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UNDER CONSTRUCTION
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Back soon, while waiting, play this Homer's Morrissey
So let us assume we are in control of the world's economy, or even the economy of one country such as New Zealand or China, because we have been voted in as teh Minister of Finance. What would we do to make our economy stronger, using only our profits, and the international supply of money?
There are some major currencies, such as the American dollar, the Euro, the Japanese Yen, the Pound Sterling and minor ones like the New Zealand and Australian dollars.
One strategy for the would would be to all adopt the same currency. Compared to the US dollar, you would currently (24th October 20011), get about 1.5 or .6 $$s for £1, 1.38 or .4 $$s for one euro, for 1 US dollar, about .968 Australian dollars, for 1 Australian $, about 1.2 New Zealand dollars, and for $10 US, 762 Japanese Yen and 63 or 64 Chinese Yuan, (77.8 or 78 Hong Kong dollars) (but since I don't know what I could buy in Japan or China with so many Yen or Yuan we shall ignore those for a moment).
The New Zealand dollar is comfortably below the Australian dollar at 80%, giving favourable terms of trade for the Kiwis. if we all had one currency there would be no exchange rate advantage to be had by exporting. Would this matter? Currently there is an advantage to both sides when we import goods from China. We pay less in New Zealand dollars than we would if we manufactured them here, because their wage rates are lower. This does not mean they get paid less for their work. In New Zealand a worker gets $13.50 per hour which is $10.81 US, but the New Zealand worker is able to feed his family and have free state funded education for that. The American worker earns $20 per hour (if he workes on some state jobs such as lollypop man on traffic control) which is $24 New Zealand, but there is no correlation in fact which says the NewZealander is threfore being underpaid, even when we have to pay correspondingly more for our petrol which is paid for in US dollars.
It is worth it to the Chinese to sell in New Zealand because the real rate of exchange means $1 New Zealand may be worth the equivalent of $10 to them, a factor of ten, because they do not have to try to spend that money in the USA.
Similarly the USA gets 1.4 dollars for every euro of exports there, when the people in europe probably earn close to in euros, what Americans earn in dollars at home. The exchange rate helps exports to europe, and makes their imports cheaper.
It would be natural to assume that a smaller country would gradually be absorbed by a larger one if they both had the same currency. Bigger markets mean bigger profits, and businesses would gradually move to where the returns are greatest.
Are there any rules to this game? It may not be fair to call it a game, but when you invest in a company share, which has a $1 value that
Education
Health
State Housing
represents the assets of a company or entity, but costs $2.50 because either the company has increased its value by increasing its profits, its assets, or its cashflow, or simply because of the laws of supply and demand, it is a share which people want to invest in because they believe the value will increase in the future, you want to know that you are buying something of substance. You may buy on the recommendation of a sharebroker who says the value is rising and you will be able to sell for $3 or $4 in twelve months time, but if everybody else sells and you are left holding a share which cost you $2.50, and only receives interest of 10% on the $1 value while the market value has fallen to $1.50, you realize you have lost $1 for every share you own. Somebody else has made $1 for every share you bought. All you can do is hold on and hope teh share price rises back past $2.50, plus your interest on $2.50, or sell and cut your losses. Large institution have much better information than you about the details of what is happening in the business world, and have a better ability than you to hold out for two three or four years to recover their losses.
One of teh rules is that if you have a debt, it must be paid back in the currency of the country where it is held. In other words, if you borrow 1,000 Euros, you must pay back 1,000 Euros. If you live in the United Kingdom and borrow 1,000 euro it will be worth you £869 today. When you pay it back in three years time you have no idea how many pounds you will have to pay to buy 1,000 euros. Wouldn't it be nice to think that the pound will rise against teh Euro, and when you repay the loan it will cost you only £420.
Currently there is a crisis in Europe. The Greek government has to borrow 110 billion euros from Germany and Europe at 5%. It is not the only country in trouble.
Members of the European Union signed an agreement known as the Maastricht Treaty, under which they pledged to limit their deficit spending and debt levels. However, a number of European Union member states, including Greece and Italy, were able to circumvent these rules and mask their deficit and debt levels through the use of complex currency and credit derivatives structures. [51][52] The structures were designed by prominent U.S. investment banks, who received substantial fees in return for their services and who took on little credit risk themselves thanks to special legal protections for derivatives counterparties. [51] Financial reforms within the U.S. since the financial crisis have only served to reinforce special protections for derivatives--including greater access to government guarantees--while minimizing disclosure to broader financial markets. [53]
In the first weeks of 2010, there was renewed anxiety about excessive national debt. Some politicians, notably Angela Merkel, have sought to attribute some of the blame for the crisis to hedge funds and other speculators stating that "institutions bailed out with public funds are exploiting the budget crisis in Greece and elsewhere".[54][55][56][57][58]
On 23 April 2010, the Greek government requested that the EU/IMF bailout package (made of relatively high-interest loans) be activated.[61] The IMF had said it was "prepared to move expeditiously on this request". The initial size of the loan package was €45 billion ($61 billion) and its first installment covered €8.5 billion of Greek bonds that became due for repayment.[62]
On 27 April 2010, Standard & Poor's slashed Greece's sovereign debt rating to BB+ or "junk" status amid fears of default.[63][64] The yield of the Greek two-year bond reached 15.3% in the secondary market.[65] Standard & Poor's estimates that, in the event of default, investors would lose 30–50% of their money.[63] Stock markets worldwide and the Euro currency declined in response to this announcement.[66On 1 May, a series of austerity measures was proposed.[67] The proposal helped persuade Germany, the last remaining holdout, to sign on to a larger, 110 billion euro EU/IMF loan package over three years for Greece (retaining a relatively high interest of 5% for the main part of the loans, provided by the EU).[68] On 5 May, a national strike was held in opposition to the planned spending cuts and tax increases. Protest on that date was widespread and turned violent in Athens, killing three people.[68]
The November 2010 revisions of 2009 deficit and debt levels made accomplishment of the 2010 targets even harder, and indications signal a recession harsher than originally feared.[69]
On 13 June 2011, Standard and Poor's downgraded Greece's sovereign debt rating to CCC, the lowest in the world, following the findings of a bilateral EU-IMF audit which called for further austerity measures