by Jeff Nielson, Bullion Bulls:
One of the great absurdities concerning the talking-heads who masquerade as “journalists”, and the laughable charlatans who masquerade as “economists” is that both groups have accepted (as truth) enormous quantities of economic mythology, without the slightest analytical scrutiny. Nowhere is this more true than with the ludicrous dogma known by the euphemism “competitive devaluation”.
Competitive devaluation is a deliberate strategy of undermining the value of one’s own currency, by engaging in monetary policies which deliberately drive down its exchange rate. This is what passes for economic wisdom in the Western world: the way to build your economy is to devalue your currency (as rapidly as possible) in order to supposedly make yourself “more competitive” in export markets.
This dogma is flawed in so many ways, and on so many levels that it is not possible to review all such deficiencies within the scope of this piece. Focus will be given to only the most-obvious and most-destructive flaws. The starting point is that competitive devaluation is not how nations make themselves more competitive in export markets.
For more than 200 years; economic theory has been crystal clear on the method by which nations make themselves more competitive in export markets. It is the principle of comparative advantage. How does a nation maximize exports in the most-efficient manner (the definition of “competitive”)? Nations focus on exports in which they have a comparative advantage in producing those goods versus some, most, or all of their trading partners.
This is how nations maximize the economic benefits from exports. It is the only way to maximize the benefits from exports. In contrast, competitive devaluation is literal economic suicide. It provides no long-term economic benefit to any nation which pursues such suicide, and any/all perceived short-term benefits are purely illusory. Part of the reason why competitive devaluation is perceived to provide economic benefits is that both the media drones and the charlatan economists completely ignore thedevastating consequences of this economic suicide.
In many ways, the exchange rate of a nation’s currency is an economic barometer of the health of that nation’s economy. If the economy is strong and healthy, the exchange rate rises. When an economy is weak/unhealthy, the exchange rate falls.
Put another way, nations with weak economies cannot have strong currencies (in legitimate markets). Conversely, nations with strong economies can only acquire weak currencies through extreme manipulation in currency markets. The catch is that the monetary manipulation required to successfully/continuously achieve such devaluation causes so much damage that soon the economy in question will no longer be strong or healthy. Further manipulation in currency markets is not required, because so much economic harm has been caused that there is no longer any upward pressure on the currency of what is now a weak economy.
What is directly implied when our governments pursue competitive devaluation is that they want our economies to be weak and unhealthy.
The exchange rate of our currencies also functions as an economic barometer in another fashion, as well. When the exchange rate rises, it means the standard of living for the population using that currency also rises. We literally get more “bang” for each buck. Each dollar we earn from our labours provides us with a greater quantity of goods and services. Equally, when the exchange rate of our currency falls, our standard of living falls.
What is directly implied when our governments pursue competitive devaluation is that they want our standard of living to fall.
In this light, competitive devaluation is even more than mere economic suicide. It is deliberate economic treason. The obvious question in the minds of readers is “why?” The corruption of Western governments is obvious; the motive to engage in their own economic suicide is not. To provide an answer to this question, it is first necessary to strip away the mythology which surrounds this suicidal doctrine. Once competitive devaluation is exposed for what it really is, its actual purpose becomes much easier to comprehend.
“Competitive devaluation makes our economies more competitive.” One can hear this nonsense from the lips of most of the charlatan economists. No, it does not.
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