wealth
There is a huge confusion as to what constitutes wealth. Wealth is often measured using data dependent on the supply of central government notes. Meaning if there are 10,000 notes in the money supply, then the wealth of the nation is 10,000. If only 10 notes were printed, then wealth of the nation is only 10. Thus GDP for the most part is just monetary data.
GDP = Government spending + Private Spending + Gross Investment (Exports - Imports)
However the above data is often misleading because Government spending is measured in Central Government Notes. Private Spending is measured in Central Government Notes. Gross Investment is measured in Central Government Notes. Exports minus Imports are measured in Central Government Notes.
As a result of this, we are not really measuring GDP any more. We are only measuring the supply of Central Government Notes.
We can increase the GDP by simply printing more Central Government Notes. As these notes are injected into any of the above sectors, that sector will expand in the value of said notes. If all of the sectors are injected with more notes, then all of the sectors expand in the value of said notes.
Thus there is a very real confusion as to what constitutes wealth. Personally, I would argue there are two kinds of wealth. Physical and tangible wealth vs Monetary wealth. Physical and tangible wealth being the size of your home. The number of clothes in your closet, how much food sits in your refrigerator ect. And then monetary wealth which is basically how much in Central Government Notes you possess.
This is not to underestimate the psychology of the modern man. Paper money is real money as far as the Modern Man is concerned. All men are conditioned to believe it is so. Historically, paper money was only a representation of ounces of gold that were supposed to exist. Today they are legal tender as far as the central government is concerned. Thus compensation paid in the form of Central Government Notes are enforceable by law. And thus Real Wealth, such as the Physical and Tangible will flow to those who have the most Central Government Notes.
Thus why those who possess the most Central Government Notes often own the largest homes, the largest number of clothes, and the most extravagant meals.
GDP = Government spending + Private Spending + Gross Investment (Exports - Imports)
However the above data is often misleading because Government spending is measured in Central Government Notes. Private Spending is measured in Central Government Notes. Gross Investment is measured in Central Government Notes. Exports minus Imports are measured in Central Government Notes.
As a result of this, we are not really measuring GDP any more. We are only measuring the supply of Central Government Notes.
We can increase the GDP by simply printing more Central Government Notes. As these notes are injected into any of the above sectors, that sector will expand in the value of said notes. If all of the sectors are injected with more notes, then all of the sectors expand in the value of said notes.
Thus there is a very real confusion as to what constitutes wealth. Personally, I would argue there are two kinds of wealth. Physical and tangible wealth vs Monetary wealth. Physical and tangible wealth being the size of your home. The number of clothes in your closet, how much food sits in your refrigerator ect. And then monetary wealth which is basically how much in Central Government Notes you possess.
This is not to underestimate the psychology of the modern man. Paper money is real money as far as the Modern Man is concerned. All men are conditioned to believe it is so. Historically, paper money was only a representation of ounces of gold that were supposed to exist. Today they are legal tender as far as the central government is concerned. Thus compensation paid in the form of Central Government Notes are enforceable by law. And thus Real Wealth, such as the Physical and Tangible will flow to those who have the most Central Government Notes.
Thus why those who possess the most Central Government Notes often own the largest homes, the largest number of clothes, and the most extravagant meals.
Manipulating a Budget surplus
A budget surplus is not anything special. However its still politically desired due to the fact that deficits are normally viewed as taboo. A budget surplus is nothing more than tax revenue exceeding government spending. Meaning more in taxes was collected by the state than tax revenue was used for public spending.
However, civil officials often argue that a budget balance is a sign of fiscal responsibility when in fact a budget balance have very little positive significance to the economy. It may be important on a local level since local governments must seek loans or grants from their central governments in order to acquire money. But from the central government's perspective, budget surpluses are irrelevant. Most governments find it difficult if not impossible to run a budget surplus. However if they could, it would not necessarily be a good thing. It would simply result with money being drained from the economy and into a government reserve. All things being equal, such a policy would result in deflation and monetary and economic contraction. Thus setting the nation towards a recession or worse.
