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Why Does Fiat Money Seemingly Work?
Why Does Fiat Money Seemingly Work?
Introducing Money
Imagine three men living on a small island. Toni is mining the local salt mine, and apart from him there are Pete the fisherman and Tom the apple grower and their families. They have a barter trading system set up: Toni exchanges his salt for Pete’s fishes and Tom’s apples, who in turn exchange fishes and apples between each other.
One day Pete says: “I have an idea. Instead of fish, I will from now on give you pieces of papyrus with numbers marked on them”. Papyrus grows in great quantities nearby, but has so far not been of practical use to any of the islanders. Pete continues: “One papyrus mark will represent 1 fish or 5 apples or 2 bags of salt (equivalent to current barter exchange rates). This will make it easier for us to trade among ourselves. We won’t have to lug fishes, apples and salt around all the time. Instead, we can simply present the pieces of papyrus to each other for exchange on demand.”
In short, Pete wants to modernize their little island economy by introducing money – and he already has one of those new papyrus notes with him, which he is eager to trade for salt. However, the others would immediately realize that there is a problem: the papyrus per se is not of any value, since none of them have found a use for it as yet. If they were all to agree on using the papyrus as a medium of exchange, its value would rest on a promise alone – Pete’s promise that any papyrus he issues will actually be “backed” by fish, which would make Toni and Tom willing to accept it in exchange for salt and apples.
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Russia And China’s Growing Energy Relationship
Russia And China’s Growing Energy Relationship
Russia’s economic freefall and isolation from the West has made it increasingly eager to build its relationship with China, even at the cost of lost leverage with Beijing.
But new economic data from China shows that Russia has succeeded in capturing a larger share of the massive – and growing – Chinese oil import market. China’s imports of Russian oil skyrocketed by 36 percent in 2014. The rapid rise in Russian oil exports to China is displacing other sources, such as Saudi Arabia and other OPEC members. The Wall Street Journal reports that China’s oil imports from Saudi Arabia fell 8 percent in 2014, and imports from Venezuela fell 11 percent.
The data suggests that Russia and China are finally forging closer trade ties based on energy. They share a massive border, but have been unable to capitalize on what has long appeared to be a well-matched economic opportunity – Russia is a huge energy producer and China is the world’s largest importer of petroleum products. Historic animosity and mutual suspicion had long left a major deal off the table.
The sticking point had been price. Years of negotiations over major natural gas trade stalled as each side held out for more favorable terms.
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Europe Gets Cold Feet on “TTIP,” Americans Should Too, But Obama Needs it for his Legacy
Europe Gets Cold Feet on “TTIP,” Americans Should Too, But Obama Needs it for his Legacy
As almost always, the U.S. government and European Commission are on the same page, reading from the same script. This year they have one overriding goal in common: to create the world’s biggest “free” trade area by passing the Transatlantic Trade and Investment Partnership (TTIP) into national and supranational law on both sides of the Atlantic.
To this end the White House is furiously lobbying Congress to grant it fast track authority for the passage of not only TTIP, but also TPP (Trans-Pacific Partnership). It is to be Obama’s swansong legacy. And with the pro-“free” trade Republicans firmly back in control on the Hill, he’s almost certain to get what it wants.
As such, TPP and TTIP negotiations will likely remain closed off from the public until the deals are finalized, by which time it will already be too late: just as happened with the passage of NAFTA in 1994, a largely compliant Congress will sign along the dotted lines without questioning what they’re actually signing into existence.
While some members of Congress are quite happy to waive their rights to actively participate in the lawmaking process, others are wary of granting sole authority to documents that have yet to be seen. Here’s what independent senator Bernie Sanders had to say on the issue in a letter to U.S. Trade Representative Michael Froman:
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Here’s Why the Trans-Pacific Partnership Agreement Is Just Plain Wrong
Here’s Why the Trans-Pacific Partnership Agreement Is Just Plain Wrong
Republicans who now run Congress say they want to cooperate with President Obama, and point to the administration’s Trans-Pacific Partnership, or TPP, as the model. The only problem is the TPP would be a disaster.
