The Energon Pub

Meverix wrote:Skyshadowprimus explained it reeaaal well. Realy getting it.

Can someone explain though all this stuff about the currency getting devalued? How does that happen? I really don't know anything about exchange rates or the 'strength' of a currency over another.

Yeah this actually the real simple part, take good old columbian coffee, the guy in columbia who grows this will have a big customer in the states who buys and packages this onto this end consumers (counterpunch judging by his last topic he created )
Now counterpunch's supplier of say Starbucks will negotiate the deal in their own currency of US dollars and pay mr columbian in said currency.

The columbian will need to exchange this on the foreign market for his local currency of pesos. By doing so he increases the amount of US dollars on the market causing it to be less desirable, and therefore less valued, and in turn decreases the amount of pesos on the market therefore making it harder to obtain thus driving up the value.

Companies who have large natural economic resources such as columbia and coffee (amongst other products) rely on this trade to keep their currency value and place as an economic player.

Factor in a bad US economy, this in turn hits the US consumer's pocket who will buy less starbucks and other treats for himself as he is fearing getting laid off, this will in turn hit the poor old farmer who sells the coffee as his sales are down.

Now while this is a only a small part of the huge picture it still has an effect within what is known as the "butterfly effect" where one small economic mishap will start to affect the world market and it snowballs the further it gets.

Currently the US economy is reeling from the Wars in Iraq and Afganistan and the subprime mortgage debacle has pushed it to the brink where by they have no option but to demand more money from the taxpaper to try to prop up the economy.

Often a short term solution is a rise in interest rates, as this will cause more people to invest in the currency. The worst instance of misjudging this is detailed in the link below

http://en.wikipedia.org/wiki/Black_Wedn ... ders%20Act

skyshadowprimus wrote:The columbian will need to exchange this on the foreign market for his local currency of pesos. By doing so he increases the amount of US dollars on the market causing it to be less desirable, and therefore less valued, and in turn decreases the amount of pesos on the market therefore making it harder to obtain thus driving up the value.

This bit confused me :S

and if the federal reserve, or the bank of england in our case meverix, increase the number of units of currency in the world, then the greater supply of them pushes their price down compared to other things.

Meverix wrote:

skyshadowprimus wrote:The columbian will need to exchange this on the foreign market for his local currency of pesos. By doing so he increases the amount of US dollars on the market causing it to be less desirable, and therefore less valued, and in turn decreases the amount of pesos on the market therefore making it harder to obtain thus driving up the value.

This bit confused me :S

Ok, say every country has 1 million of their own currency, say pounds, dollars, euros etc on the exchange market each with an equal rating.

I want to go on holiday to america for 6 months so I "exchange" £10,000 of my local british currency for the same in US dollars. At the start I should get $10,000 back. But by me doing this there is now £1,010,000 and $9,990,000 on the market causing an imbalance and meaning that anyone who wants to get large amounts of american currency will find it harder so the sellers of it will be able to charge more. This might be due to a new tourist resort in America so say 50 other people do the same as me then the price will go even higher as everyone wants to go to America and pump money into their economy and thus their currency

Tammuz also explained the other side of this with government influence, but the main factor is always economic growth and stability. Unstable markets lead to governments being forced to "prop up" the currency or force its devaluation

The coffee example was close, but swap it for oil and its accurate. One of the factors of the US dollar is that OPEC deals with oil using the dollar. The problem with this is when an US Oil Company buys oil from, say the Saudi's, those dollars spent do not return to the US economy. Now when the mint of the Federal Reserve produces new currency to replace the currency we exported, you now have 2 dollars where there should only be 1. With more currency out in the world, the less its value per unit of currency it becomes.

A prime example of currency failure was post World War 1 Germany. Because of the Treaty of Versailles, Germany was forced to pay the Allies war reprimations. This resulted in large amounts of German currency leaving the country. So, to compensate, the German Government printed more currency for themselves. The problem there was they didn't stop. They printed so much currency that it became worthless. Most of currency's value comes from it's rarity. A good relateable concept is Botcon and Henkei Thundercracker. The rarity made it valuable, but the release of more devalued the originals. Dead horse debate, but it's an applicable comparison.


So, in short, to raise the value of the US dollar, we need to figure out a way to stop exporting so much of our currency (by importing more goods than we export) or quit producing so much currency.

Well said Fenderbender.

There is an easy answer to the financial crisis

Take every stockbroker in the world and send them to fight in the war in Iraq instead of the soldiers...when this is likely fails then simply carbet bomb Iraq and take all the oil

Two birds with but one stone

surely it would just to be easier to use them as an alternative fuel source.... then you don't even have to piss off the iraqis. and can forever be warmed at night by the screaming of stokebrokers over an open fire.

Well, I thought this would be a good time to share something I've stumbled upon.

http://www.youtube.com/watch?v=t_LWQQrpSc4&fed

This explains things perfectly it seems.