Can Countries Devalue a Currency Anymore?
QUESTION: What is ‘modern day’ currency devaluation?
I have read your articles about the 1930s devaluation and I also do understand what money is (thanks to your writings). I am not sure what ‘modern day’ currency devaluation is and I was hoping you may write more about this subject. I know there is a lot more to it then simply coming out and saying;
“We [the government] are going to devalue our currency by 25%.”
If my country devalues our currency, how will I (the average person) know? – Is it simply that we see a new currency come out to replace the old one? Or do we see prices simply rise? Can the government simply not tell its people that they have devalued and no one would notice? Over the years, I have seen; coinage removed, notes turned into coinage, notes and coinage changed – is this a form of devaluation? Is this why “only a madman would hoard cash?”
They just never taught this stuff in school and money is such a basic foundation. You are truly an inspiration and a guiding light on the horizon.
Thank you and warmest regards
J
ANSWER: This has evolved into a new interesting topic. It is the problem with Bitcoin. People do not understand money is only an economic language – nothing more. The value of any currency is purely CONFIDENCE. Those who think they can create their own crypto-currency are living in a dream world.
First they assume that they can take power away from government who has the capacity to turn off the electricity and send in the tanks. These people fail to even understand that it is not the currency that is the problem. It is fiscal mismanagement by government promising huge pensions and never funding them. Changing the currency will not prevent that crisis. Those who also think they can conduct business in their crypto-currency tax free will see how they get wiped out. The IRS files charges retroactively. They did that to the tax straddles in the 1980s wiping out people with huge fines and penalties.
Secondly, the value of a currency is purely CONFIDENCE and that is backed by theTOTAL productive capacity of the people. Japan proved that to be true. Compare them to France where 50% of the youth just want to get out. French unions kidnap the CEOs and their family if they do not get their way. Who in their right mind wants to set up a business in France? This goes to the heart of the question – what is a currency worth?
Devaluations of the 1930s were rather plain-vanilla. The currencies were pegged to gold. The Asian Currency Crisis took place because of pegs. The British pound sterling collapsed on Black Wednesday referring to September 16th, 1992 when the British Conservative government was forced to withdraw the pound from the European Exchange Rate Mechanism (ERM) after they were unable to keep it above its agreed lower limit. We will see the same crisis hit the Swiss franc peg to the euro. Devaluations take placeBECAUSE currencies must be fluid. They must rise and fall with the ebb and flow of capital.
The dollar floated during the Civil War when it acquired its name the “Greenback” because there was no interest attached and no redemption into gold. Therefore, gold traded on the NYSE, but it was not really gold. It was gold traded in Greenbacks. Therefore, it was really the rise and fall of the Greenback expressed in gold.
Here we have the rise and fall of the Massachusetts colonial currency expressed in British pounds. There is always a free market no matter what period we look at. This is simply the way it is. Those preaching $50,000 gold do not even understand what they are saying. They hate the dollar, yet can only translate their concept of value in dollars.
There is no actual devaluation that is “official” under a floating exchange rate. The markets devalue the currency steadily through the process of inflation that need not be even deliberately created by government. Meat prices are soaring because of shortages. If the problem with food becomes systemic, then like oil it will filter through the system causing cost-push inflation rather than demand-inflation.
This inability for government to directly devalue its currency under a floating exchange rate system is why they created the G5 in 1985 at the Plaza Accord to force the dollar down on world markets. It was NOT possible to simply declare a currency is worth less today than it was yesterday on an “official” basis. What is the currency suddenly devalued against if there is no fixed relationship? Currency value is in reality a right for the entire world to publicly vote on the performance of a country – INTERNATIONAL CONFIDENCE. If the CONFIDENCE in a government collapsed, the currency would collapse before the government even could devalue assuming they could do so. Capital always moves in anticipation.
Those looking for the crypto-currencies fail to grasp the daunting task and why they are just fools fighting windmills. They would have to CONVINCE everyone in the world that their new currency is valid. Good luck. You cannot even get Congress to agree 100% on anything. Even if they were successful, who would determine the value of the currency? Them or the free market? You would end up with same system we have today – the floating exchange rate system because people are not robots and we have mood swings that will be reflected in the value of the currency. There is ABSOLUTELY nothing that does not fluctuate creating a cycle. This is simply the divine design of everything.
