I saw this article and while not directly related to personal money matters or economics, the writer of the article believes that this invention will change the world.
Who knows, maybe you can invest in a company that brings this to the public?
Tuesday, August 21, 2007
Friday, August 17, 2007
U.S. GDP Compared to the Rest of the World
I was reading a weekly news magazine, and one of the opinion writers pointed out an interesting site called Strange Maps. It has hundreds of strange maps from around the world. There are maps about insane asylum districts in Pennsylvania, the retreat of the Cornish language in England, the potential carving up of Europe had Germany and her allies won World War I and the mocking of Britain's invasion of Afghanistan by naming their provinces after locations in England. The owner just loves maps.
One map in particular is interesting from an economic standpoint and compares each state in the U.S. with a country in the world with an equivalent GDP. California's GDP is about the same size as France. New Jersey is equivalent to Russia. Nevada is Ireland. Etc, etc. Here is a list of GDP's of each state and the list. Here is the map that renames every state in the U.S. with its equivalent country.
It is very interesting to see how the U.S. GDP stacks up to the rest of the world and puts into perspective what other countries produce compared to the United States.
One map in particular is interesting from an economic standpoint and compares each state in the U.S. with a country in the world with an equivalent GDP. California's GDP is about the same size as France. New Jersey is equivalent to Russia. Nevada is Ireland. Etc, etc. Here is a list of GDP's of each state and the list. Here is the map that renames every state in the U.S. with its equivalent country.
It is very interesting to see how the U.S. GDP stacks up to the rest of the world and puts into perspective what other countries produce compared to the United States.
Everything You Need to Know from an MBA Education
When I graduated from the MBA program at the University of Iowa, I told some of my friends that I wanted to write down as much of the theories, equations, buzzwords and business knowledge someplace where I could look it up in the future. Preferably in HTML or in a Word document. Unfortunately, work and other life pursuits pushed this lofty ambition to the back of the line of things I'd like to do.
Fortunately, AgentDisco sent me a link to someone who has done just what I had hoped to do myself, expect they did a far better job. Valuebasedmanagement.net is an ugly page and is basically a list of hundreds of hyperlinked words and descriptions of everything I've learned in the MBA program. When you click on something like, "Cashflow from Operations" or "Theory of Constraints" or "SWOT Analysis" it gives you a simple definition of what that is, as well as a picture or two if applicable. There are also links at the bottom of each page to other areas of the internet for further reading.
I've added this site to the list of links so that if you read this page, you'll have easy access to this site in the future. Check out the site and many thanks to Agent Disco!
Fortunately, AgentDisco sent me a link to someone who has done just what I had hoped to do myself, expect they did a far better job. Valuebasedmanagement.net is an ugly page and is basically a list of hundreds of hyperlinked words and descriptions of everything I've learned in the MBA program. When you click on something like, "Cashflow from Operations" or "Theory of Constraints" or "SWOT Analysis" it gives you a simple definition of what that is, as well as a picture or two if applicable. There are also links at the bottom of each page to other areas of the internet for further reading.
I've added this site to the list of links so that if you read this page, you'll have easy access to this site in the future. Check out the site and many thanks to Agent Disco!
Stocks Still on Sale
The Federal Reserve has continued to add liquidity to the financial system which seems to be buoying the stock market. You can still buy stocks cheap and I recommend this being the perfect time.
If you had bought a $100 worth of stock in a diversified portfolio the day after the 1929 crash, today it would be worth millions, if not more.
If you had bought a $100 worth of stock in a diversified portfolio the day after the 1929 crash, today it would be worth millions, if not more.
Thursday, August 09, 2007
Stocks are on Sale
You may have heard that the stock market has gone down recently due to worries about obtaining credit related to a French bank closing down some of it's lending options.
Both the European Central bank and the Federal Reserve will release more money into the system to ensure that there is enough to do business. This will cause a little inflation, but it will also allow businesses to use that currency to conduct their operations.
What does this mean? Stocks are on sale and now is a great time to buy!
Both the European Central bank and the Federal Reserve will release more money into the system to ensure that there is enough to do business. This will cause a little inflation, but it will also allow businesses to use that currency to conduct their operations.
What does this mean? Stocks are on sale and now is a great time to buy!
China to Devalue Dollar: Let Them!