However we could probably manufacture budget surpluses to please doubters. We can manipulate how money is produced and transferred giving the government a budget surplus. The goal is simply for the government to collect more in taxes than it spent in public spending. But at the same time without reducing the nation's money supply. Thus something must take the place of fiat money to constitute money. The government opts to collect private stocks or bonds in the place of tax revenue. This way the government could claim it is running a budget surplus from the liquid assets it holds.
The alternative is to produce more liquid assets from a private level to take the place of the central government note. Thus encouraging traders to buy and sell real assets using these stocks and bonds. That way as the central government note is being taxed from the nation's money supply, the money supply is still expanding through the expansion of stocks and bonds. However, this is much more dangerous because fiat money are usually necessary to prop up the value of stocks and bonds.
All of this irrelevant however, since a budget surplus or deficit does not mean anything.
However, civil officials often argue that a budget balance is a sign of fiscal responsibility when in fact a budget balance have very little positive significance to the economy. It may be important on a local level since local governments must seek loans or grants from their central governments in order to acquire money. But from the central government's perspective, budget surpluses are irrelevant. Most governments find it difficult if not impossible to run a budget surplus. However if they could, it would not necessarily be a good thing. It would simply result with money being drained from the economy and into a government reserve. All things being equal, such a policy would result in deflation and monetary and economic contraction. Thus setting the nation towards a recession or worse.
However we could probably manufacture budget surpluses to please doubters. We can manipulate how money is produced and transferred giving the government a budget surplus. The goal is simply for the government to collect more in taxes than it spent in public spending. But at the same time without reducing the nation's money supply. Thus something must take the place of fiat money to constitute money. The government opts to collect private stocks or bonds in the place of tax revenue. This way the government could claim it is running a budget surplus from the liquid assets it holds.
The alternative is to produce more liquid assets from a private level to take the place of the central government note. Thus encouraging traders to buy and sell real assets using these stocks and bonds. That way as the central government note is being taxed from the nation's money supply, the money supply is still expanding through the expansion of stocks and bonds. However, this is much more dangerous because fiat money are usually necessary to prop up the value of stocks and bonds.
All of this irrelevant however, since a budget surplus or deficit does not mean anything.
Thursday, October 28, 2010
Guns vs Butter
Its somewhat a false assumption that if one sector is doing extraordinarily well we can then use the revenue collected from that sector to pay for another sector. That through strong consumer expansion, we can use the tax revenue collected from those sales to be used for military spending or any other kind of spending.
From a financial perspective it makes perfect sense. One might argue since we have the revenue to pay for it, we have no reason not to. But the real economy is indifferent to budget surpluses or deficits. The real economy does not care about your balance sheet. It only cares about whether the resources are available for such spending. Even if you are running a financial surplus, if the resources and labor are not available to be allocated towards additional military spending, all it would do is crowd out current consumer spending and causing inflation for the general economy.
Even if you were running a financial deficit, so long as there are resources and labor sitting idle waiting to be allocated towards military spending, the inflation created from military spending would be quite mild. This is to say that even if an individual or government was sitting on a surplus pile of money whether in the form of fiat or gold, that spending would be unproductive. If he chose to spend that money in an economy that is already at near 100 percent employment rates and near 100 percent industrial capacity, the result of spending that money then would only produce unwanted inflation.
This is because the financial balance sheet of a nation does not truly represent a nation's economy. All it does is represent a nation's supply of money. The real economy such as the nation's labor force, steel production, electricity output, food production ect. are not being represented by the nation's money supply. And thus a nation's economic capacity is often not being well considered from looking at a nation's aggregate money.
Because the current system of tracking surpluses and deficits is an archaic system leftover from the gold standard. The only thing that one should consider when managing consumer and military spending is whether or not there are resources and labor available for additional spending.
In short, China is not under any real stress to control its civilian and military spending. Any additional spending would be a godsend as it would help alleviate the discomforts of unemployment and under-utilization.
