On Sun, 23 Jun 2002 10:47:10
kilopascal wrote:
>2002-06-23
>
>Marcus,
>
>What you present here is basically a theory. Can you give an example of
>where a country with a strong currency has "swallowed up" completely another
>country?
Hello, John! :-)
First of all, let me first start by saying that I was not referring to "swalling up"
in the sense of its necessarily taking place. My language was mostly rhetorical and
indicative of potentiality for things to happen. I mean, if one is after power,
strength, domination, the factor I mentioned would certainly *allow* for that to
happen (swalling up), and its absence (strong currency) would certainly make it more
difficult, too, i.e. it would be much more difficult for a country to effect that if
their currency is not "strong". Again, a discussion of principles, in 'theory', of
course, as you put it.
> In the years that the dollar was strong, the US never seemed to be
>in a position to swallow anyone up, or if they did, they never did it. But,
>it seemed the opposite had occurred.
>
Just a parenthesis here to comment that US businesses ARE the most internationally
present in the planet (still!). I've read a report some time ago showing very
impressive figures about this to the point of stating that their presence amounted to
some 20-25% of global presence ($wise) when it comes to "multinational companies"!
>Foreign interests, full of dollars, used their dollars to buy American
>companies instead. American economists felt this was good, as the
>investment of foreign capital into American businesses actually made them
>stronger, more productive and more profitable.
>
True, of course. However, America's strength largely derives from their international
influence and presence overseas, John! This is an undeniable fact supported by
documented statistics.
>I think your theory has merit if there is a more equal balance of wealth and
>prosperity in the world, as well as cultural and political stability.
? Please notice that I was actually addressing quite the opposite, I mean, the main
argumentation centered around what countries should do if they wanted power,
stability, economic strength, etc, vis-a-vis the single issue of *currency* power.
I.e. what should they do (or what would it be better) IF their objectives were those,
have a "weaker" or "stronger" currency?
Third
>world poor countries might appear, due to their weak economies and devalued
>currency, ready for a massive take-over, but it never seems to happen.
>Political and cultural forces seem to get in the way.
Partially true. I can talk about how things are evolving in Brazil, for instance, and
I can tell you this much, foreigners ARE taking over Brazil, AND in droves, my friend,
unfortunately... Thank goodness though that it's NOT being lopsided, i.e. we are
having a wide spectrum of enterprises doing that, and not only American businesses.
At least we're also seeing an awakening of OUR businesses to do likewise abroad with
Petrobras, Embraer, AmBev and others starting slowly (but hopefully surely) to
"expand" their operations overseas.
> Also, a poor country
>has to have assets that a rich country would want.
True, and Brazil, for instance, does! ;-)
> There is also
>maintaining control of your acquired assets once you have obtained them.
>Point being, there are so many other factors, that a strong currency doesn't
>always make the situation ripe for a take-over.
>
True, just please remember my first comment above on the swalling-up business.
>The strong dollar helped the US by creating a free loan system for the US
>economy. Billions of foreign dollars invested in the US allowed the US
>banking system to offer US consumers and businesses virtually unlimited
>credit with minimum responsibility as well as very liberal bankruptcy laws.
>Without that investment, there is no way the average US citizen could enjoy
>the standard of living they do.
>
Agreed, of course. There is indeed much more to prosperity than just the shallow
issue of currency, John. However, please note I was singling it out or trying to
isolate the discussion to a simple question of should we have a weaker or stronger
currency? Which one would better support our objectives of power, strength, etc?
It's in this context that I was trying to discuss that issue. Sure there would be
other issues to consider. However, *fundamentally* which direction would you pick?!
That was the question.
>As the Euro and other currencies strengthen, it won't be take-overs that
>the US will have to worry about. It will be the opposite. Foreign
>interests will seek to shed their US possessions for areas that offer better
>opportunities and profits. One of the main reasons for the dollar's slide
>is the loss of confidence in the American system. Where as the American
>system seemed an honest island in a sea of scoundrels and cheats, the recent
>media reports of American businesses falling into the same trap has caused a
>massive loss of confidence in the American system.
>
True, again, there are other factors to consider even when it comes to why currency
values move the way they do. But, *strategically* if a country could choose where it
would want to go, again, which direction should they go? Let's please try to focus
our discussion to this (knowing of course that there is more to it than meets the eye).
>The loss of the investments over the long term will require the banking
>industry to become more strict with customers who are not credit worthy, or
>don't pay their bills on time. Many will be forced into bankruptcy, but not
>the type of bankruptcy Americans are use to. It will be a type of
>bankruptcy where Americans will have to appear in a court and have their
>assets seized or placed on a repayment plan. Something that does not exist
>now.
>
The questions of confidence, investment, etc, would be great subjects for discussion,
however, I fail to see its relevancy to the issue of metrication, so, I'm afraid we
may be pinned down by our moderators here, John, unfortunately. So, I don't know if
we could continue this discussion for too long, I'm afraid... :-S
>This will have the effect of weakening the American economy even further, as
>consumers will have to spend their meagre assets on repayment of old debts
>instead of having funds to buy new items that stimulate economic growth.
>
In essence, I don't think we would be disagreeing much here. Your points do have
merits, it's just that perhaps I failed to draw your attention to one aspect at a
time, or to get you to see where I was coming from.
When we do research about topics we usually try to evaluate one aspect at a time, *all
other things being equal*, if you know what I mean. Otherwise, if we can't *isolate*
certain issues from "external interference", it would be practically impossible, given
the complexity of factors influencing our subject, for us to draw any meaningful
conclusions. Therefore, it's in this... "spirit" that I "concluded" that a stronger
currency as a factor by itself should influence power, stability, etc *better* if it
were stronger, not weaker.
