Posts tagged dollar

Data Response – Measuring National Income

1. Explain whether you agree or disagree with each of the following:

(a) You have just read in the news that GDP in your country increased by 4% this year over last year. You therefore conclude that the quantity of output produced increased by 4%.

  • I agree with the statement under the condition that there weren’t any inflation or deflation. If the inflation/deflation rate was 0% that year, the quantity of output has increased by exact 4%. However, if there were inflation/deflation, then the ‘actual’ quantity of output will be different.

(b) In the early 1990s, following the collapse of the Soviet Union, many eastern European and former Soviet Union countries experienced negative net investment for a period of time. This means there was a drop in their stock of capital goods.

  • I disagree with this statement. Negative net investment does not mean that there was a drop in stock of capital goods. Instead, it means that the rate of increase in stock of capital good has dropped.

(c) If a government wants a measure of its population’s income per capita it should use GDP per capita; if it wants a measure of the quantity of output produced per capita it should use GNP per capita.

  • I disagree with this statement. GDP per capita cannot be used to measure the population’s income per capita. They are different index. GDP per capita means the average amount of stuff one can produce and this does not necessarily mean the person’s income. Income per capita could be lower than GDP per capita. For example, you do not earn $10 dollars by selling $10 CD album. Instead, you earn money (income) from the margin. If you spent $5 to make that CD album, then your margin is $5. So the income per capita does not necessarily the same as GDP per capita.
  • If one wants to measure the quantity of output produced per capita then they should use GDP per capita, not GNP per capita.

(d) GDP per capita is a better indicator of a country’s welfare than total GDP, because it calculates the amount of output produced per person in the population.

  • I agree with this statement. Even if a country has $10 trillion as their GDP, like India, lots of people are under abject poverty. India’s GNP, instead, is way lower than its GDP. GNP is a better way of calculating a country’s welfare.

(e) The average American is 12.5 times richer than the average Russian, since US GDP per capita is 12.5 times greater than Russian GDP per capita, based on the dollar–rouble exchange rate. (The rouble is Russia’s national currency.)

  • I agree with this statement. GDP per capita could be used to compare wealth of individuals in two separate countries. However, there is one flaw to GDP per capita. It is the unpredictable exchange rate. If rouble gets weak against a dollar, then GDP per capita of Russia could go lower. In converse, if it gets strong, its GDP per capita will increase. So if two countries had a similar (10-20% difference) of GDP per capita, then it will be hard to compare the individual’s wealth in those countries.

2. Compare and contrast the problems involved in measuring economic growth and measuring economic development. (10 marks)

  • We should be clear in the definitions of two separate economic terms. Economic growth indicates the growth in GDP of a nation, normally, and economic development includes improvement in standard of living. Economic growth can tell you how an economy has grew in a country, however, the economic growth doesn’t necessarily lead to improvement of economic development. To say there was an economic development, there has to be several factors considered: life-expectancy rate, literacy rate, GDP per capita, and more.

3. Explain three possible limitations of using GDP as a measure to compare welfare between countries. (10 Marks)

  • First, nominal GDP’s do not calculate inflation/deflation rate. So, it is limited in comparing welfare between countries.
  • Second, exchange rate could alter the GDP of countries, therefore, it is limited in comparing welfare between two countries.
  • Third, GDP does not include other activities such as illegal drug dealing or NGO activities. This could have large portion of a country’s GDP. For example, the illegal drug dealing has 20% of US GDP.
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Yuan Rise Harmful for Chinese Economy

Yi Xiaozhun says the currency has been turned into a political issue

BBC News: News Article 1, News Article 2

According to BBC News, allowing the yuan to strengthen against the dollar would hurt the Chinese economy in the short-term.

If yuan strengthens against the dollar, the Chinese firms or international firms in China will have difficult time exporting their products to foreign markets. Because Chinese economy and growth is heavily depended on its exports to foreign markets, especially US market, it is resentful toward the appreciation of yuan against US dollar.

The minister Yi Xiaozhun argued that if yuan value rises, the Chinese economy would suffer short-term economic depression. China has already experienced its first ever trade deficit of $7.2bn and if the appreciation of yuan takes place, this trade deficit would be aggravated. Some experts say that this could be a short-term phenomenon due to unplanned importing, however, it could be a serious problem for Chinese economy if yuan appreciates.

In sum, China will suffer economic depression if its currency, yuan, rises against US dollar. Thus, even if United States politically, diplomatically pressures China, China will never give up due to this its pivotal role in Chinese economy.