From a financial perspective it makes perfect sense. One might argue since we have the revenue to pay for it, we have no reason not to. But the real economy is indifferent to budget surpluses or deficits. The real economy does not care about your balance sheet. It only cares about whether the resources are available for such spending. Even if you are running a financial surplus, if the resources and labor are not available to be allocated towards additional military spending, all it would do is crowd out current consumer spending and causing inflation for the general economy.
Even if you were running a financial deficit, so long as there are resources and labor sitting idle waiting to be allocated towards military spending, the inflation created from military spending would be quite mild. This is to say that even if an individual or government was sitting on a surplus pile of money whether in the form of fiat or gold, that spending would be unproductive. If he chose to spend that money in an economy that is already at near 100 percent employment rates and near 100 percent industrial capacity, the result of spending that money then would only produce unwanted inflation.
This is because the financial balance sheet of a nation does not truly represent a nation's economy. All it does is represent a nation's supply of money. The real economy such as the nation's labor force, steel production, electricity output, food production ect. are not being represented by the nation's money supply. And thus a nation's economic capacity is often not being well considered from looking at a nation's aggregate money.
Because the current system of tracking surpluses and deficits is an archaic system leftover from the gold standard. The only thing that one should consider when managing consumer and military spending is whether or not there are resources and labor available for additional spending.
In short, China is not under any real stress to control its civilian and military spending. Any additional spending would be a godsend as it would help alleviate the discomforts of unemployment and under-utilization.
Tuesday, October 26, 2010
Inflation vs Hyper Inflation
Money needs to be printed out of thin air always. Whether its to absorb new labor units or employ new production methods. The supply of money must always arbitrarily expand. Whether the expansion is a result of the state issuing new money or private lenders expanding money through fractional reserve lending policies, there needs to be new money entering the market.
As a result, inflation is just a way of life. Grand parents and great grand parents are often good sources of what wages and consumer prices used to be. Wages decades ago would seem third world today, and so were consumer prices. Inflation thus helped boost incomes and consumer prices alike.
Its best to adopt a monetary policy that helps maximizes output by fully utilizing a nation's production capacity. That means putting available units of labor to work as well as idle factories and businesses. And we continue issuing new money until we reach what ever we consider to be ideal utilization.
If we continued to issue money after full utilization. Then the inflation we face would probably become troublesome. Its like pouring water into a glass that is already filled. There is no one left to hire. There are no idle factories that need to be put to use, no businesses and idle land. The new money would simply get absorbed into production capacity that is already being utilized. Thus driving incomes and consumer prices beyond what we are normally used to.
As a result, inflation is just a way of life. Grand parents and great grand parents are often good sources of what wages and consumer prices used to be. Wages decades ago would seem third world today, and so were consumer prices. Inflation thus helped boost incomes and consumer prices alike.
Its best to adopt a monetary policy that helps maximizes output by fully utilizing a nation's production capacity. That means putting available units of labor to work as well as idle factories and businesses. And we continue issuing new money until we reach what ever we consider to be ideal utilization.
If we continued to issue money after full utilization. Then the inflation we face would probably become troublesome. Its like pouring water into a glass that is already filled. There is no one left to hire. There are no idle factories that need to be put to use, no businesses and idle land. The new money would simply get absorbed into production capacity that is already being utilized. Thus driving incomes and consumer prices beyond what we are normally used to.
Budget deficits do not matter
Budget and trade deficits are an archaic concept leftover from the gold standard. Historically, paper money was only as good as the volume of commodity that backed it. Thus a nation's GDP, its currency, its wealth, was essentially measured in gold. Today, no such arrangement exists thus GDP, currency, and wealth are all monetary equations printed out of thin air.
Historically, we could not make such a bold statement. If a national central bank printed more money to pay for government expenditures than it had in gold reserves. Then its citizenry had a larger claim to the government gold than the government could ever claim to exist.
If a nation imported more goods than it had in its gold reserve. Then foreigners have a larger claim to the gold reserves of that nation than the nation could ever claim to exist.
Both scenarios would then lead to bankruptcy as the state lacked the gold reserves to pay for the paper currency its citizens or foreign creditors held.
