International balance of trade

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Rasta
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International balance of trade

Post by Rasta » 28 Oct 2011, 14:20

Let's do some thinking here.

Regardless of where we are heading, countries will have to deal with each other on basis of their balance of trade. One country importing more then they export from another country (deficit), will have to pay in one form or another. Currently that is done through exchanging fiat paper, mostly building a "fiat reserve" on the surplus countries.

What is the point of a reserve?
Reading wikipedia's Foreign-exchange reserves, we get some clues: implements monetary policy, implements fixed exchange rate policy, etc. Ultimately, just like gold reserves, you build a reserve that in case you have to rely on it in the future. In anticipation that it will be of benefit to you in the future. Just like the squirrel in the summertim builds a reserve for the winter.

Impact during our race of competitive currency devaluation
If your reserve is diminishing in purchasing power over time, what of that core purpose of the reserve is left? The answer is not much, other then the earlier secondary purpose like allowing for some kind of monetary policy. I suspect that the willingness of building foreign exchange reserves, is decreasing over time, at least measured in relative terms. I think we already see this happening for China; they are slowly but surely reducing their exposure to US treasury bills. It begs the following question:

What will be done to settle the balance of trade?
The answer is straight forward: surplus countries unwilling to accept IOU's as collateral, will have to import more goods, export less, or a combination of both. On the reverse side: deficit countries facing unwilling nations to settle in IOU's, will have import less, export more, or a combination of both.

Note: this has nothing to do with Another/Foa/Armstrong. This is plain simple logic. Or at least it should be.

Now, let's brainstorm on how we can apply currencies in this mix - forget for a second gold - and let's see the impact on a currency, if being forced from unbalanced trade (deficit/surplus) to a balanced trade.
Eventually there will be an awakening, a balancing of the scales and a bill to be paid, and for that I hold gold - Jim Sinclair


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Paul
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Re: International balance of trade

Post by Paul » 28 Oct 2011, 17:10

Rasta wrote:Let's do some thinking here.

Regardless of where we are heading, countries will have to deal with each other on basis of their balance of trade. One country importing more then they export from another country (deficit), will have to pay in one form or another. Currently that is done through exchanging fiat paper, mostly building a "fiat reserve" on the surplus countries.

What is the point of a reserve?
Reading wikipedia's Foreign-exchange reserves, we get some clues: implements monetary policy, implements fixed exchange rate policy, etc. Ultimately, just like gold reserves, you build a reserve that in case you have to rely on it in the future. In anticipation that it will be of benefit to you in the future. Just like the squirrel in the summertim builds a reserve for the winter.

Impact during our race of competitive currency devaluation
If your reserve is diminishing in purchasing power over time, what of that core purpose of the reserve is left? The answer is not much, other then the earlier secondary purpose like allowing for some kind of monetary policy. I suspect that the willingness of building foreign exchange reserves, is decreasing over time, at least measured in relative terms. I think we already see this happening for China; they are slowly but surely reducing their exposure to US treasury bills. It begs the following question:

What will be done to settle the balance of trade?
The answer is straight forward: surplus countries unwilling to accept IOU's as collateral, will have to import more goods, export less, or a combination of both. On the reverse side: deficit countries facing unwilling nations to settle in IOU's, will have import less, export more, or a combination of both.

Note: this has nothing to do with Another/Foa/Armstrong. This is plain simple logic. Or at least it should be.

Now, let's brainstorm on how we can apply currencies in this mix - forget for a second gold - and let's see the impact on a currency, if being forced from unbalanced trade (deficit/surplus) to a balanced trade.
good idea,
it is a good way to see/show how monetary systems really function
will post when I have more time ...
"Taxes are a barbaric relic of the past"

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Boefke
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Re: International balance of trade

Post by Boefke » 29 Oct 2011, 09:55

Rasta wrote:Let's do some thinking here.

Now, let's brainstorm on how we can apply currencies in this mix - forget for a second gold - and let's see the impact on a currency, if being forced from unbalanced trade (deficit/surplus) to a balanced trade.
Like it's done in this monetary system we're dealing with now?

Nowadays it is done this way. When a country runs a deficit it is importing more value than exporting. To keep this deficit intact it is necessary to lend money from other country's. As long as the lenders are okay with country 1 running a deficit, nothing is wrong. But, the lenders won't play this game forever. When they want their loans to be repaid.....