Through "unofficial" think tanks sponsored by the Chinese government, "intellectuals" have suggested China begin a massive campaign to dump dollars on the international market, which would cause the real value of a dollar to drop.
The reason they are doing this is because the U.S. has insisted that China un-peg the value of their currency, the Yuan, to the dollar. This artificially low value of the Yuan makes Chinese goods cheaper in America and makes American goods more expensive in China. This naturally causes the much ballyhooed trade deficit between us and China.
But what would the devaluation do to the U.S. Well, when a flood of dollars is released on the market, this causes interest rates to rise on Treasury Bonds. The reason is that the U.S. wants to control the amount of money in circulation, so they would raise rates, to encourage more people to buy bonds, which would absorb a lot of the cash. The article mentioned above predicts that this would kill the housing industry, as commercial loans are linked to the Treasury bond yield.
What the article doesn't mention, is that people invested in Bonds would be doing quite well. Banks who issue the bonds would be doing well, too. Moreover, China would be shooting themselves in the foot by eliminating the main customer for their goods (30% of goods exported from China are bought in America). It would also hurt other countries in Europe and Japan that keep a large portion of U.S. dollars in reserve. This would, in turn, decrease those market's demand for imported goods.
So, I say, call the bluff. Let them do whatever they want. Sure it will hurt us a little (housing and corporate borrowing), but it would hurt the fledging economy of China much more.
President Bush agrees and made a statement today calling the idea "foolhardy."
The reason they are doing this is because the U.S. has insisted that China un-peg the value of their currency, the Yuan, to the dollar. This artificially low value of the Yuan makes Chinese goods cheaper in America and makes American goods more expensive in China. This naturally causes the much ballyhooed trade deficit between us and China.
But what would the devaluation do to the U.S. Well, when a flood of dollars is released on the market, this causes interest rates to rise on Treasury Bonds. The reason is that the U.S. wants to control the amount of money in circulation, so they would raise rates, to encourage more people to buy bonds, which would absorb a lot of the cash. The article mentioned above predicts that this would kill the housing industry, as commercial loans are linked to the Treasury bond yield.
What the article doesn't mention, is that people invested in Bonds would be doing quite well. Banks who issue the bonds would be doing well, too. Moreover, China would be shooting themselves in the foot by eliminating the main customer for their goods (30% of goods exported from China are bought in America). It would also hurt other countries in Europe and Japan that keep a large portion of U.S. dollars in reserve. This would, in turn, decrease those market's demand for imported goods.
So, I say, call the bluff. Let them do whatever they want. Sure it will hurt us a little (housing and corporate borrowing), but it would hurt the fledging economy of China much more.
President Bush agrees and made a statement today calling the idea "foolhardy."
Tuesday, August 07, 2007
Fastest Growing Suburbs in America
A recent report from Forbes lists the top growth suburbs in the U.S. Suburbs in Los Angeles, San Bernardino and Sacramento are growing quickly. Why? The article cites a study by the Brookings Institution pointing out that cities with restrictive policies on growth or expansion, are artificially raising the overall value of homes and land values in that particular city. This forces people to seek more affordable locations further away (far suburbs or exurbs).
It's ironic that policies that are trying to prevent urban-sprawl are actually encouraging it.
Guess what the highest household expense for people living in Houston is? That's right, transportation.
Another interesting fact from the article is that Boston is considered to have more sprawl than Las Vegas, because Las Vegas has more densely populated land.
I wrote about this before back in 2005, when mentioning a great article by Thomas Sowell, pointing out the restrictions of cities in San Mateo county, California.
The best way to eliminate sprawl and keep people near the jobs that are demanded by the economy, is to eliminate building restrictions, and especially height restrictions. My own city has been struggling with this in regard to their local airport. Values in my county are among the highest in Iowa, and in my opinion, it is because of restrictions on re-zoning downtown areas and placing artificial height restrictions on commercial and residential properties.
You see, people want to live downtown or where there are jobs, or maybe where the air is clean or the view is great. Some of us want to prevent that great view from being soiled by more people. This, however, is selfish and begins to put strain on the fragile relationship of supply and demand.
Cities with higher land values should allow developers to build up. Skyscrapers or tall buildings allow more people to co-habit the more expensive land. They are happy, because they are close to the jobs downtown, or the nightlife, or whatever. The only people not happy are elitists that often feel that they know better than thou and try to control growth through edicts, laws and popular issues and buzzwords, like sprawl.
