Monday, March 2, 2015

American Trap and its repercussions

I shall discuss woes of fiat values of currency and plausible ways to protect our fortunes from dwindling down in case government devalues its currency. Here I shall chat and mention all ways legally acceptable as well as not; since I treat this as an academic exercise. Legality of any proposal is also a matter of acceptance or not and so all so called legal issues are subject to adjudication.

I remember, a few years ago government of India canceled thousand rupee notes. How it damaged the economic plans of several people I saw and that gave me the clear picture of woes of fiat valuation. We see a small promise written in one corner of every currency note that promises that the signatory is promising to pay the bearer "the value of that currency note on giving that note to the Reserve Bank". How that payment will be made is not clear. Actually it is a fraudulent statement and does not make any sense because during gold standard the type of statement and promise implied had some meaning as RBI could honor the currency by giving value of that note in gold. Today in times of fiat value this statement is nothing short of fraud and that is going on. This promise is nothing but cheating. An example of fiat value is easily given from a play of children; in that a few children play market market act. In that soda water bottle caps are considered as coins and they are given a supposed value. This giving supposed value is termed fiat value. That means, it is a value put on it by mutual acceptance by parties involved in the act. Similarly today all currencies of world are given specific fiat value in comparison to Dollar. This arrangement world body created in 1947 at Bretton woods. That time Dollar was a strong currency. However, things have changed and today Dollar is a weak currency. What mistake the countries made has become a problem to all countries today. Nobody had imagined during that conference that dollar will fall in price but it did fall in its true price as America's GDP has gone beyond repair. The mistake was that while deciding values dollar value of 1947 year Dollar should have been taken as standard. That was not done. Dollar at any time was considered for valuation. Because of this blunder all countries are suffering at the exchange market.
We shall study various aspects of this American trap to keep Dollar upright. First question is why America wants to keep Dollar at that artificially high level even though the actual economic condition of America is degrading day by day? One plausible excuse could be simple prestige issue. That country does not want to accept that it is lacking in economic development. When a matter becomes a prestige issue anything that country would do to stick to it whatever may happen. Second excuse I feel possible is that the rise of speculating element in America's money market. Gamblers engaged in that activity hold large amounts in their stock and it is always convenient to have maximum value for the currency they hold. At the beginning of twentieth century and up to middle of it enterprising element ruled the market and that made the country one of the most prosperous nations on earth. Around middle of it and particularly after the WW2, things changed. Desire to exploit its special position as the richest nation became an irresistible motive and during that time gamblers entered in the speculative money market and ever since that time all illegal economic gimmicks began to be used by American government. Many vicious circles are now created by this desire to keep Dollar on top and now the situation is so much spoiled that it is practically impossible to come clear out of them.

We shall also discuss and chat about what would happen if America realizes that need to keep Dollar high is not required and accepts the true value of Dollar based on economic laws as other currencies are valued. This is a million Dollar question because remedy to this trap, that America has been building for its creditors, lies in its answer. When I compare economic maturity of British with that of America I get a very clear picture that USA is not mature enough to understand that obeying laws of economics may be annoying at times but in the end that is the wise method to overcome any economic ill. Today what America is trying, comes under "smart tricks". As we all know smart tricks are good for the present time it creates serious problems in future those could be fetal for the economics. However, when a government is seized with some prestige issue that government becomes blind to reality and any amount of prodding to bring that government to sense goes in vain. I have been observing that most economists of that country are repeatedly requesting the U.S. government to stop it but government is in no mood to care for their advice. If Washington accepts this suggestion and relents and allows laws of economics to rule on Dollar; there will be some hardships to cop up with the difficulties but eventually American industry will rise for the challenge and America's GDP position will improve and that will also solve the problem of unemployment. Since America's basics are strong soon Dollar shall pick up and reach the level it deserves. Unfortunately, present government is not in any mood to relent from its stand to keep Dollar high, come what may. If that government look back it will see that their country was the richest because it was a country having large exports to almost any sensible country all over the world. Today America is the biggest importer country and that is the crux of the matter. Today we see that the government relies most on money laundering tack ticks to keep position of Dollar. This is not going to work for all the time; but blinded American government is not prepared to bother for the posterity.

We shall see what is the end of this drama of dollar.

Who shall suffer most? What India should do in this context? Some examples those show how this is engulfing America in its own trap. What creditors can do to dodge the trap's effects? How creditors can use this trap to counter the effects to ambush America? At present, we see that America has made it a prestige issue of Dollar's price and in spite of falling GDP they want to keep Dollar up; what lesson we should learn from this? This is happening only because present Standard bank of U.S. wants to continue its dependency on gambler's economics of FOREX market in stead of true economics. To save it, American bonds are trying to attract black money from other countries like India. Asking BM holders to invest it in their bonds. There is where Indian BM has passed I recent times.

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