Country 1 is now in the spotlight and like ever, this country isn't able to pay back all the debts. Quite often the currency of country 1 is depreciated, and so the lender will loose a part of the value of his loan. The consequence of the depreciation for country 1 is that the goods from abroad are going to be more expensive. In this way the imports will decrease, and the export will increase as the goods of country 1 are going to be cheaper for others.

But here is in my opinion the problem. The prices of currency's is measured against each other. So when all currency's are depreciating, how is this to measure? Floating value against floating value........what's the REAL value than? Impossible to know IMO. There needs to be a focus point. A reference point, against all currency's will be priced......

And so the circle is round again :lol:

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Paul
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Re: International balance of trade

Post by Paul » 29 Oct 2011, 11:08

There simply can not be a tangible reference point for value !
Value is not stable. Ever. When everything moves all the time, then the value will also !

To use gold (again) for this, is doing the same thing all over again (insanity indeed)
Gold can not value gold. Value is an endless game of relativity with everything all of the time.
Free floating currencies can deal with this because they are elastic.

The problems with money through history are always in the issuer. Gold could NEVER do anything to prevent this.
When we want to solve this, and take a real step forward we will have to question how we prevent the mismanagement of the money without giving up the elasticity of the system. This is just procedure and can be done when collective need is there. It is no different than writing good software.

To look for gold for value is to look for aether for light !
Relativity is a bitch ...
Last edited by Paul on 29 Oct 2011, 11:33, edited 1 time in total.
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Rasta
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Re: International balance of trade

Post by Rasta » 29 Oct 2011, 11:33

Boefke wrote:....

But here is in my opinion the problem. The prices of currency's is measured against each other. So when all currency's are depreciating, how is this to measure? Floating value against floating value........what's the REAL value than? Impossible to know IMO. There needs to be a focus point. A reference point, against all currency's will be priced......

....
What are you trying to achieve in the end? That is a balanced trade. So forget gold, even forget currencies. In the end, you want to have everything settled. Talking about goods and services being exchanged, of course that value it fluctuating. It is in the first place that goods and services move across nations, as they are perceived differently in value. Gasoline in Saudi Arabia or Iran is valued different then Gasoline in Switzerland.

Arguably, this is never possible to measure, as value is a sliding scale. The marginal utility. Simply said, the first water well you dig in a desert is invaluable. The second is worth quite a lot, but if you dig a third, fourth and so on, then the value of each new well will be worth (valued) less then the previous one.

All of the goods and services are accounted for in the unit of account of a currency block, so finally we will calculate in that currency, but settle in goods and services. Now let's think of the implications it has to [that block's] currency.
Eventually there will be an awakening, a balancing of the scales and a bill to be paid, and for that I hold gold - Jim Sinclair

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Paul
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Re: International balance of trade

Post by Paul » 29 Oct 2011, 11:37

Rasta wrote: What are you trying to achieve in the end? That is a balanced trade. So forget gold, even forget currencies. In the end, you want to have everything settled. Talking about goods and services being exchanged, of course that value it fluctuating. It is in the first place that goods and services move across nations, as they are perceived differently in value. Gasoline in Saudi Arabia or Iran is valued different then Gasoline in Switzerland.

Arguably, this is never possible to measure, as value is a sliding scale. The marginal utility. Simply said, the first water well you dig in a desert is invaluable. The second is worth quite a lot, but if you dig a third, fourth and so on, then the value of each new well will be worth (valued) less then the previous one.

All of the goods and services are accounted for in the unit of account of a currency block, so finally we will calculate in that currency, but settle in goods and services. Now let's think of the implications it has to [that block's] currency.
I agree
This is where the uniform UoA gets important.
That's why international trade will always choose it's reserve currency (despite all it's practical problems) when there is no collective one facillitated
Last edited by Paul on 29 Oct 2011, 11:43, edited 1 time in total.
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Boefke
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Re: International balance of trade

Post by Boefke » 29 Oct 2011, 11:43

Rasta wrote:
Boefke wrote:....

But here is in my opinion the problem. The prices of currency's is measured against each other. So when all currency's are depreciating, how is this to measure? Floating value against floating value........what's the REAL value than? Impossible to know IMO. There needs to be a focus point. A reference point, against all currency's will be priced......