However, there is a dilemma in wanting people to abide by the most basic forces of supply and demand. I, as a homeowner, should be in favor of building restrictions. It raises the value of my home (closer to the city center than those new ones being built 15 miles away). But my selfishness aside, it is better for the city to allow people (developers) to build where the demand is screaming for more homes or more dense dwellings. With a University, multiple hospitals, banks and other professional businesses downtown, having more people have the ability to live there (wherever "there" is) is the best for everyone.
It's ironic that policies that are trying to prevent urban-sprawl are actually encouraging it.
Guess what the highest household expense for people living in Houston is? That's right, transportation.
Another interesting fact from the article is that Boston is considered to have more sprawl than Las Vegas, because Las Vegas has more densely populated land.
I wrote about this before back in 2005, when mentioning a great article by Thomas Sowell, pointing out the restrictions of cities in San Mateo county, California.
The best way to eliminate sprawl and keep people near the jobs that are demanded by the economy, is to eliminate building restrictions, and especially height restrictions. My own city has been struggling with this in regard to their local airport. Values in my county are among the highest in Iowa, and in my opinion, it is because of restrictions on re-zoning downtown areas and placing artificial height restrictions on commercial and residential properties.
You see, people want to live downtown or where there are jobs, or maybe where the air is clean or the view is great. Some of us want to prevent that great view from being soiled by more people. This, however, is selfish and begins to put strain on the fragile relationship of supply and demand.
Cities with higher land values should allow developers to build up. Skyscrapers or tall buildings allow more people to co-habit the more expensive land. They are happy, because they are close to the jobs downtown, or the nightlife, or whatever. The only people not happy are elitists that often feel that they know better than thou and try to control growth through edicts, laws and popular issues and buzzwords, like sprawl.
However, there is a dilemma in wanting people to abide by the most basic forces of supply and demand. I, as a homeowner, should be in favor of building restrictions. It raises the value of my home (closer to the city center than those new ones being built 15 miles away). But my selfishness aside, it is better for the city to allow people (developers) to build where the demand is screaming for more homes or more dense dwellings. With a University, multiple hospitals, banks and other professional businesses downtown, having more people have the ability to live there (wherever "there" is) is the best for everyone.
How Much Should You Be Paid?
There probably comes a time in most people's professional careers when they ask the question, "How much should I be paid?"
There are a few sites online that may be able answer that question, by comparing the data of the job you enter with hundreds of similar jobs around the country and in your city or area. Most of the sites require you to pay extra for a detailed report, but the free reports give enough info to determine whether you are at the top, the bottom, or somewhere in between all of the other people with a job similar to yours.
Salary.com is the biggest site and incorporates into the job search site, Monster.com. I'm not really impressed with this service. They keep a lot of information hidden, so your free report doesn't have as much information as it could. The one thing they do well is allow you to compare your current job's salary with that of someone similar to you, but living in a different part of the country or city. You can see how much the cost of living would compare to your current city and how much you would need to make in order to maintain the same lifestyle.
I really like payscale.com, as it reveals a lot more information about your salary for free. Another great feature is that it literally compares your information with that of more than 7 million people. It asks you what you were doing 5 years ago. Then it asks what you are doing now, and let's you see what people who had your job 5 years ago are doing now. It's a neat way to see what might happen in the future. Of course with our dynamic economy and the way that you have to constantly adapt with new skills and network connections, you'll have to take the results with a grain of salt!
Check out the sites and see what you should be paid and what you might be paid in the future!
There are a few sites online that may be able answer that question, by comparing the data of the job you enter with hundreds of similar jobs around the country and in your city or area. Most of the sites require you to pay extra for a detailed report, but the free reports give enough info to determine whether you are at the top, the bottom, or somewhere in between all of the other people with a job similar to yours.
Salary.com is the biggest site and incorporates into the job search site, Monster.com. I'm not really impressed with this service. They keep a lot of information hidden, so your free report doesn't have as much information as it could. The one thing they do well is allow you to compare your current job's salary with that of someone similar to you, but living in a different part of the country or city. You can see how much the cost of living would compare to your current city and how much you would need to make in order to maintain the same lifestyle.
