Wednesday, November 18, 2009

The Realignment of Currencies

Nathan's Economic Edge posted some videos from a Glenn Beck show where he interviewed Damon Vickers, the Managing Director of Nine Points Capital Partners.

The interview begins around minute 7:00 in the first video. The first six minutes are not news to regular readers of this blog, feel free to skip them. The interview is remarkable, in that Vickers anticipates a realignment of global currencies. His argument, in essence is that America is unable to compete in the manufacturing sector. Countries like Bangladesh can pay their employees $0.70 or $1.00 per day--of course America cannot compete with that.

Vickers argues that "the dollar is way too high and other currencies are way too low. What you're likely to see is a realignment of currencies. Beck and Vickers continue their discussion and argue that we're "going to live closer to the standard of Mexico than you are of America.

Here are the numbers: Mexican per capita income was $14,200 compared to America at $47,000. What are the implications of such a drop in the standard of living? I'm not certain, but it is frightening to ponder what must happen for this realignment to occur. But consider if this were to happen and our nation's debts must be paid--hyperinflation becomes a not-so-unlikely scenario as our debts must then be repaid in appreciated dollars, which would devastating to the American economy. The temptation would then, of course, be to inflate away.

The first two videos are definitely worth watching, the third is not directly related to the topic, but also worth watching.

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