Devaluation is austerity done right • Hacker News Board

Re: Devaluation is austerity done right

#11

Post by digitalengineer » Thu, Jun 14, 2012, 12:59 PM UTC

Not correct, this is helping the debtors (like our government) while extremely hurting the savers, people on fixed income, people with a pension and low income. As most western-european countries import more than they export (especially energy and food, when their currency goes down, what they can afford to import goes down as well.

What we're seeing and why the $ and € don't fluctuate much (even though Europe is in such a mess) is both Europe and the US (and all the others) are devaluing their currency one after another. It's called Currency Wars: "Currency wars are one of the most destructive and feared outcomes in international economics. At best, they offer the sorry spectacle of countries' stealing growth from their trading partners. At worst, they degenerate into sequential bouts of inflation, recession, retaliation, and sometimes actual violence. Left unchecked, the next currency war could lead to a crisis worse than the panic of 2008. http://www.amazon.com/Currency-Wars-Making-Global-Portfolio/...

Here's a nice video explaining it using a comic from the '50's! http://www.youtube.com/watch?v=bFxvy9XyUtg

Re: Devaluation is austerity done right

#12

Post by bornhuetter » Thu, Jun 14, 2012, 1:09 PM UTC

raverbashing wrote: post #9

bahadden wrote: post #5

Earlier quoted context omitted.

Devaluation is the easiest solution from a political point of view, but it is basically a transfer of value from those with savings/creditors to those in debt (including all of us with large credit card debts and mortgages). It punishes the careful savers and rewards the profligate, and sends a signal that living high on credit is good, while those that save and live within their means are idiots.

And that's exactly why I disagree devaluation is good It's the coward solution, and if you're not gonna pay 100% of the owed value, just do that instead of making old money worth more than new money.

Are you arguing that it's actually ineffective, or just that it's not gentlemanly toward foreign investors?

Re: Devaluation is austerity done right

#13

Post by bornhuetter » Thu, Jun 14, 2012, 1:19 PM UTC

bahadden wrote: post #8

bornhuetter wrote: post #6

Earlier quoted context omitted.

Are you talking about currency devaluation, or price inflation? EDIT: also, are you referring to people who have their savings in cash, or investments?

Good point. I'm actually talking about inflation. I'd assume devaluation usually leads to inflation, especially if we buy a lot of imported goods (we do), but it ain't necessarily the case.

Foreign goods would become more expensive, and local goods would remain relatively unaffected (at least in theory).

People would be less likely to take their money out of the country. Foreigners would be more likely to invest.

If as a saver you invest in local businesses and property, you should do well for yourself.

Re: Devaluation is austerity done right

#14

Post by TimGebhardt » Thu, Jun 14, 2012, 1:36 PM UTC

bahadden wrote: post #5

bornhuetter wrote: post #4

Earlier quoted context omitted.

Because like it or not, a lot of the money is simply gone. Sure we need better regulated financial markets and less corruption in politics and the media, but in the mean time something needs to be done to get economies back on track. Increasing taxes on "the rich" and companies are good to some extent, but they will only take you so far. The kind of austerity that involves taking away allowances and tax credits for t…

Devaluation is the easiest solution from a political point of view, but it is basically a transfer of value from those with savings/creditors to those in debt (including all of us with large credit card debts and mortgages). It punishes the careful savers and rewards the profligate, and sends a signal that living high on credit is good, while those that save and live within their means are idiots.

More specifically, it punishes the savers who have their saved wealth in cash. Those that store their wealth in productive assets, like ownership in a company or real estate, are free to raise prices to keep track with or even exceed the rate of inflation.

Then you can take it one step further: If you indebted in cash or cash equivalents to buy productive assets you get to double-dip: your debt gets reduced by inflation and your productive assets aren't any less productive and their income/growth will adjust. Your overall buying power will greatly increase.

Re: Devaluation is austerity done right

#15

Post by wazoox » Thu, Jun 14, 2012, 1:50 PM UTC

bahadden wrote: post #5

bornhuetter wrote: post #4

Earlier quoted context omitted.

Because like it or not, a lot of the money is simply gone. Sure we need better regulated financial markets and less corruption in politics and the media, but in the mean time something needs to be done to get economies back on track. Increasing taxes on "the rich" and companies are good to some extent, but they will only take you so far. The kind of austerity that involves taking away allowances and tax credits for t…

Devaluation is the easiest solution from a political point of view, but it is basically a transfer of value from those with savings/creditors to those in debt (including all of us with large credit card debts and mortgages). It punishes the careful savers and rewards the profligate, and sends a signal that living high on credit is good, while those that save and live within their means are idiots.