If you haven’t heard much about the TPP, that’s part of the problem right there. It would be the largest trade deal in history — involving countries stretching from Chile to Japan, representing 792 million people and accounting for 40 percent of the world economy – yet it’s been devised in secret.
Lobbyists from America’s biggest corporations and Wall Street’s biggest banks have been involved but not the American public. That’s a recipe for fatter profits and bigger paychecks at the top, but not a good deal for most of us, or even for most of the rest of the world.
First some background. We used to think about trade policy as a choice between “free trade” and “protectionism.” Free trade meant opening our borders to products made elsewhere. Protectionism meant putting up tariffs and quotas to keep them out.
In the decades after World War II, America chose free trade. The idea was that each country would specialize in goods it produced best and at least cost. That way, living standards would rise here and abroad. New jobs would be created to take the place of jobs that were lost. And communism would be contained.
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Canada Posts Trade Deficit In November, And It Turns We Had One In October, Too
Canada Posts Trade Deficit In November, And It Turns We Had One In October, Too
OTTAWA – Canada had a larger-than-expected trade deficit in November as a drop in crude oil and bitumen led a broad decline in exports.
Statistics Canada said Wednesday that the country posted a merchandise trade deficit of $644 million in November compared with a deficit of $300 million that had been expected by economists, according to Thomson Reuters.
The federal agency also revised its results for October to show a deficit of $327 million, compared with an initial reading of a $99-million surplus.
BMO Capital Markets senior economist Benjamin Reitzes called the November report “bleak, with negatives almost across the board.”
“While trade performed solidly in 2014 as a whole, it’s not ending the year in particularly good shape,” Reitzes wrote in a note to clients.
“And, the trade deficit is likely to worsen materially due to the steep drop in energy prices, suggesting it will be some time before we see another surplus.”
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Empire v Mere State | Armstrong Economics
Empire v Mere State | Armstrong Economics.
QUESTION: Marty, your insight into the failure of Austrian and Keynesian economics was really eye opening. At your conference you said that Adam Smith’s Invisible Hand applied internationally not just domestically. I believe I have reached the level of understanding you have been teaching us. It is indeed global and clearly everything is connected. Is China now in the early stage of Rome when it was growing in the shadow of the Greeks?
ANSWER: Absolutely.China is in the current growth stage. It will take time. It took Rome 72 years to complete the second phase of monetary growth. Its first silver and gold coinage was struck in Greek denominations illustrating that the Greeks were still the financial capital of the world. Like an emerging market nation today who issues debt in dollars to facilitate their economy, the Romans adopted the Greek monetary system to facilitate trade.
Previously, the Roman monetary system began with bronze, for it was the metal of tangible value since it could be made into a plow or a weapon. Bronze coinage, known as Aes Grave, appeared during the 4th century BC and that standard weight system is still with us today. The Roman As was one pound and this was divided into 12 units called “uncia” or ounces.
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Australia, China deepen ties with landmark free trade deal | Reuters
Australia, China deepen ties with landmark free trade deal | Reuters.
(Reuters) – China and Australia on Monday sealed a landmark free trade agreement more than a decade in the making, significantly expanding ties between the world’s second largest economy and one of Washington’s closest allies in Asia.
The deal, which Australia called the best ever between Beijing and a Western country, will open up Chinese markets to Australian farm exporters and the services sector while easing curbs on Chinese investment in resource-rich Australia.
Australian Prime Minister Tony Abbott and Chinese President Xi Jinping signed a memorandum of understanding clinching the agreement during a ceremony in parliament in Canberra.
“This has been a 10-year journey, but we have finally made it,” Abbott said.
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Not Just The Franc Showing Euro Concerns | Alhambra Investment Partners – We Are Different.
Not Just The Franc Showing Euro Concerns | Alhambra Investment Partners – We Are Different..
