Sunday, 16 November 2014

The biggest and most widespread myth in economics today.

The myth ?  That a devalued currency is good for exports. It is all the rage these days. It is  a Keynesian tenet so that should tell you something. Everything about mainstream Keynesianism is complete and total nonsense.

Here are a few reasons why it is a fallacy.

- A low value currency makes raw commodity imports more expensive
- A low value currency makes the acquisition of capital goods like plants and machinery more expensive
- A low value currency makes it more expensive to maintain modern plants and machinery.
- A low value currency makes it more expensive to hire and retain technically savvy employees to manage and maintain plants and machinery. (brain drain)

Can a Keynesian please explain to me what is happening in this chart ?

 Shouldn't German exports be collapsing as the Euro rockets from .85 to 1.50 in less then 10 years ?

What about the USD ?

And what was happening to the USD as the trade deficit got bigger and bigger ? Dollar must have been rising according to the Keynesians.


  1. M, did you catch that ECB announcement about asset purchases?

    A preview of the endgame. It's all in Ben's 2002 speech. Amazing.

  2. Yeah I seen that. I don't really know what to think.

    The thing is though, all Draghi does is talk. The Germans will probably keep him in check. They won't allow QE. The ECB continues this closet Austrian stance.

  3. What you're saying is completely true. I know that everybody must say the same thing, but I just think that you put it in a way that everyone can understand. I'm sure you'll reach so many people with what you've got to say.

    1. Thanks for the good words.

    2. Good points, but Euro is reflection of all countries in EU. PIIGS are 'dragging' euro down, Germany up. Germany's exports are benefiting with lower Euro than it would otherwise be if Germany was not part of EU. Competitiveness of PIIGS exports is not as great as Germany's. My understanding is this is one of the ways how 'rich' EU countries are fucking periphery. 'Keynesian' reasoning?

    3. Paging Eliot Laurence Spitzer. I was hoping for at least a warm up kick from you... Nothing?

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