But this is the 21st century and the era of fiat money. No nation is obligated to intervene in the market by selling gold in exchange for its own bank notes to its citizenry or foreigners at a fixed price. This is why gold is not 20 euros per ounce or 100 yen per ounce. The price of gold goes up and down like the price of a big mac or any other commodity sold on the market.
The gold has disappeared, with the central bank note taking its place. And the state bonds in a way has now replaced the role of the central bank note. If a citizen tried to purchase gold from his national bank with the central bank note he held. The national bank would declare bankruptcy from being unable to come up with the gold. But if the citizen tried to redeem his state bonds for central bank notes. The national bank can easily print the value. As a result, no bankruptcy can exist if the state does not want to declare bankruptcy.
In the 21st century, budget deficits, trade deficits, and national debts are largely inconsequential. The only consequence that exists is inflation. And most people around the world are quite used to that. A big mac used to cost 49 cents in 1968. You could purchase two big macs with a single dollar bill. Today, its over 2 dollars. Even if big macs inflated to 5 dollars, the federal reserve can simply add a zero behind every 1 dollar it prints and you can still purchase 2 big macs for 10 dollars.
Budget deficits have largely become irrelevant. Paper money today is legal tender. Its the only legally acceptable form for exchange for goods, services, and taxes whether there is inflation or not.
Historically, we could not make such a bold statement. If a national central bank printed more money to pay for government expenditures than it had in gold reserves. Then its citizenry had a larger claim to the government gold than the government could ever claim to exist.
If a nation imported more goods than it had in its gold reserve. Then foreigners have a larger claim to the gold reserves of that nation than the nation could ever claim to exist.
Both scenarios would then lead to bankruptcy as the state lacked the gold reserves to pay for the paper currency its citizens or foreign creditors held.
But this is the 21st century and the era of fiat money. No nation is obligated to intervene in the market by selling gold in exchange for its own bank notes to its citizenry or foreigners at a fixed price. This is why gold is not 20 euros per ounce or 100 yen per ounce. The price of gold goes up and down like the price of a big mac or any other commodity sold on the market.
The gold has disappeared, with the central bank note taking its place. And the state bonds in a way has now replaced the role of the central bank note. If a citizen tried to purchase gold from his national bank with the central bank note he held. The national bank would declare bankruptcy from being unable to come up with the gold. But if the citizen tried to redeem his state bonds for central bank notes. The national bank can easily print the value. As a result, no bankruptcy can exist if the state does not want to declare bankruptcy.
In the 21st century, budget deficits, trade deficits, and national debts are largely inconsequential. The only consequence that exists is inflation. And most people around the world are quite used to that. A big mac used to cost 49 cents in 1968. You could purchase two big macs with a single dollar bill. Today, its over 2 dollars. Even if big macs inflated to 5 dollars, the federal reserve can simply add a zero behind every 1 dollar it prints and you can still purchase 2 big macs for 10 dollars.
Budget deficits have largely become irrelevant. Paper money today is legal tender. Its the only legally acceptable form for exchange for goods, services, and taxes whether there is inflation or not.
The Three Pillars
The central bank's goal of any nation is to provide three things. Economic expansion, Employment, and Controlled Inflation. Economic expansion and employment often go hand in hand. Inflation however is often an expense of having economic expansion and employment. Its an unwanted but yet necessary byproduct of economic expansion and employment.
The central bank has to weigh the scales of having robust economic growth and high employment on one hand, but the increase in consumer prices on the other. Inflation is just a cost that has to be absorbed when trying to achieve economic growth and ideal employment rates. There are a lot of theories as to why this is so. Constraints in natural resources given the technology at the time, differences in skills and talents between labor.
Not everyone who gets paid the same pay scale achieves the same level or results. Some factory maid being paid 2 dollars a day probably stitches together more sweaters per hour than the other factory maid next to her who is also being paid 2 dollars a day. And to maximize productivity, sometimes we sacrifice efficiency by hiring less efficient workers. I would say inflation starts the moment you begin to hire your second factory maid.
