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December 11, 2014


One of our economies is improving by some measures, notably those measures that undergird the rise in capital values of the rich and investment class. Many who feel a Dow of 18,000 (which we are approaching in fits and starts) see that number as a marker to unload equities and take the capital gain such a historically elevated number affords to holders of shares of stock whose values have been inflated greatly since Bush’s Great Recession. Payday looms (!), but only for the few.

The rest of us, who live in the other economy, one of malaise caused by wage and wealth inequality, political and corporate bullying of labor, outsourcing, and (effectively) Dickensian-era workshops and debtors’ prisons, are left (if employed) to pay taxes to support corporate welfare programs for those who don’t need the help while being told by austerity cheerleaders that we can’t afford expansion of social programs, that recipients of such largess are lazy and undeserving of any such expansion.

Apparently such help is reserved only for those “deserving” few who can afford to buy it from sleazy politicians, buyers like Wall Street banks, hedge fund managers and other such poverty-stricken victims of socialist (aka Democratic) politicians who might otherwise divvy up the spoils between rich and poor more equitably. Fortunately for the few, Citizens United and black PACs have managed to keep such evil politicians politically defanged by financing defamation campaigns (formerly known as “elections”), which keeps a lid on those who would do away with “free market economies” and the rule of capital.

This essay will not deal primarily with the accelerating maldistribution of new wealth but will rather touch on some of the market consequences arising from differentials in currency values, one of the factors in a global economy which, like inflation, can affect risk-taking and determine profit or loss in a particular year, depending upon whose ox is being gored by market exigencies and currency traders. Profitability in dollar terms, for instance, can happen even if an American exporting corporation is not well run but because the goods and services produced by such corporation are exported largely to France, and while the MSCI France index is up 3.5 percent this year if measured in euros, it is down 7.7 percent in dollar terms. The French ox is thus being gored. What gives? Let’s take a short look at history.

In the year 1944 (while I personally was engaged with the Japanese in the South Pacific in decidedly non-economic fashion), an international conference was called to Bretton Woods in New Hampshire for the purpose of sorting out how we were going to handle postwar economies, currencies etc. One of my all time favorite economists, John Maynard Keynes, who died two years later, was a British delegate to that conference. One of the items on the agenda of the conference agreed upon was that the American dollar would serve as the world’s reserve currency for international transactions. That was and is a very important decision for America; no other country but ours can engage in international transactions in their local currencies which, parenthetically, is an enviable position that was challenged by Putin and the Chinese when Republicans shut down the government a few years ago and thus gave rise to claims of instability of the dollar and threats by some to replace it or deal in local currencies irrespective of the Bretton Woods compact.  Republicans flirted with making the “almighty dollar” just another local buck.

I hope that thoughtful Republicans will choose a different arena in which to play their political games than one in which the full faith and credit of the United States and our dollar as the world’s reserve currency are at stake. Those are or should be untouchable and sacrosanct areas never up for grabs for any reason.  Republicans can vent their political wrath via the usual riders on spending or other motherhood and apple pie bills and endlessly discuss non-issues on Fox, but our full faith and credit and reserve currency statuses are off-base and should never even be mentioned as bargaining chips in political give and take – not ever.

Today’s dollar is strong. Returns of stock markets around the world are much weaker in dollar terms than in their local currencies. The reason is that at this point the dollar is at its strongest level in years after rising 12 percent against the euro, 15 percent against the yen and 6 percent against the British pound. This has created problems not only in the exchange of goods and services but in buying foreign stocks as well. In a not-unexpected move, some overseas mutual funds are using hedging strategies in attempting to shield themselves from currency fluctuations which, of course, risks losing out on the boost a falling dollar would provide if the dollar goes south. On the other hand, American investors in the stock of foreign corporations are seeing their returns reduced as a result of a strong dollar. It’s a mixed bag where many oxen are available to gore. One can thus be more efficient than a competitor in the production of goods and services but less profitable due to currency fluctuation, a problem not faced by closed economies of yore but a big problem in these days of global economies.

Our dollar is stronger because, relatively speaking, our economy (or at least the economy occupied by the rich and investment class) has been performing better than those of Japan and Europe (both EU and non-EU). Weak Chinese trade data, cheaper oil prices, a Japanese economy in a worse recession than was initially thought after a third quarter revision, and even a 2.2 percent drop in sales around the world in November by McDonald’s add to (or are perhaps in part caused by) the global strong dollar problem.

The government of China, the world’s No. 2 economy, reported that export growth fell sharply last month and imports unexpectedly contracted, and this after an earlier report that showed China’s economy to be growing at it slowest pace in five years. In the EU, German industrial output barely moved upward at a rate of 0.2 percent, less than economists had projected, and as Europe’s biggest economy, barely escaped negative territory in the third quarter with growth of only 0.1 percent. Relative currency values have followed the leader. So where are we? Have we reached a point globally where even cheap Oriental labor and German can-do industrial design fail to rescue flagging economies? Global demand is suppressed by wage inequality anywhere, obviously, so when (to coin a Pikettyism) do we “attend to that?” In short, when is capital willing to sacrifice a slice of profit in exchange for enhanced demand? Are relative currency values necessary to bring equilibrium to a global marketplace? Whatever happened to the old tests of efficiency and innovation in a competitive market? Have we and our trading partners lowered our standards defining success (growth) to currency values and petty dumping and subsidization of exports in contravention of our trade treaties?  I hope not, but the list goes on.

The United States has, by comparison, had better recent growth  (at least for the money changing class) than its global competition, but, as I often note, compared to what – a Japan in recession, a China with cooling growth, an Europe barely above recessionary numbers? If growth, then growth for whom, i.e., how does such a term translate into relief for the great bulk of us mired in wage and wealth inequality? Are we beneficiaries of such “growth” or mere onlookers to its distribution among the elite?  GERALD  E

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