They say that in the financial markets everything is a Zero-Sum-Game. If one understands that the money supply is finite, then every time someone profits from a currency trade, somebody loses. Few people understand the significance of currency trading compared to the puny DOW average we are all fed on the evening news and in the WSJ.
Here is just one example how global currency trading impacts your wallet on a daily basis.
In 1987, Andy Krieger, a 32-year-old currency trader at Bankers Trust, was carefully watching the currencies that were rallying against the dollar following the Black Monday crash. As investors and companies rushed out of the American dollar and into other currencies that had suffered less damage in the market crash, there were bound to be some currencies that would become fundamentally overvalued, creating a good opportunity for arbitrage. The currency Krieger targeted was the New Zealand dollar, also known as the kiwi.
Using the relatively new techniques afforded by options, Krieger took up a short position against the kiwi worth hundreds of millions of dollars. In fact, his sell orders were said to exceed the
money supply of New Zealand. The selling pressure combined with the lack of currency in circulation caused the kiwi to drop sharply. It yo-yoed between a 3 and 5% loss while Krieger made millions for his employers...
Perhaps the increasingly global economy has reached a juncture where a single currency may be more stabilizing and efficient that the world's current system of local currencies and the daily transfer of vast amounts of value from everyman to the enrichment of a few banks and billionaires. Yes your friendly bank bets against your good fortune every day. The ensuing LIBOR scandal will only illuminate a fraction of the financial shenanigans perpetrated on the general global population by the banking industry, while they, at the same time, snivel about the need to gouge depositors for every escalating fees and charges, and always in small print.
Besides all the complicated reasons why a global currency might help to stabilize the global economy, there is the daily drain of common resource into the hands of a few speculators, that far exceeds the sum of all stock trading, that would be eliminated with a single currency.
The same TVM metrics apply to your pocketbook and currency trading, as apply to the onerous fees and charges imposed on your 401K or mutual funds. Little by little these costs mount up. Over decades currency trading really matters to the average world citizen. When one takes out a 30 year mortgage the interest paid over the duration of the mortgage, exceeds the amount borrowed. Likewise, currency trading most likely decreases your net worth to a significant degree just as inflation and deflation have a negative effect over time.
There is a saying that "misfortune" is the type of fortune that never misses. It seems that when it comes to the global financial zero-sum-game, the financial misfortunes of the little-man are never passed over.
The media recently pointed out that if a food stamp recipient (49 million Americans now receive SNAP) is found to have lied on any form, they are denied assistance forever. Meanwhile the banking industry is now experiencing their 6th or 7th major criminal disclosure (LIBOR manipulation) in so many years and still no one is punished.
Woody Guthrie once wrote that some people rob you with a gun, and some people rob you with a fountain pen. He also said an outlaw never drove anyone from their home. His words ring too true 70 years later. It seems the bankers are still the ones driving people from their homes.
A global currency would eliminate the needless and enormous profits of the currency trading industry that directly affect everyone. Likewise a global currency will stabilize commerce between areas of the globe. A single currency would greatly simplify financial and commercial planning and transactions. Allowing a few banks and trading groups to manipulate national currencies in a totally unregulated market only adds to our current global financial instability.
Currency trading is another form of the Chinese water torture. Drip by drip, value is transferred from everyman to the rich man over lifetimes. If no one has the money to buy things, how do we create jobs? For those who celebrate the rich and famous, who now use our money to purchase national and local elections, are you better off than your parents?
Perhaps it is time to put nationalism aside and get down to the business of improving global financial conditions. It seems we are now all on the same globe financially.
Gene: The global currency used to be gold. Keeping to the gold standard caused massive unemployment and misery in the 30’s. Then, the concept of reserve currencies replaced the gold standard, with the pound sterling as the world’s reserve and later the US dollar. Reserve currencies work only if the printing is restrained; If one thinks that there is going to be a lot of printing then it is not a good store of value and one’s dollars deteriorate. Keynes was not wrong. The only correct way of managing money is to increase taxes and restrain government spending when conditions are booming, and to invest in real things (infrastructure etc) and to get money into the hands of the poor (who will spend it) ,when conditions are bad. It makes sense too. The millions of unemployed would make a wonderful contribution to this country if a way could be found putting them to work making the country more modern and efficient. The simplistic solution of a world currency would make slumps worse.
ReplyDeleteOur present problems are exacerbated by the Euro which was doomed from the beginning. One cannot take the elasticity out of the economic system by eliminating exchange rates, which is what the Euro has done. Thus when countries get out of balance with each other there is no adjustment possible and terrible unemployment results. With exchange rates the system adjusts without much drama most of the time. The sooner the European countries go back to their own currencies the less the agony will be. Yes, the banks will lose but they will lose even more if the transition is delayed. Ron