With Europe reporting GDP, reactions have been somewhat varied. In some places, it was taken as not as bad as feared, while others were downright cheered by a lack of total collapse, as if that is now the standard for economic progress. Since GDP tends to be noisy in the short run, the major components, the economic base, continues to show anything but more of the same. There was nothing, to my mind, in the GDP report that indicated an inflection away from stagnation or slight decline. That is perfectly in-line with the trend that has unfortunately developed since midyear, pushing the ECB toward outward desperation.
The most striking aspect of the European economy post-2007 has been lower cycle peaks at every juncture. In industrial production and trade, the “recovery” after the initial blast of the Great Recession never came close to matching pre-crisis levels. Now after another “cycle”, the peak is yet again below this time even 2011. What we see, then, is no recovery at all but rather an ebb and flow in an otherwise downward direction toward full-scale depression.
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Local Economies on the Table | Institute for Agriculture and Trade Policy
Local Economies on the Table | Institute for Agriculture and Trade Policy.
Communities across the United States and Europe are working to transform local economic systems so that they are more sustainable and equitable. Programs that support the production of nutritious and culturally appropriate food by local farmers and locally sourced renewable energy, construction and even office supplies benefit local producers, businesses, workers and consumers. Many states and communities are utilizing public procurement programs to support those efforts, especially bidding preferences for healthy, locally grown foods, energy or transportation programs that create local jobs, and fair markets. Especially in the aftermath of the Great Recession, Buy American programs have helped ensure that taxpayer-funded programs create local jobs and serve social goals. Farm to School programs that incentivize purchases from local farmers have grown in all 50 U.S. states and many European countries. Innovative efforts are also underway to expand this approach to other institutions such as hospitals, universities and early childcare programs like Head Start.
In a move that could undermine those important initiatives, the European Union has made the opening of U.S. procurement programs to bids by European firms one of its priority goals for the Transatlantic Trade and Investment Partnership (TTIP). It has been insistent on the inclusion of procurement commitments at all levels of government, for all goods, and in all sectors. At a speech in San Francisco, French trade minister Nicole Briqc declared, “Let’s dream a little with respect to public procurement. Why not replace ‘Buy American’ which penalizes our companies with ‘Buy transatlantic’ which reflects the depth of our mutual commitment?”1
– See more at: http://www.iatp.org/documents/local-economies-on-the-table#sthash.C8I3FO1O.dpuf
Russia, China Sign Second Mega-Gas Deal: Beijing Becomes Largest Buyer Of Russian Gas | Zero Hedge
Russia, China Sign Second Mega-Gas Deal: Beijing Becomes Largest Buyer Of Russian Gas | Zero Hedge.
As we previewed on Friday, when we reported that “Russia Nears Completion Of Second “Holy Grail” Gas Deal With China“, moments ago during the Asia-Pacific Economic Cooperation forum taking place this weekend in Beijing, Russia and China signed 17 documents Sunday, greenlighting a second “mega” Russian natural gas to China via the so-called “western” or “Altay” route, which as previously reported, would supply 30 billion cubic meters (bcm) of gas a year to China.
Among the documents signed between Russian President Vladimir Putin and Chinese leader Xi Jinping were the memorandum on the delivery of Russian natural gas to China via the western route, the framework agreement on gas supplies between Russia’s Gazprom and China’s CNPC and the memorandum of understanding between the Russian energy giant and the Chinese state-owned oil and gas corporation.
“We have reached an understanding in principle concerning the opening of the western route,” Putin said. “We have already agreed on many technical and commercial aspects of this project, laying a good basis for reaching final arrangements.”
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Russia Nears Completion Of Second “Holy Grail” Gas Deal With China | Zero Hedge
Russia Nears Completion Of Second "Holy Grail" Gas Deal With China | Zero Hedge.
Six months ago, something few had expected would take place in 2014, or even in the coming years, happened: under Western pressure and out of a desire to diversify away from an increasingly hostile European market, Russia signed the so-called “Holy Grail” gas deal with China, pivoting away from the west and toward with Beijing.
