The Miseducation of Capitol Hill: Currency Devaluation

VANCOUVER (TheStreet) -- In recent weeks, readers have been listening to one talking head after another proclaiming that we are "trapped" in the monetary game of "competitive devaluation." It's all drivel. For decades, the United States had the world's strongest economy -- by a wide margin. And during those same decades, the U.S. had a strong dollar.

Was the U.S. some sort of economic miracle worker, able to thrive in spite of a strong dollar? Absolutely not. It's economic strength was a direct consequence of a strong dollar. This would be obvious to anyone with a basic understanding of trade and economic fundamentals. And it will be obvious to anyone/everyone without such a background as soon as I explain these concepts -- and the difference between them.

First of all, there is never any long-term "economic advantage" in having a weak currency. This is yet more banker mythology. Allowing one's currency to depreciate (or having it forced upon you) is a form of indirect subsidization, whereby the entire population has an involuntary reduction in their standard of living transformed into a (socialist) "subsidy" for uncompetitive businesses.

When a currency decreases in value, this is obviously the same thing as saying prices go up, which is the same thing as saying that one's standard of living is going down. Is there any reader out there who receives an automatic boost to his or her wages every time the currency loses value? Is there anyone who believes that reducing everyone's standard of living and propping up uncompetitive businesses is the path to economic prosperity?

Thus, we establish the first proposition: devaluing one's currency (even if no one else is doing it) is nothing but a form of short-term subsidization of (inefficient) businesses and long-term economic suicide.

It's funny how, despite living in a society full of "capitalist" ideologues who love to "talk the talk," so few of them want to "walk the walk." We want uncompetitive businesses to fail. This is healthy. It drives capital out of inefficient applications and into more efficient applications.

Yes, this creates hardship. Yes, this requires change and innovation. Yes, this will be scary and unpleasant (for that portion of the workforce). However, it is an unequivocal fact that such positive economic evolution is mandatory for a healthy economy. Is it better that everyone permanently accepts a lower standard of living just so a relatively small portion of society can evade the need to adapt?

In my opinion, Currency devaluation is nothing more than a tactic by a cowardly government that is afraid of change, because it lacks the competence to adapt to such change. It is an explicit admission of a failure of leadership.

As for all the pundits who claim that competitive devaluation is a "trap," they are equally guilty of being intellectually bankrupt (or simply uneducated). Let's return to the example of the U.S., with the "strong-dollar" and ultra-strong economy. First of all, a strong currency means that you (and you alone) get to buy everything cheaper. Call me "old-fashioned," but I welcome a little "deflation," where for once in my life, my dollar buys more rather than less. (But then again, I'm not a banker.)

When I talk about buying everything cheaper, I'm not just talking about raw materials. I'm talking about finished products and even other corporations. Western business leaders love to pound their chests and champion "free market capitalism." Then these cowardly hypocrites choose the socialist path of using the subsidy of a lower standard of living (via currency devaluation) to have society prop up their "capitalist enterprises." A real capitalist would want a strong currency, so as to gobble up foreign competition (and innovation) at a discount (just as U.S. corporations had been doing for decades).

However, the benefits of a strong currency don't stop there. For decades, I laughed as I listened to U.S. talking heads claiming that gifted people from all over the world were flocking to the United States simply out of admiration of its freedom, or democracy, or some other supposed virtue.

Listen, they came to the U.S. because they wanted to be paid in U.S. dollars. If the "flocking" to the U.S. has slowed dramatically, that is because getting paid in Bernanke bills is no longer an inducement to come to the country.

A currency that is declining against its rivals is the most obvious indicator that a government is failing. "Change" and "adaptation" are the specialties of our species. It's what leads to a principle that has obviously been totally forgotten by all the currency-devaluation zealots: "competitive advantage."

There is only one path to prospering through trade: you sell the goods and services that you excel at producing, and purchase goods and services that you cannot produce as efficiently. By propping up uncompetitive businesses, we sabotage the essence of trade: we end up selling goods/services that we are not producing efficiently, and buying goods/services that we could (and should) produce ourselves -- by diverting all the economic capital that is currently being wasted.

It is only in an environment where governments and economies freely adapt and remain competitive that "free trade" can produce any economic net benefit. Without the efficient allocation of capital, we end up with what we have today: government and business leaders advocating policies that are literally the exact opposite of what is needed to restore economic health and prosperity.

This is the consequence of living in a world full of ideological simpletons. They have an extremely rudimentary understanding of the capitalist principles that promote economic health -- with the result being that almost everything they attempt is nothing but a half-hearted imitation of the principle they seek to emulate. Since the gaps in understanding are so large, and the resultant policy is so severely flawed, this is why we so frequently see government action make a bad situation worse, and increasingly see the same incompetence with business -- with the result that these ardent "capitalists" whine and plead for (socialist) subsidies and "bailouts".

What makes this reality both intolerable and inexcusable is that I have done nothing more than explain what any student quickly learns (supposedly) in any first-year economics curriculum. Presuming that our "business leaders" and "government leaders" are comprised of individuals who boast of academic credentials far superior to that of a first-year economics student, we can only assume that there is some "force" lobbying/brainwashing these individuals -- to prevent them from pursuing positive change.

Obviously, the spotlight immediately focuses upon the bankers. These economic parasites are literally the only members of society who derive long-term benefit from currency destruction. In fact, as we have seen with the Ponzi-schemes , and the market-rigging , and the " record profits, " and the "record bonuses," these parasites thrive in an environment of currency destruction. How?

Two ways. First of all, the best way to debauch a currency is to print money. And since the bankers were successful in assassinating the gold standard, every new dollar is created with debt. Does anyone want to guess who collects the interest on all this new debt?

The second (and more evil) way in which currency-destruction benefits these parasites is that it forces all members of society to attempt to " invest " their money, to try to mitigate the rapid erosion of their wealth . Does anyone want to guess who rakes-in the vast majority of profits from "investing" (where for almost every winner, there is a corresponding loser)?

All of our governments should be pursuing policies of currency appreciation, since that is what leads to "competitive advantage" and profitable trade. Instead, we see our governments (being guided by bankers) pursuing currency depreciation, which inevitably leads to competitive disadvantage -- and sabotages all of the benefits of trade.

We can either structure our economies to benefit the 0.0001% who are "bankers," or we can structure our economies to benefit the rest of society. Hopefully with these "clues," government, business and media pundits can figure out which way is the right way to go.

--Written by Jeff Nielson in Vancouver, British Columbia.


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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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