DATA POINTS IN THE FLOW OF HISTORY
The news flow of the last several weeks has centered around several very big issues: American structural budget deficits and the new tax agreement being hammered out in Washington DC, the bailout of Ireland and the precedent it may set for other European countries, fiat money vs. hard money, sovereign ratings downgrades, the growth and inflation policy objectives in China, bank capital adequacy from stress tests to Basel III and central bank responses to economic weakness. Flow is the operative word here, as with issues like these there really is never a culminating event. The statement put out today by the European Union on a new currency stability mechanism, is no different. The key section: “The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.” This statement might seem like the culmination of a debate, but it can also be viewed as a part of the historical imperative of European Union, its manifest destiny if you will.
We have long believed that unless and until the “member states whose currency is the euro” started moving towards a stronger socio-economic connection it would become more and more difficult to hold the euro together. The closest analogue we can think of is “the member states whose currency is the dollar.” Does not the US have significant economic disparity between weak states and strong states? Does not the US have significant cultural differences between north and south, east and west? And do not the member states of the American union have a shared interest in safeguarding the stability of the dollar despite our economic and cultural differences?
Whether or not we are witnessing the end of the debate in Europe or simply another milestone on the way to The United States of Europe is a question for a dissertation, not a blog. In the meantime, these questions lead us to consider the current global monetary standing of “the member states whose currency is the dollar.” Below is the shrinking market share of the US Dollar as the world’s reserve currency since 1999…and the growth of the euro.
Below is the United States’ shrinking market share of global GDP (in constant dollars) currency since 1969…and the growth of China and India.
These are all changes that have occurred along the sweep of economic history, and for relatively short intervals at that. Far be it for us to draw conclusions on such large matters with such little data, but here are two: historical secular trends are hard to stop, and one of the greatest global economic advantages is scale. This asset is indispensable and should be protected. History-obsessed Europe, with its statement today, perhaps sees this trend and is acting accordingly.
Those are cool charts!
China raising their share of GDP by nearly a 1000%!
Germany has taken a severe beating, down 36%. Same with Russia, down 42%. In the case of Russia, maybe the loss of productive territories…hard to say about Germany. I would have thought they would have held constant, or even improved slightly.
Hats off to Annaly for consistently producing thought provoking material.
Yes, and the USA held its own remarkably well as a share of world GDP – a drop of only 7%. This is an amazing feat when your piece of the pie is already so big.
China is a 10-bagger. The only other countries to increase their share are India, Mexico, and Brazil. Most of their share came out of Russia and Europe.
there are some cultural differences in the US but we are all americans and were from the start.
BIG differences and millenia-long distrust and seperations over there…..longgggg way to go before europe is united.
in greece the gravy trian is working for the government(shuffling your feet) or tax evasion…..italy it is rampant dissablity abuse-a national cottage industry.
this blows up-they don’t tap dance n kick cans long enough to paper over problems with another bubble….tooo long to rebound in this consumer credit crash.
but its just my bet….all it is……make your own.
The ECB now understands they can create fiat currency with a few dozen keystrokes and use it to buy up the debt of any of their needy members (Germany will get over it). They will shortly begin to do this as standard operating procedure, just as our Fed will begin to do the same with our individual states.
Hakuna Matada!
A better system would be 100 percent bank reserves, so horizontal money is no longer created. We need to stop fueling bubbles and depressions. Vertical money should be direct spending debt free into the economy. There should be debate on the how the vertical money is spent by the citizens; it’s their money. Ideally, vertical money should be distributed according to population. Let the States figure out how to distribute it. Government closest to the people is the best government, not giant Statist Oligarchies like Washington (and soon Brussels). Vertical money should be controlled by the people and rules need to be in place to limit inflation and the theft of real wealth. In today’s reality, vertical money is spending by corruptocrats who use the money to their ends, not the citizens. MMT system has no safeguards on vertical money. Just raise the debt ceiling is the mantra they all sing. Let’s use the 16’th amendment and TARP to socialize risk of the private banks if they get in trouble. What a deal.