However we can achieve more ouput by maximizing employment levels as opposed to only hiring the top 1 percent and leaving the rest of the 99 unemployed. Because regardless of how efficient miss top 1 percent maybe, she most likely isnt better than 2 factory maids.
Personally, nothing wrong in choosing to employ a central banking policy that would best maximize economic growth through maximizing labor recruitment even when faced with the prospects of greater inflation.
The central bank has to weigh the scales of having robust economic growth and high employment on one hand, but the increase in consumer prices on the other. Inflation is just a cost that has to be absorbed when trying to achieve economic growth and ideal employment rates. There are a lot of theories as to why this is so. Constraints in natural resources given the technology at the time, differences in skills and talents between labor.
Not everyone who gets paid the same pay scale achieves the same level or results. Some factory maid being paid 2 dollars a day probably stitches together more sweaters per hour than the other factory maid next to her who is also being paid 2 dollars a day. And to maximize productivity, sometimes we sacrifice efficiency by hiring less efficient workers. I would say inflation starts the moment you begin to hire your second factory maid.
However we can achieve more ouput by maximizing employment levels as opposed to only hiring the top 1 percent and leaving the rest of the 99 unemployed. Because regardless of how efficient miss top 1 percent maybe, she most likely isnt better than 2 factory maids.
Personally, nothing wrong in choosing to employ a central banking policy that would best maximize economic growth through maximizing labor recruitment even when faced with the prospects of greater inflation.
Monday, October 25, 2010
Man Made Unemployment part 2
What causes inflation isnt the fact that the money supply is not backed. Even if the money supply was backed by a commodity such as gold and silver, there can still be inflation. If the gold and silver supply increases at an annual rate of 30 percent a year thus allowing for the expansion of central government bank notes by also 30 percent a year. That would be 30 percent in inflation all things being equal. The only way to prevent consumer prices from inflating would require that there be an increase in the supply of consumer goods by 30 percent to suppress the increase in monetary expansion.
The increase in consumer goods must be domestically consumed. It can not be exported or dumped into the middle of sea. If those goods are exported or sacrificed to a giant wicker man, those consumer goods become unavailable to suppress domestic consumer prices.
To return to the original purpose as indicated by the title. Unemployment is man made. It is the manipulation of the fiat money supply that creates unemployment. When ever the money supply contracts. There becomes less money available for the recruitment of labor. And when the money supply expands, there is more money available for the recruitment of labor. Thus employment is manipulated through the expansion and contraction of the fiat money supply.
The increase in consumer goods must be domestically consumed. It can not be exported or dumped into the middle of sea. If those goods are exported or sacrificed to a giant wicker man, those consumer goods become unavailable to suppress domestic consumer prices.
To return to the original purpose as indicated by the title. Unemployment is man made. It is the manipulation of the fiat money supply that creates unemployment. When ever the money supply contracts. There becomes less money available for the recruitment of labor. And when the money supply expands, there is more money available for the recruitment of labor. Thus employment is manipulated through the expansion and contraction of the fiat money supply.
Man Made Unemployment part 1
Historically, employment was limited to the supply of specie. If the gold, silver, sea shells, glass beads or whatever currency was not available to pay for labor. Then there would be excess labor as there was not the money to pay for the recruitment of labor. Most arbitrary currencies such as sea shells and glass beads have already been discarded. However less ample types of specie such as gold and silver had remained to be used as monetary units long into the 20th century.
These metals are often standard, attractive and fairly resilient to oxidization thus often viewed by most civilizations as being a proper vehicle for savings. Sea Shells, glass beads, and other trinkets have often been discarded once man moved beyond neolithic cultures and societies.
The recognition of gold and silver as money appears even in the Art of War. Sun Tze, having been born before the invention of paper, and thus paper money, could not imagine financing a war with anything else.
"In the operations of war,
where there are in the field a thousand swift chariots,
as many heavy chariots, and a hundred thousand
mail-clad soldiers, with provisions enough to carry them
a thousand li, the expenditure at home and at the front,
including entertainment of guests, small items such as
glue and paint, and sums spent on chariots and armor,
will reach the total of a thousand ounces of silver per day.