I really like payscale.com, as it reveals a lot more information about your salary for free. Another great feature is that it literally compares your information with that of more than 7 million people. It asks you what you were doing 5 years ago. Then it asks what you are doing now, and let's you see what people who had your job 5 years ago are doing now. It's a neat way to see what might happen in the future. Of course with our dynamic economy and the way that you have to constantly adapt with new skills and network connections, you'll have to take the results with a grain of salt!
Check out the sites and see what you should be paid and what you might be paid in the future!
Wednesday, July 25, 2007
The Index of Economic Freedom
Every year the Heritage Foundation and the Wall Street Journal produce the Index of Economic Freedom. They rate 232 countries on how well they allow people to be free regarding money, property rights, and corruption, among others. The United States is ranked 4th, right behind Australia.
The thing I found interesting was the ranking of Hong Kong (1st) and Singapore (2nd). Both have authoritarian governments, but allow a remarkable degree of personal freedom for their citizens. They are also two economies in Asia that are quite strong.
One area the US rates low in compared to other countries in the top 10, is "Freedom from Government." This is how much the government requires paperwork, bureaucracy and invasive taxes. The US also rates lower in the "Freedom from Corruption" area. This is surprising to me as well, as I haven't encountered corruption personally.
Check out the index to see how the US compares to other countries here.
The thing I found interesting was the ranking of Hong Kong (1st) and Singapore (2nd). Both have authoritarian governments, but allow a remarkable degree of personal freedom for their citizens. They are also two economies in Asia that are quite strong.
One area the US rates low in compared to other countries in the top 10, is "Freedom from Government." This is how much the government requires paperwork, bureaucracy and invasive taxes. The US also rates lower in the "Freedom from Corruption" area. This is surprising to me as well, as I haven't encountered corruption personally.
Check out the index to see how the US compares to other countries here.
Norwegians Angry at Higher Taxes
"Norwegians are among the most heavily taxed people in the world." Not only do they pay income taxes, but property and net worth! A glass of wine at a typical restaurant costs the equivalent of $16 and gas costs $9 a gallon!
Norway has traditionally had a comprehensive welfare state fueled by these taxes and others, but they have also been quite independent, with regards to the rest of the world, as evidenced from their refusal to join the EU or adopt the Euro.
Read more about Norway's taxes0 here and Norway itself here.
Norway has traditionally had a comprehensive welfare state fueled by these taxes and others, but they have also been quite independent, with regards to the rest of the world, as evidenced from their refusal to join the EU or adopt the Euro.
Read more about Norway's taxes0 here and Norway itself here.
Risky Housing Market?
An article from MSN rates housing markets across the country and what the perceived risk that the market in that region will decline in the next year. The riskiest markets are San Bernardino-Ontario-Riverside (65.2% chance of decline), Phoenix-Scottsdale-Mesa (64.6%), and Las Vegas (61.4%).
The least risky areas are Pittsburgh, FortWorth-Arlington, TX, and Dallas-Plano-Irvington, TX.
The article talks about tips on both buying and selling houses in these types of markets, too.
The least risky areas are Pittsburgh, FortWorth-Arlington, TX, and Dallas-Plano-Irvington, TX.
The article talks about tips on both buying and selling houses in these types of markets, too.
Monday, June 25, 2007
The Truth About Income Taxes
In New Hampshire right now, there is a standoff between the Federal Government and some private citizens who have not paid income taxes and don't believe that they should ever have to pay income taxes.
While most of us don't like paying taxes, the 16th Amendment to the United States constitution, allows congress to levy taxes on income. It was ratified by 3/4 of the states in 1913.
The IRS website has created a shortlist of responses to the claims that we don't need to pay taxes. You can check it out here.
While most of us don't like paying taxes, the 16th Amendment to the United States constitution, allows congress to levy taxes on income. It was ratified by 3/4 of the states in 1913.
The IRS website has created a shortlist of responses to the claims that we don't need to pay taxes. You can check it out here.
Wednesday, May 16, 2007
Farecast Gives You the Best Prices on Airplane Tickets
All I can say is, "wow!" This article at Webware talks about a great website that will help you save money the next time you want to take a trip. The website it called Farecast and provides powerful tools for searching a range of dates, times and airlines in order to find the cheapest acceptable fares.
You can also set a price between two places and it will tell you when the price gets that low. It will also tell you how the price of the ticket will be affected if you change the range of dates by shortening or lengthening your stay. I know I'll be using Farecast in the future!
