Animal Farm Pig
30th July 2010, 05:19
Disclaimer: I am not an expert at capitalist economics.
So, I've been looking at some various threads about the threat of worldwide depression, collapse of capitalism, collapse of the USA, etc. Actually, I've been wanting to discuss this for some time.
One thing that intrigues me is the idea of devaluation of currency or inflation.
Devaluation of currency is often one of the first policy points imposed by the IMF and World Bank when a country is in trouble. I'm no expert on capitalist economics, but, from what I understand, the point is that by devaluing national currency, exports become cheaper on the world market, and imports become more expensive.
This seems to make sense for small countries, but I'm wondering about this with regard to the USA.
If there is a depression or some kind of capitalist economic collapse, do you think the dollar will be devalued? What will this mean for the world economy? What will this mean for the average worker in the USA? What will this mean for developing countries? What will this mean for holders of US debt?
As far as world economic effects go, I can see a couple problem areas.
For one thing, oil is mostly traded using the dollar as the price point. If the dollar experiences hyper-inflation, perhaps the oil producing countries will switch to some other currency for exchange. Will it be the Euro, the RMB, the Rupee, or something else? Whatever it is, from what I understand, it will lead to a boost in the value of that currency. The result is that holders of that currency will have greater buying power, but their exports will be less expensive. If the RMB were chosen, could this turn China from a net exporter towards a more equal trade relationship? I wonder what would be the effects of a deflation of the Euro...
From what I understand, the dollar is one of the worlds "reserve currencies." That is to say, that various countries have some significant part of their savings stored in dollars. If hyper-inflation of the dollar would begin, how would these countries react? The rational thing would be to get out of the dollar. The immediate result would be appreciation of the national currency (or alternate reserve currency) with respect to the dollar. The real result will be that those countries holding dollars will lose their reserves to the extent that they are invested in dollars.
Likewise, those countries and individuals who have loaned money to the USA in dollars will see the value of their loans rapidly declining.
The flip side of this is international debts. Debtor countries will benefit to the extent that their debts are valued in dollars. This includes the US government. Say that there is a 1000% devaluation. Debts will suddenly be 1/10th of what they were in real terms. Perhaps this could be a boon to poor developing countries. It would also be in the interests of the heavily indebted US government.
Moving from international effects, it's worthwhile to look at internal effects in the USA. I don't have an statistics on this, but I'm willing to bet that the working class (the majority of the people) carries significant debt while the capitalists and the bourgeoisie has extended significant credit. A serious devaluation of the US dollar will reduce the debt in real terms of the majority of the people while decreasing the real value of the savings/extended credit of the rich. This sounds fucking awesome to me!
From a personal perspective, I owe around $10,000 for a car loan. I have many friends who owe much more for student loans. If the dollar is significantly devalued (say 1000%) and our wages increase somewhere close to the pace of inflation, suddenly all that debt becomes much more affordable.
So, like I mentioned, I am no expert capitalist economist. I would be very much interested in hearing some perspectives on the idea of devaluation of the dollar.
So, I've been looking at some various threads about the threat of worldwide depression, collapse of capitalism, collapse of the USA, etc. Actually, I've been wanting to discuss this for some time.
One thing that intrigues me is the idea of devaluation of currency or inflation.
Devaluation of currency is often one of the first policy points imposed by the IMF and World Bank when a country is in trouble. I'm no expert on capitalist economics, but, from what I understand, the point is that by devaluing national currency, exports become cheaper on the world market, and imports become more expensive.
This seems to make sense for small countries, but I'm wondering about this with regard to the USA.
If there is a depression or some kind of capitalist economic collapse, do you think the dollar will be devalued? What will this mean for the world economy? What will this mean for the average worker in the USA? What will this mean for developing countries? What will this mean for holders of US debt?
As far as world economic effects go, I can see a couple problem areas.
For one thing, oil is mostly traded using the dollar as the price point. If the dollar experiences hyper-inflation, perhaps the oil producing countries will switch to some other currency for exchange. Will it be the Euro, the RMB, the Rupee, or something else? Whatever it is, from what I understand, it will lead to a boost in the value of that currency. The result is that holders of that currency will have greater buying power, but their exports will be less expensive. If the RMB were chosen, could this turn China from a net exporter towards a more equal trade relationship? I wonder what would be the effects of a deflation of the Euro...
From what I understand, the dollar is one of the worlds "reserve currencies." That is to say, that various countries have some significant part of their savings stored in dollars. If hyper-inflation of the dollar would begin, how would these countries react? The rational thing would be to get out of the dollar. The immediate result would be appreciation of the national currency (or alternate reserve currency) with respect to the dollar. The real result will be that those countries holding dollars will lose their reserves to the extent that they are invested in dollars.
Likewise, those countries and individuals who have loaned money to the USA in dollars will see the value of their loans rapidly declining.
The flip side of this is international debts. Debtor countries will benefit to the extent that their debts are valued in dollars. This includes the US government. Say that there is a 1000% devaluation. Debts will suddenly be 1/10th of what they were in real terms. Perhaps this could be a boon to poor developing countries. It would also be in the interests of the heavily indebted US government.
Moving from international effects, it's worthwhile to look at internal effects in the USA. I don't have an statistics on this, but I'm willing to bet that the working class (the majority of the people) carries significant debt while the capitalists and the bourgeoisie has extended significant credit. A serious devaluation of the US dollar will reduce the debt in real terms of the majority of the people while decreasing the real value of the savings/extended credit of the rich. This sounds fucking awesome to me!
From a personal perspective, I owe around $10,000 for a car loan. I have many friends who owe much more for student loans. If the dollar is significantly devalued (say 1000%) and our wages increase somewhere close to the pace of inflation, suddenly all that debt becomes much more affordable.
So, like I mentioned, I am no expert capitalist economist. I would be very much interested in hearing some perspectives on the idea of devaluation of the dollar.