....
What are you trying to achieve in the end? That is a balanced trade. So forget gold, even forget currencies. In the end, you want to have everything settled. Talking about goods and services being exchanged, of course that value it fluctuating. It is in the first place that goods and services move across nations, as they are perceived differently in value. Gasoline in Saudi Arabia or Iran is valued different then Gasoline in Switzerland.

Arguably, this is never possible to measure, as value is a sliding scale. The marginal utility. Simply said, the first water well you dig in a desert is invaluable. The second is worth quite a lot, but if you dig a third, fourth and so on, then the value of each new well will be worth (valued) less then the previous one.

All of the goods and services are accounted for in the unit of account of a currency block, so finally we will calculate in that currency, but settle in goods and services. Now let's think of the implications it has to [that block's] currency.
It is impossible to get a balanced trade. Never was, never will been. Why do you want to achieve a balanced trade? isn't it much better for the long term to achieve a bit of a surplus? So I hardly understood your question in the beginning, and now it isn't becoming more clear to me. So please tell me the problem, because I don't see where you want to go here.....

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Paul
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Re: International balance of trade

Post by Paul » 29 Oct 2011, 11:46

Boefke wrote:
Rasta wrote:
Boefke wrote:....

But here is in my opinion the problem. The prices of currency's is measured against each other. So when all currency's are depreciating, how is this to measure? Floating value against floating value........what's the REAL value than? Impossible to know IMO. There needs to be a focus point. A reference point, against all currency's will be priced......

....
What are you trying to achieve in the end? That is a balanced trade. So forget gold, even forget currencies. In the end, you want to have everything settled. Talking about goods and services being exchanged, of course that value it fluctuating. It is in the first place that goods and services move across nations, as they are perceived differently in value. Gasoline in Saudi Arabia or Iran is valued different then Gasoline in Switzerland.

Arguably, this is never possible to measure, as value is a sliding scale. The marginal utility. Simply said, the first water well you dig in a desert is invaluable. The second is worth quite a lot, but if you dig a third, fourth and so on, then the value of each new well will be worth (valued) less then the previous one.

All of the goods and services are accounted for in the unit of account of a currency block, so finally we will calculate in that currency, but settle in goods and services. Now let's think of the implications it has to [that block's] currency.
It is impossible to get a balanced trade. Never was, never will been. Why do you want to achieve a balanced trade? isn't it much better for the long term to achieve a bit of a surplus? So I hardly understood your question in the beginning, and now it isn't becoming more clear to me. So please tell me the problem, because I don't see where you want to go here.....
It is impossible NOT to boefke, this is a zero sum game here,
This is THE reason we have all those financial crisis and panics all through history to begin with ...
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Boefke
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@ Paul

Post by Boefke » 29 Oct 2011, 11:57

So your theory is all about reaching the perfect system.

In that case, sleep well.....we will never reach that.
Why not?
History has proven people always tend to make the same mistakes....over and over again.

We're trying to think about our next monetary system (which will not be perfect in the end, I guess), and not about a system that isn't going to be implemented anyway.

And than you talking about GI being an old record.....omg.

Don't know what it is Paul, but I don't feel comfortable with your discussions. I better leave it here, as this is never going to change....

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Rasta
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Re: International balance of trade

Post by Rasta » 29 Oct 2011, 12:28

Boefke wrote:It is impossible to get a balanced trade. Never was, never will been. Why do you want to achieve a balanced trade? isn't it much better for the long term to achieve a bit of a surplus? So I hardly understood your question in the beginning, and now it isn't becoming more clear to me. So please tell me the problem, because I don't see where you want to go here.....
You are moving too fast, and are 1 step ahead. There is nothing wrong with an imbalance, and from my question "why are you building a reserve", we just can look at the Chinese, who are buying all the resources in Africa they can get their hands on. For them, part of their reserves are the strategic stockpiles of raw materials, and access to those mines in the future. So the Chinese are trying to balance, by buying raw materials and ownership of mines (besides buying US government bonds today). So I was rather interested what it would mean to [the value of] the currency itself.
Eventually there will be an awakening, a balancing of the scales and a bill to be paid, and for that I hold gold - Jim Sinclair

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