As part of the deal, the two nations reached a $400 billion agreement to construct the Power of Siberia pipeline, which will deliver 38 billion cubic meters (bcm) of gas to China. The compromise was a lower price than Gazprom would have otherwise hoped for, however in taking a cue right out of Amazon, “Russia would make up in volume what it lost in price.” This eastern route will connect Russia’s Kovykta and Chaynda fields with China, where recoverable resources are estimated at about 3 trillion cubic meters.
And then today, with little fanfare, Russia’s president Putin – whose economy is said to be reeling as a result of a plunging currency, paradoxically something Japan would love to be able to achieve on such short notice – told the media ahead of his visit to the Asia Pacific Economic Conference on November 9-11, that Moscow and Beijing have agreed many of the aspects of a second gas pipeline to China, the so-called western route, or as some already are calling it, the “second holy grail.”
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Global finance and the privatization of rural livelihoods | ROAR Magazine
Global finance and the privatization of rural livelihoods | ROAR Magazine.
A big piece of news for food politics enthusiasts this summer was India’s veto over a proposed agreement — to be concluded within the legal framework of the World Trade Organization — on ‘trade facilitation measures’. The agreement was meant to regulate a number of sensitive issues, mostly related to customs infrastructure and procedures, which are liable to affect trade between WTO members. As it often happens with international agreements, however, exceptions and exemptions are as important as the rules being agreed. In Bali, which is where the ‘trade facilitation’ negotiations were happening, the bone of contention happened to be India’s request for a permanent exemption from further trade liberalization of its public stockpiling and distribution system for food staples.
In fact, the centerpiece of India’s food security infrastructure is the Food Corporation of India (FCI). This is a public body, established in 1964, that acts like a hybrid between a marketing board, a food bank and a subsidy scheme. It stockpiles grains and other food staples (which it buys at controlled prices that give farmers some protection against fluctuations). It then uses this reserve to distribute grains at times when market prices become too high, both as a way to bring those prices down (this is what a marketing board does) as well as to ensure access to essential dietary staples (the ‘food bank’ aspect of the FCI). In other words, the FCI is like a public insurance mechanism against the fluctuation of food prices. The issue in Bali, then, was whether India should be allowed to ‘keep’ the FCI indefinitely, or whether it should gradually phase it out, in order to leave free reign to private actors.
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How Japanese Hyperinflation Starts (In 1 Chart) | Zero Hedge
How Japanese Hyperinflation Starts (In 1 Chart) | Zero Hedge.
The Japanese Yen’s real effective exchange rate (REER) has collapsed to the weakest since 1982, according to Mitsubishi UFJ Morgan Stanley Securities. Simply put, REER is a trade-weighted measure of Yen strength (or weakness) against, in this case, 59 trading partners; and as the nation posts an unprecedented 27th straight month of trade deficits [43rd straight month of Seasonally-adjusted trade deficits], Bloomberg reports MUFJ indicates “a structural shift” has taken place.
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Activist Post: Updated Secret Trans-Pacific Partnership Agreement (TPP)
Activist Post: Updated Secret Trans-Pacific Partnership Agreement (TPP).
WikiLeaks has released a second updated version of the Trans-Pacific Partnership (TPP) Intellectual Property Rights Chapter. The TPP is the world’s largest economic trade agreement that will, if it comes into force, encompass more than 40 per cent of the world’s GDP. The IP Chapter covers topics from pharmaceuticals, patent registrations and copyright issues to digital rights. Experts say it will affect freedom of information, civil liberties and access to medicines globally. The WikiLeaks release comes ahead of a Chief Negotiators’ meeting in Canberra on 19 October 2014, which is followed by what is meant to be a decisive Ministerial meeting in Sydney on 25–27 October.
Despite the wide-ranging effects on the global population, the TPP is currently being negotiated in total secrecy by 12 countries. Few people, even within the negotiating countries’ governments, have access to the full text of the draft agreement and the public, who it will affect most, none at all. Large corporations, however, are able to see portions of the text, generating a powerful lobby to effect changes on behalf of these groups and bringing developing country members reduced force, while the public at large gets no say.
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