So what is the outcome? The only possible resolution will be a DEFAULT, but not on the currency, on the outstanding liabilities that are EVERYWHERE in EVERY Western economy with Europe at the top of that list. Therefore, what will happen is a default. Politicians will be forced out. The question is how? Will it come with a bloodless revolution? Or will the military fire upon the citizens of their own country? History shows it can go both ways.
Roman Emperors Decline & Fall |
| Marcus Aurelius – 161-180 AD |
| Commodus – 177-192 AD |
| Didius Julianus – 193AD |
| P. Helvius Pertinax – 193AD |
| Pescennius Niger – 193-194AD |
| Clodius Albinus – 195-197 AD |
| Septimius Severus – 193-211AD |
| Geta – 209-212AD |
| Caracalla – 198-217AD |
| Macrinus – 217-218AD |
| Elagabalus – 218-222AD |
| Severus Alexander – 222-235AD |
| Maximinus I -235-238AD |
| Gordian I – 238AD |
| Gordian II – 238AD |
| Balbinus – 238AD |
| Pupienus – 238AD |
| Gordian III – 238-244AD |
| Philip I – 244-249AD |
| Pacatian – 248AD |
| Jotapian – 248AD |
| Silbannacus – 249AD |
| Trajan Decius – 249-251AD |
| Hostilian – 251AD |
| Trebonianus Gallus – 251-253AD |
| Volusian – 251-253AD |
| Aemilian – 252-253AD |
| Uranius Antoninus – 252-254AD |
| Valerian I – 253-260AD |
| Gallienus 253-268AD |
| Macrianus – 260-261AD |
| Quietus – 260-261AD |
| Regalianus – 260-261AD |
| Postumus – 259-268AD |
| Claudius II Gothicus – 268-270AD |
| Domitianus – 268AD |
What took place during the fall of the Roman Empire offers another warning that we are seeing with the unions. There were precisely 4 x 8.6 emperors from the fall that followed Marcus Aurelius’ death in 180AD until the bottom in the collapse of the currency. How can there be 34.4 emperors? Septimus Severus had two sons, Caracalla and Geta. Caracalla killed his brother while in the arms of his mother so he did not reign alone.
This third result in Roman times was military pension that the troops began to raise and kill emperors all to be able to cannibalize their own country. There was no money for pensions. They then laid siege to cities that did not support their choice. This would be like New York engaging war on Chicago, taking everything possessed by citizens to pay the union pensions in New York. Rome destroyed itself and THEN the barbarians came into the gates. We are seeing public unions demanding tax increases on other people to pay their pensions. This is the very same cannibalization process. Here are the seeds of our own destruction. They must rob the people to pay for government workers because politicians promise everything but commit fraud upon their own workers.
Today it appears that we will first eliminate the paper currencies and move to a new electronic version to make avoiding taxes impossible. Hence people will flee to tangible assets and the velocity of money will decline taking the economy with it. That will most likely then result in civil unrest/war and then we will see a new type of Bretton Woods rebuilding the global economy adopting some new electronic world reserve currency.
I have written about the 224 years cycle and my discovery of the 8.6 year cycle stemming from 26 of these cycle within that major cycle. All historians agree that Rome peaked during the reign of Marcus Aurelius (161-180AD). That peak came in 174 and he raised his crazy son to the throne in 177 – Commodus. From that peak it was precisely 112 years to the political restructuring of Diocletian (284-305AD) with the creation of the Tetrarchy. Diocletian was the first Emperor to retire trying to restore a political government avoiding the cannibalization process.
Silver had vanished from circulation and Diocletian then issued a new denomination call the silver Argentius ( Latin meaning silver AR). This was like as if there was a collapse of the dollar and the birth of a new currency. Even the style of the gold was changed and marking noting pre- and post-reform. The Antoninianus was continued but was now worth much less than the Argentius. The bronze follis was introduced also with the silver plating. His monetary reforms were matched by wage and price controls as he tried to restore CONFIDENCE. He introduced passports prohibiting travel unless you paid your taxes.
This is simply how it all unfolds. All we can do is rely upon precedent. This is not a guessing game with room for personal opinion or hope. Sure, we can be like the guy who gets married for the tenth time and displays incredible hope that triumphs over experience. But quite frankly, history, like the tiger, loses no sleep over the opinion of sheep.Gov’t Has Lost All Power to Do Anything – The Void in Leadership
QUESTION: Dear Mr Armstrong,
I am in agreement with what you say about there being no overriding, controlling group in charge of things. However, with the politicians trying to federalise Europe through the back door and now seen to be failing, is it possible (or even likely) that they would now conspire to bring about an economic collapse and/ or World War catastrophic enough to create the single debt structure by “will of the People”? Or will they be too busy clinging to power in their own country?
