Money creation

[Rakesh Bhandari]

bodhhi, i don't think US is pursuing a monetarist policy per se any longer.
it's true that as supplier of the key currency, the US has to make certain
that other countries have some reasonable confidence that an inflationary
policy which would devalue their own holdings won't recklessly be pursued.
The US is thus burdened to pay an attractive interest rate aid on assets
denominated in its currency, as Robt Gilpin points out. The liqudity of the
US market is also a confidence builder. I don't think there is any
conspiracy here, the problem remains though that high US interest rates may
drain capital from investments which would be more socially rational,
though not profitable from the point of view of private investors.


>  I think the push
>to get stable currencies abroad has more to do with the globalization of
>manufacturing.

Yes we're going to have to get some understanding of floating exchange
rates, dollarization, currency boards, pegs--and all the other pseudo
solutions to deal with the gradual destruction of ever more volatile money
in these twilight years of capitalism.

As a side note, I don't think US industries are as burdened by a strong
dollar as they used to be. Most of the big firms have overseas operations
and may beenfit from lower production costs compared with their local
competitors. The costs of European and Asian firms/subsidiaries in the US
would have their costs increased too.

Yours, Rakesh