Such is the cost of raising an army of 100,000 men".
Silver was especially expensive given that unlike today, where silver is simply an optional monetary unit, in ancient China silver along with other finite commodities was the monetary unit. Silver in ancient China was a monetary necessity demanded by all walks of life. Whether merchant, artisan, or gentry. Currently, few people own any silver. Today, we can expand the money supply by diluting it with paper and digital money. The money supply can be further expanded through the trade of securities and bonds. Mortgage agreements, promissory notes, personal checks, credit cards, ect.
Unlike ancient China, there really is no monetary constraint in the 21st century. In the warring states period, farmers were paid in commodities, soldiers were paid in commodities, taxes were collected in commodities. Thus the monetary constraints of running an empire. If Sun Tze was alive today, the Art of War would have to be revised. Wars can be fought for an indefinite period of time since monetary constraints have long evaporated with the introduction of fiat money, securities, and credit.
These metals are often standard, attractive and fairly resilient to oxidization thus often viewed by most civilizations as being a proper vehicle for savings. Sea Shells, glass beads, and other trinkets have often been discarded once man moved beyond neolithic cultures and societies.
The recognition of gold and silver as money appears even in the Art of War. Sun Tze, having been born before the invention of paper, and thus paper money, could not imagine financing a war with anything else.
"In the operations of war,
where there are in the field a thousand swift chariots,
as many heavy chariots, and a hundred thousand
mail-clad soldiers, with provisions enough to carry them
a thousand li, the expenditure at home and at the front,
including entertainment of guests, small items such as
glue and paint, and sums spent on chariots and armor,
will reach the total of a thousand ounces of silver per day.
Such is the cost of raising an army of 100,000 men".
Silver was especially expensive given that unlike today, where silver is simply an optional monetary unit, in ancient China silver along with other finite commodities was the monetary unit. Silver in ancient China was a monetary necessity demanded by all walks of life. Whether merchant, artisan, or gentry. Currently, few people own any silver. Today, we can expand the money supply by diluting it with paper and digital money. The money supply can be further expanded through the trade of securities and bonds. Mortgage agreements, promissory notes, personal checks, credit cards, ect.
Unlike ancient China, there really is no monetary constraint in the 21st century. In the warring states period, farmers were paid in commodities, soldiers were paid in commodities, taxes were collected in commodities. Thus the monetary constraints of running an empire. If Sun Tze was alive today, the Art of War would have to be revised. Wars can be fought for an indefinite period of time since monetary constraints have long evaporated with the introduction of fiat money, securities, and credit.
Fiat money in a material world
The reserve currency concept is fairly ridiculous. Some Chinese might assume holding us dollars, euros, or yen helps gives their RMB credibility. It is hardly necessary. What gives a currency credibility is the amount of goods that currency can purchase from the country that currency was minted from. If we were to assume the purpose of accumulating foreign currencies was to act as a reserve for the RMB, much the same way gold acted as the reserve to global currencies prior to the 1930s. Then the Chinese must have realized that it has basically forced the RMB to be a non-credible monetary unit in order to have accumulated this reserve base. The currency is so undervalued, average citizens in China make between 2 to 10 dollars a day. Wages and incomes are already being attacked by the Chinese government, that no currency trader could attack it much more than it already has by the CCP.
These so called reserve currencies are not backed by any tangible reserves themselves, so what difference would it make that the RMB was being backed by these foreign currencies.
A float wouldn't damage the RMB's credibility. It would only strengthen it. And if we were to assume that the market had forced the RMB to become too overvalued and thus traders then hoped to damage its value. What would it matter. A weaker RMB would force Chinese exports to appear more attractive again thus resulting in another wave of Chinese exports flooding the global markets. The trade surplus would further extend in China's favor as a result of a weak RMB. It is win win either way. China either floods the world with RMB or it floods the world with its exports.
These so called reserve currencies are not backed by any tangible reserves themselves, so what difference would it make that the RMB was being backed by these foreign currencies.