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Kim Jong-Ill’s Furtive $4bn ‘Emergency Fund’

Kim, Jong-Ill with his gang

The Daily Telegraph: Click Here

According to Telegraph, Kim Jong-il, the Supreme Leader of North Korea, has a $4 billion (£2.6 billion) “emergency fund” hidden in secret accounts in European banks that he will use to continue his lavish way of life if he is forced to flee the country.

South Korean intelligences announced that the most of the money was held in Swiss banks, however, Kim Jong-Ill started to transfer them to banks in Luxembourg.

Most of the money is gained from the selling its nuclear and missile technology, making narcotics, insurance swindle, the use of forced labour in its vast gulag system, and the counterfeiting of foreign currency.

I used to live in Kuwait located across the gulf of Middle East, and I remember lots of North Korean laborers working outside under 45~50° Celsius of heat building roads. At the time I thought that they were rightfully paid. However, I realized now that they were actually being exploited to satisfy the pocket of North Korean dictator Kim Jong-Ill.

Let’s get the question of why these banks are ‘hiding’ this unlawful money for Kim Jong-Ill. Ken Kato, the director of Human Rights in Asia answers this well.

“Somewhere in the world, there are bankers who are earning a large sum of money by concealing and managing Kim Jong-il’s secret funds, and at the same time, almost nine million people in North Korea are suffering from food shortages,” he said. “I believe the secret bank accounts are now in Luxembourg, or have recently been transferred from Luxembourg to other tax havens.”

So what Ken Kato basically say is that these banks are making profit from hiding Kim Jong-Ill’s secret fund. They can invest, speculate, and profit by using this illicit money. This was the case for banks in Swiss also until they strengthened the regulations related to it. The so-called ‘black money’ from dictators around the world has made these banks’ pocket full of money.

Kim Jong-I’ll is surely the cruel traitor of the Korean people. He could have used 4 billion dollars to recover the economy and most importantly he could have used it for feeding 9 million North Koreans who are starving. It really doesn’t take that much of money (looking at Kim Jong-Ill’s pocket full of money) to buy the rice to feed the people.

Let’s look at the international rice price.

Rice Export Prices

(US $/tonne)

Thailand

Vietnam

California

Pakistan

Egypt

332

407

1102

380

760

<The FAO Rice Price Update – January 2010: Click Here>

As you see in the chart above, the cheapest rice you can get is for $332 per one ton of Thailand rice. Okay, lets calculate how much money is needed to feed the poor undernourished North Korean people. According to South Korean standard, people in average eat less than 10 kg of rice per month.  So we are going to assume that the normal nourishment required for North Korean people will be 10 kg per person. $332/1000kg = $3.32/10kg. So it requires 3.32 dollars to feed a person for a month. Multiply 3.32 by the North Korean population. 3.32 x 23,110,000 = 76,725,200.

So you only need about 77 million dollars to feed the starving people. Compare 77 million to 4 billion. It only costs 0.02% of the furtive emergency fund that Kim Jong-I’ll is hiding in those banks in Europe.

Using 0.02% of this ’emergency fund’ to buy food supply will not only save the people from starvation, but also helps them to recover economy significantly. How could this help the North Korea economy to recover? Simply by feeding the people, the factories could operate properly by having nourished labor force. It’ll will also be a great incentive for the laborers to work hard as their standard of living is obviously extremely low. They’d be smiling not with one of those ‘forced, unnatural smiles’ but with genuine smiles of happiness even with meager amounts of rice. (it is sad, however).

Or, he could just sell one of those cruises and he’ll be able to feed millions. He will be forever remembered as a traitor of his people if he keeps billions of dollars rotting in European banks. Also, the banks that are ‘hiding’ Kim Jong-Ill’s money will be difficult for them avoid criticism for letting 9 million people die from starvation. These banks should freeze his unrighteous money and should follow the UN’s economic sanctions on North Korea.

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Debt Time Bomb, Is It an Impending Death of Pax Americana?

<High Public Debt, is it an impeding death of Pax Americana?>

According to U.S. National Debt Clock, United States has approximately 12 trillion dollars of public debt, and the debt is increasing by one hundred-thousand dollars every second. Once I saw this I thought that it was just another phishing website or conspiracy website which tries to fool people with false information. So I thought this specific number was a fake. However, I have mistaken it for a false information. It actually has a data graph from US government’s official website (1).