Main Street is being hollowed out by Wall Street. Real Wealth is land, the productivity of the people, and know-how. Money, especially debt based money, is a dim shadow of real wealth. That is why all the fortune 500 companies are in China. They are busy transferring real wealth, just to have some short term gains. The money system signals to the private banking Western World, that they should manufacture in China. Civilizations don’t normally commit suicide unless the signals are seriously short circuited. Money manipulation does that – if it is messed up it is like a virus to the body politic. Money should be a store of value, and it should be valued properly, so that Capitalist economies can make sane decisions.
International trades used to be balanced with Gold Transfers. But, the gold fiat system had 10:1 leverage, so if gold left the country, it took 10x the money supply with it. That is why unbalanced trade would devastate economies and cause depressions due to the rapidly shrinking money supply. Today we float the money, but that is an avenue for hedging and manipulation. We see all kinds of games, like Bear raids and gambling. This is mal investment as new money pops into being to chase after destruction. In the same way MMT vertical money pops into being, and is spent by corruptocrats on their projects…it is more mal investment. It is a wonder the private sector has the resilience to put up with this attack.
Keynes’ Bancor system, or clearing houses are to me a more sane way to balance international flows. The creditor nation is the one penalized when they carry a big surplus. Most debtor nations should not be penalized by the IMF when they are already in debt. To MMT theorist who say that China’s debt is no big deal, they don’t think in wealth terms. I’ll say it again, money especially debt money is not wealth. When all the most modern factories are in China, and the know-how has been sucked out of the West, and most of the worlds resources are locked into favorable contracts, what then? All the money piled up in the China’s account at the FED won’t mean diddly to them. They will have achieved their real goal. Even better if China can roll over the loans forever, and keep American’s in debt slavery. Don’t QE2 asset swap that debt, or there may be real trouble.
To the private banking Oligarchial West – If you think your type of Statism can supercede the Statism of China (really a form of Fascism) you are deceiving yourself. China’s State Banks are owned by the State, and hence they can make debt just disappear. All of the junk Chinese communist debt just disappeared off of the books. Other countries are watching and will adopt the Sovereign Money Chartalism of China in conjunction with State Power. Only the State Money Power of China is not tied down by their people, and this has been shown by history to be murderous. (Hitler is a good example.) Our MMT system is moving rapidly in that direction. Just raise the debt ceiling! We need real Sovereign money (Chartalist) system, only it has to be controlled by the people in a true Federalist structure, as the founders intended. MMT is anti-Federalism and in fact is encouraging Oligarchial Statism.
Why not let Greece be Greece? Why not let Italy be Italy. Viva la difference. America works because people will get up and leave if there are depressed conditions in their state. Will a Greek citizen get up and go live in Germany? Not likely, there are other issues at play not just the money. If Greek citizens become welfare queens and everybody retires early, the economy should collapse. The money system should signal that long in advance, so Greeks can take evasive action. With a straight jacket Euro, Greeks cannot see or know what is going on because their signaling mechanism is broken.
We have computers now. We can have integrated economies using Sovereign currencies without floating exchange rates. We can preserve the unique tribal natures of places like Greece and Italy. If we go down the Statist Oilgarchial path that we seem hell bent upon, it will not be good for the future of Humanity.
A true Federalist structure would have the Money Power owned by the Central State, but with safeguards. Vertical money is issued by the treasury, but under strict rules not to exceed a certain inflation rate. In the U.S. the States should make sure the Federal Government doesn’t issue to much vertical money, and there are teeth in the law, like jail-time for treasury members who abuse the system. In Europe each Country should have its own money so as to preserve unique civilizations. Europeans can use a Bancor System which will send feedback to trading partners. The Bancor system will tend to punish creditor countries, and there will be lots of discussion amongst the populations as “clearing house” deficits or surpluses mount. The people will come to understand their money and its importance.