Roosevelt made a fatal mistake: the future of the dollar

The future of the dollar remains uncertain

In brief: Dollar exchange rate will depend on state incentive programs of the U.S. economy. Future of the dollar remains in question.

Dollar may fall to a record low by the end of this year. This assumption is expressed most European economists. The exchange rate of the dollar, which is at a high level may fall a few days. The future of the dollar in the hands of China. Franklin Roosevelt made a mistake, but not stimulating the economy through public spending, and listening to the advice advocates reducing the deficit during his second campaign. As a result, the U.S. economy returned to a recession.

The Germans are doing it. The Greeks, the Spaniards and the Portuguese believed that they have no other choice. George Osborne is sure that this is his patriotic duty to the motherland. Politicians around the world feared that the growing levels of debt will leave them to their fate at the mercy of capricious financial markets. Mervyn King delighted to get the idea to return to fiscal conservatism. Just to her was the attitude and the Organization for Economic Cooperation and Development. Two months later, after she urged everyone to support the economy until the full recovery, finance ministers and central banks of several countries Great Twenties approved an immediate reduction of budget deficit. Of course, in many countries, B20 deficiencies are high, but this is due primarily to the effects of severe crisis and deep recession, as well as with the measures taken by some States to prevent a global depression. Now we can say that the second of the Great Depression has been avoided, however, growth rates remain very sluggish in Europe and not impressive in the U.S.. Banks do not issue credit. Unemployment is estimated at double-digit figures for both sides of the Atlantic. The intention to reduce budget deficits in these circumstances is not to suggest that politicians refused to irresponsible spending models 2008 and 2009. It suggests that patients hospitals for the mentally ill have taken power into their own hands.

So, last week, David Cameron called on all tighten their belts. “Nothing so vividly illustrates is not the irresponsibility of the previous government, as the fact that it continued to increase public spending in the face of shrinking economy”, – he said. At that Marshal Auerbek, market analyst, a project participant said New Deal 2.0: “What the state should increase spending when the economy is growing well?” When there is a risk of inflation? “If we’re waiting for such a political inadequacy, the British have no hope, except as the Lord God. ” The government is economically literate people capable premiere hint that he is a dangerous delusion. Vince Cable, one of them. Chris Hahn – Another. Unfortunately, the Liberal Democrats do not want or can not be against the politics has participated, which threatens to repeat the mistakes of Japan in 1990, when barely begun recovery was smothered hasty rejection of incentives.

Let us turn to history. Budget radicals love to quote a draconian budget Geoffrey Howe in 1981, as evidence that the fiscal tightening are combined with economic growth. Indeed. Provided that a revalued razgovorfunta have the opportunity to devaluation, and inflated still have far to fall. Indeed. Provided that the fall in oil prices raises the real incomes of consumers and reduces costs for businesses. In the early 1980′s it was. Now – nothing like this. Pound has already fallen by 25%, long rates are based on the level of 0.5%, while oil prices and not think fall below 70 dollars per barrel. The present situation must be compared not with 1981, but, as noted by the American economist Paul Davidson, with the U.S. in 1937. After moving to the White House in 1933, Franklin Roosevelt used government spending and tax incentives to stimulate the economy. During his first term deficit in the U.S. amounted to 2-5%, however, when the economy started to climb out of a deep pit into which she entered in 1932, the level of national debt rooted to $ 20 billion to 33 billion dollars. Approaching a new presidential election, and Roosevelt listened reasonable economists, who said the same words that we hear from the lips of today’s politicians: U.S. budget deficits have risen to unacceptable levels, they will form a heavy burden on future generations. The budget for 1937 severely curtailed and the economy quickly back into recession. Falling tax revenues, meanwhile, only increased the deficit to 37 billion dollars.

In 1938, deficit-spending resumed and the economy started to grow, but never managed to fully recover until World War II. Opponents of the deficits went away into the shadows, as the military needs overshadowed all other problems. By 1945, the U.S. budget deficit amounted to more than 250 billion dollars, or 120% of GDP. Someone war brought nothing but destruction, and States could make its economy. Production capacity, standing in 30-ies, is now used by 100%, unemployment has disappeared. Thanks to the rapid growth in the 1950 deficit and national debt was reduced. Thus, children born in the late 40′s and early 50′s can not be called miserable generation, buried under a pile of debts. Perhaps this is the happiest generation in history. Now, as in 1937, private demand in most developed countries are not able to support the recovery. Budget deficits are a consequence of high unemployment and low levels of private investment. In addition, they reflect the fiscal surpluses accumulated in the private sector. Consumers fear losing their jobs and left without a source of income. Companies do not tend to invest in development. Thus, in 2006, the deficit in the private sector, the U.S. amounted to 4% of GDP, now it is noted a surplus of $ 8 of GDP. In the UK the same period has shifted from -1% to +10% of GDP. By some estimates, the current world surplus of the private sector is 3.3 billion dollars.

He is balanced by the deficit state. sector, which also amounts to 3.3 billion dollars. In other words, the state compensates for the lack of private demand. These costs do not take irresponsible behavior can not be said about the massive efforts to reduce deficits, despite the complete paralysis of the private sector. If some of the country, trying to reduce deficits in the state. sector, forcing himself into deflation, in other deficits will increase – but even countries with deflation would not be able to achieve significant reduction in the deficit. Why? Because they trigger a new recession, which would reduce tax revenues and increase spending on social benefits. As a result, Europe could begin a protracted recession. So why do they do it? Surely, despite the chatter about Nick Clegg “progressive reduction” is actually on the agenda of the complete destruction of wealth in the country? Or just the opponents of the deficit began manic psychosis? Whatever it was, China, Japan, Eurozone and the UK together bent upon to reduce deficits and stimulate growth of exports. From a logical point of view it is absurd, because someone somewhere has to import the entire export. If these countries believe that the States will once again take over the functions of the buyer of last resort, they are deeply mistaken. Paul Krugman calls this idea “dangerous nonsense”. Issues of public debt is actually valid only for the euro zone countries, which have no possibility to raise the productivity by other means, other than deflation. Bond markets are not panicking about shortages in the UK, U.S. or Germany, but how they react to massive unemployment, protectionism, and political extremism – a rhetorical question.

Ukrainian Globalist
2010-06-27 10:17, Economics.

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