As you see in the graph, the debt will increase and increase until it is 100% of US’ GDP. It will be not long till it goes over 100%. Now, many people would be seriously concerned about this problem by now. Many people will wonder, “How has the biggest economy in the world got an exponential amount of public debt?” When I have googled this problem, many people posted that the ‘War Against Terrorism’ has caused this. I remember looking at a graph of US public debt skyrocketing right after the year 2001 when the President Bush declared ‘War Against Terrorism.’ Therefore the prolonged exhausting war of Iraq and Afghanistan has certainly been a part of the cause. As the result of these wars, it has debilitated US economy. This could be noticed from the recent news reporting, US dollar fell to 14-year low against the yen.

For this blog post, we will look into following questions about exponentially high public debt: 1) How has US managed this high public debt over 10 years? 2) What is the relationship between this debt and the news “US dollar fell to 14-year low against the yen“? 3) What will happen if US no longer can sustain this burden?

How has United States managed to even ‘function’ as a state with this sky-scrapping public debt? There are several answers to this question. First of all, many countries are ‘giving’ billions of money to United States to support this exponentially high public debt. You might think, “Are those countries stupid enough to give away money to United States for nothing?” However, these countries are obviously not stupid to give away money to United States for nothing. It is because of the inevitable economic structure.

United States has the key currency, dollar, which is used widely around the world to buy, sell, and to settle economic problems. US Dollar is used as official currency or de facto currency in many countries. United States also has the strongest, biggest market in the world. With key currency and strong economy, United States is well trusted in the world. This trust allows US to cover up their public debt by issuing their own security, usually called government bonds. It is a governmental promise that any individual or nation who buys US treasury securities will be payed back in the future.

Basically, United States can borrow money (issue treasury security) based on its credit/trust and pay the debt by this money. So the public debt accumulates as US issue treasury security to countries and repaying the countries with the borrowed money. This creates a ‘vicious circle of public debt.’ Or other might call it ‘the ultimate economic motor that never stops.’ United States is actually enjoying this cycle as they are spending and letting the other countries do the paying.

The countries are in an inevitable structure where they have to buy US treasury. For example, Japan is one of the major foreign holder of US treasury security. Also Japan has the second most US dollar as a foreign country. The reason why Japan bought lots of US treasury security is that Japan’s major exporting country is United States. Japan gets payed in US dollars as they sell their product in US market. However, US manages to ‘take away’ the money by inflating US Dollar. For example, lets say that Japan earned $100 by selling a product in US. However, United States issues another $100 and causes inflation. The $100 Japan earned is now not as valuable as it was before United States issued $100. So Americans are basically spending and spending, and other countries are paying and paying for United State’s spending.

The following is a simplified graph of this accumulation of public debt.

The Pax Americana of spending and spending could come to an end with various factors threatening US economy.

Firstly, US dollar fell to 14-year low against the yen is considerably a big threat. As Japanese Yen has rose and US dollar fell, Japanese exporters are very frustrated as they cannot export their products. So the Japanese government is trying to sell its dollars stored up in the bank to cause depreciation of Japanese Yen. However, if they do this, sharp depreciation of US dollar will occur causing US dollar to value no more than a piece of paper. So the US government is pressuring Japanese government not to intervene in the foreign exchange market.

Counterfeit “Supernote” and the Real Dollar

Secondly, North Korea has printing facilities for printing counterfeit currency called ‘supernote.’ Supernotes are counterfeit currencies that are very difficult to figure out even with latest-technology equipments. Supernotes could be a threat to US dollar’s position as a key currency because it could depreciate the US dollar. I believe that this is the problem that US should be worried about not the nuclear bombs. If North Korea decides to release billions dollar worth of supernotes into foreign exchange market, US dollar will worth nothing in matter of days which is much destructive than the nuclear bomb that North Korea has. If billions of supernotes influx into the foreign exchange market, US dollar will lose its position as a key currency and other currencies such as European Euro or Japanese Yen will replace that position. As US dollar loses its position as a key currency, the United States government would not be able to issue a treasury security to raise the fund.

If United States cannot long sustain the public debt, United States as a nation could go bankrupted. Obviously, United States will not be able to pay the public debt if they cannot issue a treasury security if the dollar loses its position as a key currency. Also there is a possibility of war as World War I and II occurred because of economic reasons.

In conclusion, United States should better stop borrowing money and using the as an economic stimulus package. They should slowly get rid of the deficit spending and adjust their balance in order to decrease exponentially high public debt.

