Most people know that Americans benefit from high taxes, powerful unions, limited consumer choice, and strong government control. But most people lack the training to fully understand why we derive benefits from these policies, and why government control over public anything results in unsurpassable quality. To remedy your "knowledge deficit" you can ask us any question you choose, and it will be explained by the legendary Professor Paul Krugman in a language that you can understand. From the evils of profiteering, corporatism, and economic exploitation to the rewards of regulation, social justice, and community/stakeholder involvement, Professor Krugman will use his agile mind to clarify the otherwise intimidating field of economics.

Economics Primer 10: Currency

User avatar
Currency is the medium by which transactions are conducted. Therefore, without currency, there would be no transactions.

Let's take a closer look at what currency is, and what it does. First, what would the world be like without currency? Well, we don't have to guess -- instead, let's examine how people without currency actually behave.

But who doesn't have currency? Well, small children tearing at each other's throats in the playground, and hospital patients on the verge of death come to mind. And of course, feral animals living in the wild. That is a world without currency: Violent, deadly, and purposeless. Especially in The United States, the country with the most violent, unsophisticated, and untrustworthy people.

Fortunately, the government recognized this problem long ago, and chose to create coins -- the very basis of out modern currency systems. As a result, transactions became possible. Why? Because coins made of silver and gold are valuable, and people were willing to give things up to obtain coins.

Coins were eventually supplemented with paper "notes". These notes could be traded in for gold and silver -- making the notes valuable, and thereby encouraging people to work for paper notes.

And then, it was discovered that paper itself has intrinsic value, so there was no longer any need to redeem notes in silver and gold. Instead, people realized that paper stamped "ten dollars" was worth ten times as much as paper stamped "one dollar" -- and they would therefore try much harder to get paper stamped with high denominations.

These days, technology has made us realize that electronic displays at ATMs have even more value -- and the very shape of electronic characters momentarily displaying "$100" is worth much more than a display of "$10".

Now, other countries also have currencies. They range from the height of value and sophistication as expressed in the Euro, to primitive yet highly complex systems of sticks and beads -- as used by noble indigenous peoples throughout the world.

These currencies often cross borders. For instance, when Wal-Mart whores itself to purchase Chinese products, it sends "dollars" to China. At that point, the Chinese can convert "dollars" into their local currency of "yuan". This conversion process requires an "exchange rate" that will determine how many yuan a dollar can buy.

Exchange rates are usually determined by foreign exchange markets. Normally, the dollar's value declines; i.e., the weak dollar becomes even weaker. This is very bad because a weak dollar will buy nothing. But sometimes, the dollar gains value. This is also very bad because no other currency will be able to buy anything in America. In short, there is a perpetual and irreversible currency crisis, which I have been predicting for decades.

So, when the Chinese convert their dollars to yuan, it will be bad news no matter what the exchange rate is. But the Chinese can choose to not convert their dollars; i.e., they can use their dollars to buy things in the United States. This is also bad news because it means that the Chinese will own America. In fact, this has already happened. The Chinese have used American currency to own us, just like the Japanese used to. The alternative, of course, is also bad news: If the Chinese hoard dollars (and neither convert nor spend them), then there will be A) A catastrophic dollar shortage, and B) Local businesses will be driven into bankruptcy by the unfair Chinese competition -- all because of Wal-Mart.

Let's summarize: There is no good news, and there never will be any. Currencies are what civilization demands, but Americans have brought inevitable and irreversible currency crises upon themselves because of their greed and short-sightedness. No matter what happens, they are to blame.

User avatar
Dear Dr. Kurgman, Ph.D.[sup3[/sup],

Thank you for coming to Japan recently and suggesting Japan get the inflation going to revitalize its economy. Our politicians seem, on TV, to be leaping slavishly at your suggestions, as they should.

I'm betting you get Ph.D.4 out of this, only from a Japanese university. How multicultural! That could only raise your prog level!