A float wouldn't damage the RMB's credibility. It would only strengthen it. And if we were to assume that the market had forced the RMB to become too overvalued and thus traders then hoped to damage its value. What would it matter. A weaker RMB would force Chinese exports to appear more attractive again thus resulting in another wave of Chinese exports flooding the global markets. The trade surplus would further extend in China's favor as a result of a weak RMB. It is win win either way. China either floods the world with RMB or it floods the world with its exports.
Sunday, October 24, 2010
Fiat money and faith
Foreign currency reserves are a hoax. Real wealth are the physical goods and services that labor produces. Not the paper currency that central banks issue to finance such efforts. It is still a mystery to me why the People's Bank of China is so insistent of collecting foreign currency reserves. China's mercantilism is quite interesting given that China does not collect specie, but is instead collecting paper and treasury bonds. Below is an interesting story about dolphins learning how to save from their trainers. Not very different to how people treat paper currency today.
Dolphins at the center are trained to retrieve trash that has mistakenly fallen in to their pools. Upon seeing a nearby trainer, they are to take said trash to the trainer. In return, they receive a fish for their cleanliness. However it seems that Kelly has found a loophole in the system, and is exploiting it to interesting ends. She hoards her trash, underneath a rock at the bottom of her pool, and when she sees a trainer she goes down and removes a piece of paper or trash to get her fish. However she won’t use all her paper at once, instead she holds on to them for the future. It is an interesting behavior, considering that it is very much like humanshttp://www.dailygalaxy.com/my_weblog/2008/06/do-dolphins-hav.html
Yuan currency myth
Quite often, the Chinese government perpetuates the myth that it must undervalue its Yuan in order to create prosperity for China. This however is far from the truth. The reality is that China must undervalue the Yuan so that it can continue to post trade surpluses with the rest of the globe. Thus the goal is not to improve the standard of living in China but to create a positive currency surplus from trade with its global partners. In order to achieve this end, China must keep its population relatively poorer than its trading partners in order to perpetuate a trade surplus. China could choose to structure its economy to encourage exports and discourage imports, but that is an issue that lies outside of currency manipulation.
If the RMB appreciated to levels that causes Chinese incomes to become equal to first world levels. China would be forced to post trade deficits much like the rest of the first world. As long as the RMB is undervalued to keep Chinese incomes at third world levels, then China like many third world countries will continue to post trade surpluses with its first world trade partners.
It is hard to imagine who in China could ever benefit from this scenario. But whoever they maybe. It is certainly not the Chinese people. The only group of people who could stand to benefit from such a structure would be China's exporters. Even China's government officials could not benefit much from such a structure given that the president of China only makes 40,000 dollars a year as a result of an undervalued RMB. In contrast, due to a strong but subsidized dollar, presidents in the west make as much as 400,000 dollars a year.
Hu Jintao no doubt enjoys perks that go beyond his official salary. But the same can be said for any government official in any part of the world. China may possess the world's largest foreign currency reserve, but at the expense of suppressing Chinese incomes between 2 and 10 dollars a day.
If the RMB appreciated to levels that causes Chinese incomes to become equal to first world levels. China would be forced to post trade deficits much like the rest of the first world. As long as the RMB is undervalued to keep Chinese incomes at third world levels, then China like many third world countries will continue to post trade surpluses with its first world trade partners.
It is hard to imagine who in China could ever benefit from this scenario. But whoever they maybe. It is certainly not the Chinese people. The only group of people who could stand to benefit from such a structure would be China's exporters. Even China's government officials could not benefit much from such a structure given that the president of China only makes 40,000 dollars a year as a result of an undervalued RMB. In contrast, due to a strong but subsidized dollar, presidents in the west make as much as 400,000 dollars a year.
Hu Jintao no doubt enjoys perks that go beyond his official salary. But the same can be said for any government official in any part of the world. China may possess the world's largest foreign currency reserve, but at the expense of suppressing Chinese incomes between 2 and 10 dollars a day.
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