You can also set a price between two places and it will tell you when the price gets that low. It will also tell you how the price of the ticket will be affected if you change the range of dates by shortening or lengthening your stay. I know I'll be using Farecast in the future!
Thursday, March 22, 2007
Zillow: How Much is Your Home Worth?
I have a stack of things I want to post here at Cashtalk, but I've been quite busy with other commitments. One of the oldest that has been staring me in the face from the cover of "Fortune."
The story is about a neat program that I had looked at a couple of months ago called Zillow. Not only can you search for homes that are for sale, but it offers some unconventional tools as well.
Zillow allows you to virtually look at houses in your area and find out their "zestimate." This is an estimated price based on surrounding sales and closures on houses. You can see what your house is worth, or what price the people you know may have paid for their home or could sell their home for.
There is also an interesting feature called "make me move," which allows you to post the amount you would accept for your house today even though it isn't technically for sale.
You can upload your own data to improve the database. According to the article I read, most of the East and West coast are populated with zestimates. The Midwest and South are slowly catching up, but there isn't as much of a real estate craze there to drive the demand.
Check it out and let me know what you think.
The story is about a neat program that I had looked at a couple of months ago called Zillow. Not only can you search for homes that are for sale, but it offers some unconventional tools as well.
Zillow allows you to virtually look at houses in your area and find out their "zestimate." This is an estimated price based on surrounding sales and closures on houses. You can see what your house is worth, or what price the people you know may have paid for their home or could sell their home for.
There is also an interesting feature called "make me move," which allows you to post the amount you would accept for your house today even though it isn't technically for sale.
You can upload your own data to improve the database. According to the article I read, most of the East and West coast are populated with zestimates. The Midwest and South are slowly catching up, but there isn't as much of a real estate craze there to drive the demand.
Check it out and let me know what you think.
Friday, March 16, 2007
Iowa City One of the 10 Best; Affordable Places to Live
This is a long overdue post, but hopefully it will be the jump-starting of a more regular postings.
This article sent to me by Chiara, talks about 10 locales around the country that offer a low cost of living, good prospects for work and a high quality of life.
Iowa City has made the list and I found the statistics about it quite interesting. It seems around here, everybody is trying to figure out how to revitalize downtown or find out new ways to get people to come work here.
According to the article, we have a 2.7% unemployment rate (4.6% is the national average) and 5-year job growth has been 12.33% compared to 4.9% across the rest of the country.
Read the article and find out if your locale made it to the list!
This article sent to me by Chiara, talks about 10 locales around the country that offer a low cost of living, good prospects for work and a high quality of life.
Iowa City has made the list and I found the statistics about it quite interesting. It seems around here, everybody is trying to figure out how to revitalize downtown or find out new ways to get people to come work here.
According to the article, we have a 2.7% unemployment rate (4.6% is the national average) and 5-year job growth has been 12.33% compared to 4.9% across the rest of the country.
Read the article and find out if your locale made it to the list!
Wednesday, November 29, 2006
A Golden Perspective on the Current Devaluation of the Dollar
A host of dour economic news has caused the dollar to lose a significant portion of its value relative to other world currencies. An interested reader sent me and article he saw which tries to explain the reason why the US dollar is important for world trade and that relationship to the former gold standard which was ended in 1971 by Richard Nixon.
It is an interesting excerpt and I encourage you to read it in order to gain a certain historical perspective on current events.
I can't speak to whether it will be the best $11 dollars you will ever spend, but it might be worth looking into, if these types of historical economic issues have interest for you.
It is an interesting excerpt and I encourage you to read it in order to gain a certain historical perspective on current events.
The Daily Reckoning PRESENTS: 1944's Bretton Woods Agreement had the original intention of smoothing out economic conflict after World War II. Howver, the actual outcome - replacing of the gold standard with the dollar standard - ended up causing far more problems throughout the years, as today's falling dollar will show. Addison Wiggin explores...
BRETTON WOODS
by Addison Wiggin
The year was 1944. For the first time in modern history, an international agreement was reached to govern monetary policy among nations. It was, significantly, a chance to create a stabilizing international currency and ensure monetary stability once and for all. In total, 730 delegates from 44 nations met for three weeks in July that year at a hotel resort in Bretton Woods, New Hampshire.