Little Reflection: I personally thought that this blog post was unorganized. I had some understanding of the situation, however, it was not firm nor clear. I actually understood more about the situation as I wrote the blog post. So, I felt this blog post was little bit unorganized in what I wanted to say.

Resource:

(1)GPO Access: US government’s official printing office. It has official data of US budget 2008.

(2) US Department of Treasury: Pie graph about foreign holders of US treasury security

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Comments (9) »

US dollar falls to 14-year low against the yen

BBC News: Click Here

“The US dollar has hit a 14-year low against the Japanese yen with low interest rates in the US making the greenback less attractive to investors.”

According to BBC News, the US dollar has slipped to 86.5 yen. It seemed to have lost its name as ‘world currency.’ With low interest rates and unstable economy within the US, the investors are ditching the US dollars and finidng an alternative (such as Euro, Yen, or gold). This has significantly affected the US dollar to fall. Investors wanted safe, high-profit currency; not low-profit, unstable US Dollar.

While the US Dollar slipped to 86.5 yen, other currencies such as Euro, Yen, or gold have increased dramatically. The price of gold was especially surprising. The price of gold was steadly rising for last 5 years! This significantly increased especially during the last 2 years when there was a global economic recession. Investors wanted more safe investments. So they chose gold.

Yet, I do not think the fall in US dollar is a bad news for US automobile companies or export companies. As the value of US dollar compared to other major currencies has fallen, the exporting companies have gained price advantage over other companies in the country with high currency. Also this will allow companies in the US to gain more control of the domestic market as other companies based on the country with high currency compared to the US dollar will lose a price advantage.

<A terrified Japanese man reluctantly trading US dollars for Japanese Yen>

Japanese exporting companies would be seriously concerned about this situation. As 40% of its economy is based on exporting, it is a serious matter related to the recovery of economic downfall in Japan.

Comments (6) »

Currency Wars by Song Hongbing

화폐전쟁

<Picture: Chinese Book & Korean Translated Book>

Recently I have read a book called Currency Wars written by a Chinese economist Song Hongbing. I first want to say that this book is filled with conspiracy theories and nationalistic ideas. However, the writer has given specific data and reasoning to support his ‘conspiracies’. Therefore I think the book should be called a ‘faction’ book as it is based on truth, however, dramatized too much.

This book overall ‘reveals’ the conspiracy of colossal finance corporations and how they use currency as an instrument of exploiting wealth of people. The book has some of the shocking comments such as ‘Bill Gates isn’t the richest man in the world’ and ‘huge finance corporations are responsible for wars around the world.’ Also, the book raised one’s consciousness about how currency as a weapon can be more destructive than physical weapons.

Rothschild Family:

First of all, the book reveals that the Rothschild family is the richest family with $5 trillion dollars whereas Bill Gates “only” have $40 billion dollars. The Rothschild family’s wealth is 100times the Bill Gate’s wealth. How has this family earned exponential amount of money, and how hasn’t no one noticed about it? This is the mysterious question the author asks. The author then answers that the family’s strict control, accumulated experience in markets, and their endless desire in making ‘financial empire’ across the world made it possible for them to be the richest family in the world. Actually, this family has accumulated its wealth well before 200 years ago starting from England.

The rise of Rothschild family begins in 1815 when the Battle of Waterloo between England and France ignited. At the time, Rothschild family was devoting to bank management. They had international banks around Europe such as Germany, France, and England. The family had vast network of industrial spying agency. Therefore, the Rothschilds had an efficient network for market informations.

<Battle of Waterloo>

When the Battle of Waterloo began, the Rothschilds instantaneously realized that they will earn tremendous amount of money. Many people were betting their whole wealth by buying national bonds of either England or France. If England loses the battle, the national bonds will be worthless. Conversely, if France loses this battle, the price of French national bonds will fall dramatically. Therefore many people were betting their fortunes on the Battle of Waterloo.

At the time, it took days for troops to either report a victory or defeat to the government simply because there weren’t any cars or other efficient means of transportation. The Rothschilds family, using their vast spy network, succeeded in finding out the result of the battle, one day faster than the government. When the Rothschilds family found out that the British has won the battle, Nathan Rothschild (the family’s third son) immediately headed to the stock exchange of England.

Everyone was nervous in the appearance of Nathan Rothschild in the stock exchange. Nathan ordered his agents to sell tremendous amount of British stocks. He ordered one of his agents to shout out false information, “Rothschilds found it out! The British has lost to the French.” People, terrified, struggled to sell their stocks before the price got any lower. The stocks exchange was in chaos. In a minute, the price of national stocks fell to 5% of their original value. The stocks became a worthless piece of paper in a minute. Nathan Rothschild then immediately told his agents to buy all of the stocks.