Evidently, there would be other things to do, *strategically*, that would have to be
made for the complete success of the plan (like increase in productivity,
innovation,etc). My other point was also that it would be significantly harder for
one to secure *the same objectives* if they had to deal with a weaker currency. It's
in that context that I said that it would be fallacious to expect that one would be
able to succeed with a weaker currency standpoint for too long.
>America also fell into the trap of exporting much of its manufacturing base
>to countries where labour was cheaper. Thus, the US is a major importer and
>has a huge trade deficit. In a weakening economy, the US will have to
>repatriate these jobs not only to supply the domestic economy with goods and
>jobs, but to earn foreign capital through exports.
>
Let's go by parts here.
Change of manufacturing base - This is indeed a double-edged sword. It's largely the
cost factor that has been driving such decisions indeed. However, there should be
other factors to consider like HR level of skills. This strategy can work if the
country in question possesses the necessary level of skills they need, if they don't
it could backfire.
US being a major importer - I see this as sort of unrelated to the previous point
(manufacturing base) or at least not as strongly related as you may be led to believe.
I see the US being major importers now mostly because overall what they need is found
cheaper elsewhere (evidently among other factors). Producers of products they import
are NOT in large scale the result of *internal* American businesses that moved
overseas, John! So, be careful with that conclusion, my friend.
- Repatriation of jobs - To the extent that the US could *competitively* repatriate
them, sure. However, what would matter most here is whether they COULD do that when
*labor costs* in the domestic market continue to be prohibitive for them to do so.
One alternative would be for the deterioration of their standard of living, but that
would be highly unlikely given the presence of unions, governments, etc. So, here we
must agree with a stream of economists that alert that if globalization continues the
way it is that boundaries would be set on *comparative* advantages. I.e. countries
with advantages in farming would be farmers, *forever*..., countries that are
industrialized will be industrial powerhouses forever, etc. That is the *danger* of
what's going on now, not that it WILL be thus necessarily.
I guess this is basically also why there has been so much opposition to globalization
because many see this as the eternal comdemnation of poor countries to continue to be
what they are and never have the real chance of developing themselves to the point of
one day competing with industrial nations *in the same areas* they successfully
compete now.
- Foreign capital - one of the challenges of developing nations is indeed the securing
of foreign capital, but this would be mostly due to their indebtedness in *foreign
currencies* they can't "print", so to speak. If they don't have external debts to
honor they would be less pressured to secure such external capital. Again, the
example of my home country comes to mind. If our foreign debt was minimal there would
be much less pressure for us to "export". But since we've got 250 G$ + in foreign
debt we have no choice but to export to get the necessary "strong" currencies to honor
our borrowing/paying commitments with foreigners.
>But, to make products that industrialised first world countries in Europe
>will want, they will have to break down and metricate. They don't have to
>metricate if they are selling to third world countries. Third world
>countries don't quibble about unit systems and rational package sizes. They
>go for what they can get at a cheap price.
>
Unfortunately true, but to an extent only. How strong domestic regulations and laws
are should also be a factor to consider here. True, by and large these are...
"twistable", even if in essence they're existent or "strong".
>Investment monies pouring into Europe will give the EU economy the same
>advantages that the US has enjoyed for decades. They will be able to use
>the monies to further stabilise their economies and further integrate into a
>more powerful union. The monies will help underwrite many of the costs of
>integration as well as absorbing the new countries in eastern Europe in the
>next few years. The money can also be used to subsidise product costs that
>will appear to be more expensive due to a stronger Euro. But only to a
>minimum. Since many currencies are rising with the Euro, the cost of
>European products on the international market will appear to remain
>constant.
>
I'd say, again, that competitiveness is more of a key issue here. Currency values
take a "back seat" to it. If a product is available and is attractive to the buyer,
that's what would matter, regardless of whether the currency in which it is
denominated at is stronger or weaker. But, as I commented earlier, imagine if this
state of affairs, John, continues *independent* of currency value ("all things being
equal", remember?). If a country's currency is strong they'd "spend" a much smaller
amount GDPwise than they would to acquire inputs. And if they continue to sell %wise
the same in their *local* currency (which is generally how things are) they'd amass
much more from "weaker" countries. In other words, as far as countries with weaker
currencies are concerned it would take much more "energy" from them to be able to pay
for what they need.
As an example then, as long as the dollar is strong (or stronger), the US should not
be so worried about being a net importer since it's not draining them out GDPwise,
actually it may be quite the opposite, the stronger the dollar gets the more they'll
be able to afford to buy from others! ;-) And if they continue to use such resources
wisely when they sell their products, i.e. "buy low (inputs) sell high (outputs)",
this process would continue to amass them wealth! (Think about it...) (Also: please
note I'm only addressing the finances, cold numbers, of such situation, nothing else!)
In summary, it goes like this for "strong" countries: x% input, y% output (assumed
unchanged)
x% input - they'd spend less and less should their currency strengthen
y% output - they'd get same amount in their local currency, but foreign countries
would spend more and more as their respective currencies weaken
Now what they do with such gains is a different story, they may elect not to "swallow
up" others and use such gains elsewhere or in a different way... ;-)
>If the EU, through the next few years, uses its new economic clout to force
>a more strict use of SI in the world market place, the US will be forced
>into a position to either change or die out. If the principle of
>maintaining the cultural system is more important then prosperity, then we
>all know the US will make no effort to change, no matter what the cost. And
>if that be the case, then American will have no choice but to suffer the
>consequences of its choice.
>
No argument here.
>We are at the crossroads of a new era. What choice we make now will
>determine whether we sink or swim in the years to come.
>...
Ditto above.
Marcus
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