It was a significant opportunity. But it fell short of what could have been achieved. It was a turning point in monetary history, however.
The result of this international meeting, the Bretton Woods Agreement, had the original purpose of rebuilding after World War II through a series of currency stabilization programs and infrastructure loans to war-ravaged nations. By 1946, the system was in full operation through the newly established International Bank for Reconstruction and Development (IBRD, the World Bank) and the International Monetary Fund (IMF).
What makes the Bretton Woods accords so interesting to us today is the fact that the whole plan for international monetary policy was based on nations agreeing to adhere to a global gold standard. Each country signing the agreement promised to maintain its currency at values within a narrow margin to the value of gold. The IMF was established to facilitate payment imbalances on a temporary basis.
This system worked for 25 years. But it was flawed in its underlying assumptions. By pegging international currency to gold at $35 an ounce, it failed to take into effect the change in gold's actual value since 1934, when the $35 level had been set. The dollar had lost substantial purchasing power during and after World War II, and as European economies built back up, the ever-growing drain on U.S. gold reserves doomed the Bretton Woods Agreement as a permanent, working system.
This problem was described by a former senior vice president of the Federal Reserve Bank of New York:
"From the very beginning, gold was the vulnerable point of the Bretton Woods system. Yet the open-ended gold commitment assumed by the United States government under the Bretton Woods legislation is readily understandable in view of the extraordinary circumstances of the time. At the end of the war, our gold stock amounted to $20 billion, roughly 60 percent of the total of official gold reserves. As late as 1957, United States gold reserves exceeded by a ratio of three to one the total dollar reserves of all the foreign central banks. The dollar bestrode the exchange markets like a colossus."
In 1971, experiencing accelerating depletion of its gold reserves, the United States removed its currency from the gold standard, and Bretton Woods was no longer workable.
In some respects, the ideas behind Bretton Woods were much like an economic United Nations. The combination of the worldwide depression of the 1930s and the Second World War were key in leading so many nations to an economic summit of such magnitude. The opinion of the day was that trade barriers and high costs had caused the worldwide depression, at least in part. Also, during that time it was common practice to use currency devaluation as a means for affecting neighboring countries' imports and reducing payment deficits. Unfortunately, the practice led to
chronic deflation, unemployment, and a reduction in international trade. The lessons learned in the 1930s (but subsequently forgotten by many nations) included a realization that the use of currency as a tactical economic tool invariably causes more problems than it solves.
The situation was summed up well by Cordell Hull, U.S. secretary of state from 1933 through 1944, who wrote:
"Unhampered trade dovetailed with peace; high tariffs, trade barriers, and unfair economic competition, with war... If we could get a freer flow of trade ... so that one country would not be deadly jealous of another and the living standards of all countries might rise, thereby eliminating the economic dissatisfaction that breeds war, we might have a reasonable chance of lasting peace."
Hull's suggestion that war often has an economic root is reasonable given the position of both Germany and Japan in the 1930s. The trade embargo imposed by the United States against Japan, specifically intended to curtail Japanese expansion, may have been a leading cause for Japan's militaristic stance.
Another observer agreed, saying that poor economic relations among nations "inevitably result in economic warfare that will be but a prelude and instigator of military warfare on an even vaster scale."
Bretton Woods had the original intention of smoothing out economic conflict, in recognition of the problems that economic disparity causes. The nations at the meeting knew that these economic problems were at least partly to blame for the war itself, and that economic reform would help to prevent future wars. At that time, the United States was without any doubt the most powerful nation in the world, both militarily and economically. Because the fighting did not take place on U.S. soil, the country built up its industrial might during the war, selling weapons to its allies while
developing its own economic strength. Manufacturing by 1945 was twice the annual rate of 1935-1939.
Due to its economic dominance, the United States held the leadership role at Bretton Woods. It is also important to note that the United States owned 80 percent of the world's gold reserves at the time. So the United States had every motive to agree to the use of the gold standard to organize world currencies and to create and encourage free trade. The gold standard evolved over a period of hundreds of years, planned by a central bank, government, or committee of business leaders.
Throughout most of the nineteenth century, the gold standard dominated currency exchange. Gold created a fixed exchange rate between nations. Money supply was limited to gold reserves, so nations lacking gold were required to borrow money to finance their production and investment.