This was a victory for Rothschild’s family. British government was also victorious in the Battle of Waterloo, however, in a long run they were losers. As Rothschild family seized all of the stocks in England, they seized the right of Bank of England. The family then forced the British government to pay their loan (for a long battle) by tax. So the family was successful in seizing the rights of imposition of taxes.

<The Bank of England>

By seizing the Bank of England, the family of Rothschild exercised power and dominance by controlling the supply of currency. Here are the quotes relating to the dominance of currency.

  • “Money is Power”, or shall we say, “The Monopoly to Create Credit Money and charge interest is Absolute Power”. (Alex James)
  • “Let me issue and control a Nation’s money and I care not who makes its laws”. (Amsel Rothschild)

Like Amsel Rothschild what said, Rothschilds used currency as a mean of exploiting wealth from people with out being noticed.

In the past, gold was used as a mean of currency. Gold has a limited amount of money, and it was perfect in serving as a currency. However, as ‘paper’ currencies came out, it was possible to make infinite amount of money. If you know the common sense of finance, the infinite supplying of currency will cause an inflation. For example, if a person named John has one dollar, it would not worth a dollar after the inflation. As a result, Jon will lose sums of his wealth. Rothschilds used this method in order to exploit wealth from people. They increased the supply of money in order to decrease the wealth of people. Once it has decreased its price, Rothschilds bought the wealth away from people. After they have bought such things as stocks from people, the Rothschilds limited the supply of money. This caused deflation and increased in value or worth of currency. As a result, Rothschilds increased their wealth to tremendous amount.

  • Satirical cartoon protesting against the introduction of paper money, by James Gillray, 1797.

Later on, the Rothschilds used these kinds of methods to manipulate the stocks and gained wealth. They also stirred wars around the world to make profit.

In conclusion, Rothschilds expanded their financial empire by dominating national banks around the world such as Federal Reserves of United States, and etc. Rothschilds with other huge financial corporations caused many economic depressions such as the Japan’s lost decades and 1997 Asian Financial Crisis that affected Korea, Thailand, Malaysia, and etc.

On its rest of the pages, the book illustrated about how finance and currencies operate. Also, it deals with the problem of paper notes as a currency. It also deals with the problem that paper currencies creates problem such as debt being larger than the actual amount of money due to debenture of ‘money earned in the future’.

Through out the book, I did not (or tried not to) believe the claims stated in the book. I knew that some of the stories have been too much dramatized. However, I feared in a sense that this could be a reality because the writer Song Hongbing has given out specific data through out the book, which supporting his claims strongly.

In sum, it was too complicated for a high school student to understand the functionality of currency and finance in the book, however, I think I understood most of the important aspects of currency.

Related Resources:

Article: “Chinese buy into currency war plot”

Wikipedia: Rothschild Family

Wikipedia: Currency Wars

Wikipedia: Fiat Money

2010.5.21 Writer’s Comment

I think that we should not ‘mindlessly’ believe what is written in this book. It’s full of conspiracies, however, the author has given us different point of view and perspectives to how some people think of economics. Majority of the people used to think of economics as a subject of ‘how to earn money.’ But, Song Hongbing introduced us the new perspective of how the economy can be dominated in the way it is described in the book. Remember, it is not entirely comprised of ‘facts.’ Many of the ‘theories’ are based on the ‘reasonable’ assumptions.

2010.10.4 Writer’s Comment

I must admit that comparing the wealth of a family (multiple individuals) and the wealth of ‘an’ individual is somewhat awkward. There could be hundreds of individuals in one family. Therefore, it could be possible that the book was wrong about how Bill Gates is not the richest man in the world. However, doing simple math it could be easily known that there are individuals within the Rothschild family that has more wealth than Bill Gates. For example, 5000billion divided by 100 would equal to 50billion. This would mean that 100 individuals have more wealth than what Bill Gates has (40billion). However, the wealth would not be distributed equally like equal slices of pizzas. The distribution of the wealth within the family will be concentrated in the middle and it disperses to other individuals. So there will be about 10 individuals with 50% of the $4 trillion.

However, I really don’t believe in what the book is saying. I still believe that Bill Gates is the richest man in the world. I’ve just done some calculations to see if it is ‘legitimate’ to compare a group of people to an individual.

Comments (92) »