> it is basically a transfer of value from those with savings/creditors to those in debt

So it's a transfer from the rich to the poor. It looks just right.

Re: Devaluation is austerity done right

#16

Post by marvin » Thu, Jun 14, 2012, 1:51 PM UTC

raverbashing wrote: post #9

bahadden wrote: post #5

Earlier quoted context omitted.

Devaluation is the easiest solution from a political point of view, but it is basically a transfer of value from those with savings/creditors to those in debt (including all of us with large credit card debts and mortgages). It punishes the careful savers and rewards the profligate, and sends a signal that living high on credit is good, while those that save and live within their means are idiots.

And that's exactly why I disagree devaluation is good It's the coward solution, and if you're not gonna pay 100% of the owed value, just do that instead of making old money worth more than new money.

    It's the coward solution

What would be a better solution? At least _someone_ is not going to get their money back. You could take as much as you could by force, but I don't see that that would solve anything...

Re: Devaluation is austerity done right

#17

Post by Shivetya » Thu, Jun 14, 2012, 1:53 PM UTC

and for whom does he propose this solution? Devaluation will only help countries who have their own currency, countries which bought into the Euro gave up that option and are nearly wholly dependent on more fiscally responsible member countries to bail them out.

Yet those countries are not obligated to do so. In the good old days of having your own currency you would just soak your own populace and foreign investors. With a joint currency your attempting to soak another countries people as a whole and that idea is not palatable to many.

Then there is this whole term of austerity. It certainly doesn't mean what it used too. Most of those countries whom activist and wanna be economist claim are being harmed by austerity are in fact being harmed by still increasing government spending.

Apparently austerity now means not spending as fast as before but it certainly does not mean spending less.

Re: Devaluation is austerity done right

#18

Post by planetguy » Thu, Jun 14, 2012, 2:01 PM UTC

bornhuetter wrote: post #12

raverbashing wrote: post #9

Earlier quoted context omitted.

And that's exactly why I disagree devaluation is good It's the coward solution, and if you're not gonna pay 100% of the owed value, just do that instead of making old money worth more than new money.

Are you arguing that it's actually ineffective, or just that it's not gentlemanly toward foreign investors?

Well, it's not gentlemanly towards anyone, particularly savers in your own country.

Suppose I'm a retired gentleman in Ruritania with one million Ruritanian rurs in the bank. The King of Ruritania has got himself into some deep debt problems with foreign creditors due to his addiction to racing and eating greyhounds. He can either say:

a) "Guess what? I'm only going to pay back 10% of my debts! Suck it, creditors!", or

b) "Ohhhh, suuure, I'll pay back all my debts. Oh, did I mention that a Ruritanian rur henceforth has one tenth the value it used to? Heh, cool."

In the latter case my savings are completely wiped out, as are the savings of everyone else in Ruritania [while mortgageholders suddenly become very rich]. In the former case, while there'll probably be some damage to the currency my savings aren't affected so badly.

Re: Devaluation is austerity done right

#19

Post by ams6110 » Thu, Jun 14, 2012, 2:05 PM UTC

bornhuetter wrote: post #13

bahadden wrote: post #8

Earlier quoted context omitted.

Good point. I'm actually talking about inflation. I'd assume devaluation usually leads to inflation, especially if we buy a lot of imported goods (we do), but it ain't necessarily the case.

Foreign goods would become more expensive, and local goods would remain relatively unaffected (at least in theory). People would be less likely to take their money out of the country. Foreigners would be more likely to invest. If as a saver you invest in local businesses and property, you should do well for yourself.

Almost all our goods except food are foreign or made of foreign-made components, or are commodities traded on the world market.

Re: Devaluation is austerity done right

#20

Post by planetguy » Thu, Jun 14, 2012, 2:06 PM UTC

bornhuetter wrote: post #4

givan wrote: post #3

Why should everyone pay for the speculators?

Because like it or not, a lot of the money is simply gone. Sure we need better regulated financial markets and less corruption in politics and the media, but in the mean time something needs to be done to get economies back on track. Increasing taxes on "the rich" and companies are good to some extent, but they will only take you so far. The kind of austerity that involves taking away allowances and tax credits for t…

"The kind of austerity that involves taking away allowances and tax credits for the poor and middle classes is idiotic"

No, the kind of profiligacy that allows the existence of allowances and tax credits for the poor and middle classes is idiotic.

The poor are a different argument, but there's no way the middle classes should be dependent upon government welfare. Let the middle classes earn their own money and pay a modest share in taxes, not become welfare recipients themselves.

Every European country has a lot of government spending and employees and programs that they need to eliminate, first, before they think about raising taxes.