When the gold standard was in force, it was true that the net sum of trade surplus and deficit came out to zero overall, because accounts were eventually settled in gold - and credit was limited as well. In comparison, in today's fiat money system, it is not gold but credit that determines how much money a country can spend. So instead of economic might being dictated by gold reserves, it is dictated by a country's borrowing power. The trade deficit and the trade surplus are only "in balance" in theory, because the disparity between the two sides is funded with debt.
The pegged rates - the value of currency to the value of gold - maintained sensible economic policy based on a nation's productivity and gold reserves. Following Bretton Woods, the pegged rate was formalized by agreement among the leading economic powers of the world.
The concept was a good one. However, in practice the international currency naturally became the U.S. dollar and other nations pegged their currencies to the dollar rather than to the value of gold. The actual outcome of Bretton Woods was to replace the gold standard with the dollar standard. Once the United States linked the dollar to gold at a value of $35 per ounce, the whole system fell into place, at least for a while. Since the dollar was convertible to gold and other nations pegged their
currencies to the dollar, it created a pseudo-gold standard.
The British economist John Maynard Keynes represented Great Britain at Bretton Woods. Keynes preferred establishing a system that would have encouraged economic growth rather than a gold-pegged system. He favored creation of an international central bank and possibly even a world currency. He proposed that the goal of the conference was "to find a common measure, a common standard, a common rule acceptable to each and not irksome to any."
Keynes' ideas were not accepted. The United States, in its leading economic position, preferred the plan offered by its representative, Harry Dexter White. The U.S. position was intended to create and maintain price stability rather than outright economic growth. As a consequence, Third World progress would be achieved through lending and infrastructure investment through the IMF, which was charged with managing trade deficits to avoid currency devaluation.
In joining the IMF, each country was assigned a trade quota to fund the international effort, budgeted originally at $8.8 billion. Disparity among countries was to be managed through a series of borrowings. A country could borrow from the IMF, which would be acting in fact like a central bank.
The Bretton Woods agreement did not include any provisions for creation of reserves. The presumption was that gold production would be sufficient to continue funding growth and that any short term problems could be resolved through the borrowing regimens.
Anticipating a high volume of demand for such lending in reconstruction efforts after World War II, the Bretton Woods attendees formed the IBRD, providing an additional $10 billion to be paid by member nations. As well-intended an idea as it was, the agreements and institutions that grew from Bretton Woods were not adequate for the economic problems of postwar Europe. The United States was experiencing huge trade surplus years while carrying European war debt. U.S. reserves were huge and growing each year.
By 1947, it became clear that the IMF and IBRD were not going to fix the problems of European postwar economic woes. To help address the issue, the United States set up a system to help finance recovery among European countries. The European Recovery Program (better known as the Marshall Plan) was organized to give grants to countries to rebuild. The problems of European nations, according to Secretary of State George Marshall, "are so much greater than her present ability to pay that she must have substantial help or face economic, social, and political deterioration of
a very grave character."
Between 1948 and 1954, the United States gave 16 Western European nations $17 billion in grants. Believing that former enemies Japan and Germany would provide markets for future U.S. exports, policies were enacted to encourage economic growth. During this period, the Cold War became increasingly worse as the arms race continued. The USSR had signed the Bretton Woods agreement, but it refused to join or participate in the IMF.
Thus, the proposed economic reforms turned into part of the struggle between capitalism and Communism on the world stage.
It became increasingly difficult to maintain the peg of the U.S. dollar to $35-per-ounce gold. An open market in gold continued in London, and crises affected the going value of gold. The conflict between the fixed price of gold between central banks at $35 per ounce and open market value depended on the moment. During the Cuban missile crisis, for example, the open market value of gold was $40 per ounce. The mood among U.S. leaders began moving away from belief in the gold standard.
President Lyndon B. Johnson argued in 1967 that:
"The world supply of gold is insufficient to make the present system workable - particularly as the use of the dollar as a reserve currency is essential to create the required international liquidity to sustain world trade and growth."
By 1968, Johnson had enacted a series of measures designed to curtail the outflow of U.S. gold. Even so, on March 17, 1968, a run on gold closed the London Gold Pool permanently. By this time, it had become clear that maintaining the gold standard under the Bretton Woods configuration was no longer practical. Either the monetary system had to change or the gold standard itself would need to be revised.