Thanks
Regards,
MG
ANSWER: Honestly, there is no bulb in the office that bright nor is there anyone so daring or that much of a risk taker. They do not even understand the aftermath possibilities. They fear a default because they may not politically survive such an event. If the world economy crashed and burned, there would be a new guard coming in.
I have been behind the curtain. I do not speculate on these things or offer unsupported opinions. These are my observations not my hopes, desires, or opinions. We will crash and burn because this is how society functions. After the fact people try to claim it was all planned. It really does not work that way.
The Fed is trapped because it lowered interest rates so much it lost all power. They are tormented about how to raise rates to manage the economy when unemployment on a good day is 12% compared to 5% when the 1929 Bubble began. They cannot fight anything. They disarmed themselves. This is why they now talk about negative interest rates BECAUSE they cannot raise them and when the economy turns down they have to go negative in their mind to trying to do something.
I used to talk to politicians 20 years ago and there was a light on. The lights went dark for most. Ever since Bush, Jr, the Forth Branch of bureaucrats have taken over government. That is what the NSA is all about. Those in office lack the mental capacity to be leaders. It is a wasteland. This is all about holding on to power one day at a time. What you suggest would be politically too risky and they could never count on what happens later even if they thought that way.
It is interesting that I talk to others who are noticing the same thing – lack of leadership. Even the new book by Lee Iacocca who was a Democrat says the same thing and is 82 or so now:
‘Am I the only guy in this country who’s fed up with what’s happening? Where the hell is our outrage with this so called president? We should be screaming bloody murder! We’ve got a gang of tax cheating clueless leftists trying to steer our ship of state right over a cliff, we’ve got corporate gangsters stealing us blind, and we can’t even run a ridiculous cash-for-clunkers program without losing $26 billion of the taxpayers’ money, much less build a hybrid car. But instead of getting mad, everyone sits around and nods their heads when the politicians say, ‘trust me the economy is getting better…’
One World Government
COMMENT: I just wanted to say that you are correct. These people who have misled so many with their $50,000 gold and how the entire world is run by some secret dark force are clearly paranoia freaks. They cannot even articulate beyond generalized vague ideas without any connection to reality. They are enlisting philosophical concepts and modes of reasoning that are illogical to scare people into losing their life savings. Whether we analyze how we are living our lives, or trying to determine what we should or ought to do, we use or assume philosophical concepts. What they are doing is very dangerous even if they fail to comprehend their actions because they cannot analyze themselves.
You, on the other hand, present a thorough, clear, and coherent approach to your position because you seek truth, not fiction. You are a true philosopher who can make sense of difficult or otherwise complex concepts, problems, and reasoning. In brief, a philosopher can cut through the messed-up conceptual stuff to get at the salient features of an argument. That is your strong point.
If these deranged visions of a one-world government were true, then how is it that war on the horizon everywhere with civil unrest? Some CIA plot I suppose. This doesn’t seem to be the Utopian world controlled by a single mind or group dominating anything. How can these people even pretend the EU was a success when the currency has less importance in trade than China and its banking system is on chronic life-support. The Europeans blamed New York for their banking problems when it was clearly the structure of the euro and the euphoric idea that Europe would beat America. The European elections show that the people are in control for they do revolt now and again.
These conspiracy people are paranoid and they do distort the entire reality causing huge losses for many. Anyone with half of brain can see it would be impossible to create a one- world government for surely it would be impossible to get everyone to ever agree. I am a European and sitting in the middle of this I cannot see these conspiracy nuts know anything of what they speak. Desire and reality are starkly different no less the difference between political aspirations and the people’s preference to leave things as they are.. Even the Bible does not predict that this one-world government would actually be achieved, only that there will be an attempt to create one. There will always be resistance.
That said, you seem to believe there will be a one world currency. Could you elaborate on that?
REPLY: I see the emergence of a one-world currency at the reserve level only. This will be electronic replacing the dollar. The reason for this is that the currency of no single nation can be the reserve currency for whatever that nation does becomes a contagion to the rest of the world. I do not see a one-world currency that people would use in commerce domestically. It would be akin to what South Africa had – a two tier system, the rand for domestic use and the financial rand for international trade.