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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Archive for June 20th, 2010

Professor Bill Mitchell on inflation

Posted by WARREN MOSLER on 20th June 2010

Zimbabwe for hyperventilators 101

A very good read. Today’s hyper inflation fears due to ‘money printing’ are pure fear mongering.

My comment to Bill in support of his article:

Russia in 1998 is an example of how much the flat earth economists are wrong in what determines the value of a currency

Russia had a fixed fx rate of 6.45 rubles to the US dollar going into the August crisis.

At the end, rates on gko’s went to over 200% until there was no interest rate where holders of rubles did not want to cash them in at the CB for dollars. Dollar reserves were depleted, and no more dollars could be borrowed to support the currency.

Instead of simply floating the ruble and suspending conversion the CB simply shut down the payments system and the employees all walked out the door.

It was several months before the payments system was restarted.

There was no confidence, no faith, and no expectations of anything good happening.

The ruble went from 6.45 to about 28 or so in what has turned out to be a one time adjustment.

There was no hyper inflation, and not even much inflation as per Bill above, just a one time adjustment.

Pretty much the same for Mexico when it’s fixed fx regime blew up in the mid 90′s. The peso went from about 3.5 to 10 in a one time adjustment.

These are two examples of stress far in excess of whatever the US, Uk, and Japan could possibly face, yet with no actual inflationary consequences, as defined.

Posted in Currencies, Deficit, Inflation | 8 Comments »

China Yuan Pledge Suggests Peg to Dollar May Go

Posted by WARREN MOSLER on 20th June 2010

Reads to me like they don’t like the yuan strength vs the euro which means it could weaken vs the dollar if they buy euro instead of dollars as suggested below:

China Yuan Pledge Suggests Peg to Dollar May Go

June 19 (Bloomberg) — China’s central bank said it will allow a more flexible yuan after the nation cemented its economic recovery, indicating the currency’s 23-month- old peg to the dollar may be scrapped.

The yuan’s 0.5 percent daily trading band will remain unaltered, the central bank said in a statement on its website today.

“The central bank’s statement means China’s exit from the dollar peg,” saidZhao Qingming, an analyst at China Construction Bank in Beijing. “If the euro continues to remain weak, it could also mean that the yuan may depreciate against the dollar.”

Allowing the yuan to strengthen may curb inflation by reducing the cost of imported goods and limit the need for central bank dollar buying, which has left the nation with $2.4 trillion in currency reserves. A stronger Chinese currency may also help avert a trade war after U.S. lawmakers urged President Barack Obama to use the threat of trade sanctions to force a policy change.

“The global economy is gradually recovering,” the central bank said today. “The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability. It is desirable to proceed further with reform of the renminbi exchange rate regime and increase the renminbi exchange rate flexibility.”

The central bank was using another word for the yuan. The currency has been trading at about 6.83 per dollar since July 2008.

Posted in BRIC, China, Currencies | 5 Comments »