During this period, the IMF set up Special Drawing Rights (SDRs) for use as trade between countries. The intention was to create a type of paper gold system, while taking pressure off the United States to continue serving as central banker to the world. However, this did not solve the problem; the depletion of U.S. gold reserves continued until 1971. By that time, the U.S. dollar was overvalued in relation to gold reserves. The United States held only 22 percent gold coverage of foreign reserves by that year. SDRs acted as a basket of key national currencies to facilitate the inevitable trade imbalances.
However, Bretton Woods lacked any effective mechanism for checking reserve growth. Only gold and the U.S. asset were considered seriously as reserves, but gold production was lagging. Accordingly, dollar reserves had to expand to make up the difference in lagging gold availability, causing a growing U.S. current account deficit. The solution, it was hoped, would be the SDR.
While these instruments continue to exist, this long-term effectiveness can only be the subject of speculation. Today SDRs make up about 1 percent of IMF members' nongold reserves, and when in 1971 the United States went off the gold standard, Bretton Woods ceased to function as an effective centralized monetary body. In theory, SDRs - used today on a very limited scale of transactions between the IMF and its members - could function as the beginnings of an international currency. But given the widespread use of the U.S. dollar as the peg for so many currencies worldwide, it is unlikely that such a shift to a new direction will occur before circumstances make it the only choice.
The Bretton Woods system collapsed, partially due to economic expansion in excess of the gold standard's funding abilities on the part of the United States and other member nations. However, the problems of currency systems not pegged to gold lead to economic problems far worse.
Addison Wiggin
The Daily Reckoning
Editor's Note: Addison Wiggin is the editorial director and publisher of The Daily Reckoning. Mr. Wiggin is also the author, with Bill Bonner, of the international bestseller Financial Reckoning Day and the upcoming thriller Empire of Debt. Mr. Wiggin is frequent guest on national radio and television programs.
The above essay was taken from Mr. Wiggin's newly-released book, The Demise of the Dollar...and Why It's Great for Your Investments. To order your copy, please see here:
The Most Important $11 You Will Ever Spend...
http://www.amazon.com/exec/obidos/ASIN/0471746010/dailyreckonin-20/
I can't speak to whether it will be the best $11 dollars you will ever spend, but it might be worth looking into, if these types of historical economic issues have interest for you.
Tuesday, November 28, 2006
More Keeping Up with the Joneses
This is a great opinion article written about a recent book that has come out called, "Green with Envy: Why Keeping Up with the Joneses is Keeping Us in Debt". The book examines many different Americans across different walks of life and discovers how they spend money and what motivates them. It appears that for the most part, envy is the culprit. I'm going to have to see if they have this book at the library.
Remodelling to Sell Your Home (Anytime)
My parents have convinced me to remodel two of my bathrooms and they are willing to assist me with the manual labor when they visit for Christmas. This article points out that whenever you remodel a home, you should plan for the future, whenever that may be and the time you will sell your home (or just re-appraise it to remove the extra equity). The article offers many great suggestions on ways to improve your house, or if you are going to buy a house in the future, things to look for, that won't hurt you when you try and sell the house later.
Some of the great suggestions were to have a well-lit front area. Plant a lot of trees, which will save you money, too. Don't cover up your yard with a deck, but make sure you can see your yard with large windows. Use natural materials like stone when doing landscaping, instead of trendy material, which might not be appealing in the future.
Read the article and let me know what you think!
Some of the great suggestions were to have a well-lit front area. Plant a lot of trees, which will save you money, too. Don't cover up your yard with a deck, but make sure you can see your yard with large windows. Use natural materials like stone when doing landscaping, instead of trendy material, which might not be appealing in the future.
Read the article and let me know what you think!
Top 25 Suburbs According To Businessweek
Businessweek has an article rating 25 suburbs as being affordable, safe, have great education and are within easy driving distance of the perks a major metropolitan area can offer. If you are thinking of moving or are currently looking for a job, consider these sites illustrated by a great slide show!
I should probably mention, of course, that Iowa City and Coralville made the list!
I should probably mention, of course, that Iowa City and Coralville made the list!
Holiday Shopping Tips
Doing Christmas shopping can be stressful and expensive. Compound these with overspending and Christmas often loses some of its traditional cheer. An article at Bankrate.com has 10 tips to try and keep spending under control and yet still have a traditional Christmas filled with pleasant memories rather than two aspirin or two Tums.
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