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Overvaluing the US currency

Overvaluing the US currency"It’s a new form of exploitation."

 

 

The US wanted to cheat the world by amending the basic law on economics, particularly on the exchange value of commodities. That desire was not only intended to dominate other countries but to control them through currency dominance.

Unlike the previous empires where states physically subjugate others in a system called colonialism and later evolving into imperialism, the US has devised a way to exploit countries without them thinking they have been entrapped into a new phase of exploitation. The practice is done by overvaluing the currency called “revaluation” or undervaluing it, called “devaluation”; by pegging its value to precious metals or by printing money beyond the need of the market called “quantitative easing” to make available credit and lower interest rate.

The US took the position to overvalue the dollar, it being untouched by the ravages of World War II. The US emerged as the leading manufacturer and has a tremendous capital and trade surplus while the rest seek credit to buoy their economy.

To maintain the value of the dollar, the US urged other countries to participate and sign the Bretton Woods Agreement in 1946 where it fixed the value of the dollar at $32 per ounce of gold.

That allowed the US to carry out its war efforts during the Cold War. It fought in the Korean War in the 1950s and again in Vietnam only to end up in humiliating defeat in 1973. The US was incurring a huge budget deficit that it has to find a way to relieve itself of the festering problem.

To overcome this looming economic catastrophe that could reduce the status of the US as an economic superpower, President Nixon announced in 1973 to decouple the US dollar from the gold standard. This means the US would no longer bind itself to the Bretton Woods Agreement. The decoupling measured the value of the US dollar to its GDP which countries grudgingly accepted. This resulted in the spike of its value.

Nixon’s economic theory assumes that by allowing the US dollar to float and dominate, the US would be able to regain its status as an economic powerhouse. The theory is based on the belief that one can buy more beyond the real value of his money while the seller earns less than the cost for his labor/capital. It was a genie, for aside from raking in low wages, the seller could earn more by cheating the buyer of the real value of the commodity.

Unknown to many, an overvalued dollar is to literally cheat countries of their exports and capital investments. The world’s currencies plummeted with valuation of the dollar to GDP. Underdeveloped countries suffered an unprecedented trade deficit. Many were forced to abrogate their anti-usury law because international creditors, principally the World Bank and the IMF, insist that they be paid based on the current value of the dollar which was higher than the fixed interest rate imposed by their anti-usury law.

Even government loans for public service have to pay the current value of the dollar known as the currency exchange rate adjustment system (CERA). Countries sought moratorium and had to restructure their debt.

Countries paying an overvalued currency increased the volume of their exports but actually at a lesser price. The same can be said of their imports, which mean they pay more which is usually higher than the international market price. Often, the valuation of their currency is automatic as it is carried out by the World Bank.

The problem with an overvalued currency is it only presents one side of the coin. The US failed to anticipate that the high value of the dollar would equally affect them in terms of high wages and services. People tend to buy more if it will cost them less, and that could lead to deficit spending.

The US had to adjust to the current cost of living which has nothing to do with production or wealth creation. Slowly, manufacturing declined for being uncompetitive in the world market. Their being dependent on imports resulted in a huge trade deficit because it became easy for US consumers to import. Even the production of peanut butter was consigned to China.

If history serves them right, it was the US that forced Japan to revalue the yen to make US products competitive but resulting in an economic doldrums in that country for more than 10 years.

Another, an overvalued dollar tends to diminish employment because of higher production costs. The practice boomeranged to affect the cost of domestic wage and services. This explains why American workers have been complaining of no real wage increase since 1973.

Whatever wage increase was given was brought about by the statutory minimum wage law triggered by inflation. Economists refer to this as “stagflation”. To be precise, stagflation is the beginning of de-industrialization because industries are being dismantled and established where the value of the currency is cheaper.

To counter this, employers have to resort to outsourcing of work to countries where labour is cheap or by the practice of contractualization to cut short the workers’ security of tenure to deny them the benefits of regular employees. Most serious is the untimely withering of trade unionism in the US.

The US outsourcing of production coincided with China’s economic opening in 1978. It was a step-by-step process that China did to industrialize. In less than 30 years, China today stands as the biggest economy in the world. In the UN data for 2018, China accounts for 13.45 percent of the world’s exports while 11.37 percent of its imports making it the top trader of the world, and holds the biggest capital reserve, which today is the envy of many nations.

Trump violated the sacred principle of free trade by imposing unreasonable tariffs. The US trade deficit is not only with China. The US also suffer similar deficit with Mexico, Canada, Japan, Korea, Germany, and with many counties indicating that it is not the system of trading that is at fault but the overvalued dollar.

The uncanny thing is, while President Trump talks much of trade deficit with China and Japan, but remains silent on the huge debt of the US with each reaching to trillions of US dollars in treasury bonds.

When President Trump imposed his prohibitive tariff, he did not make the US great again. He did not explain that tariff is an imposition on American importers. What the US did is to simply add the collected tariff to the deficit but hiding the truth that it costs more to US importers and increased prices to the consumers. It is funny, for there are more Americans going to Mexico and Asia to buy more for their money. Billions of dollars slip out daily through its border, all eager to buy more US goods produced abroad.

Accidentally, an overvalued dollar caused the abnormal movement in the economy like dollar salting and dollar smuggling. People tend to export their savings and capital to countries where it could generate more money, and usually it is the US dollar that is involved. As one would day, the Anti-Money Laundering Law is a law specially made for the Americans to earn additional revenue out of the confiscated savings of people wanting to bring out their dollars outside of the banking system. The fines, penalties and even confiscated currencies partake of windfall revenue to US banks.

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Topics: World War II , Bretton Woods Agreement , currency exchange rate adjustment system
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