Value-added exchange rates

This post was written by

This alternative approach to measuring exchange rates is especially relevant for Ireland, in view of the high gross exports/imports of the foreign-dominated sectors.

16 Responses to “Value-added exchange rates”

  1. The Dork of Cork. Says:

    Its pretty safe to say European & Asian supply chains are a mess…….

    The Japan / China arbitrage comes to mind with major political risks also.

    But why ?

    In Europe – non national , non sov currencies used to bypass labour until it runs out of demand as the transport & other externalities mount.

    When the credit stops , you then get a break in the once closed production / demand loop as the wages are not there man.

    No credit , no wages = no demand = production collapse.

    This level of Globalization is now pointless.
    It cannot sustain the production of goods.

    National credit is needed.

    Then real politically defined hinterlands can trade with other real hinterlands again.

    http://www.geograph.ie/photo/1722939

  2. colm mccarthy Says:

    Methinks somebody made this point before – in 1926.

    ‘The arguments of Chapter I are not arguments against the Gold Standard as such. That is a separate discussion which I shall not touch here. They are arguments against having restored gold in conditions which required a substantial readjustment of all our money values. If Mr. Churchill had restored gold by fixing the parity lower than the pre-war figure, or if he had waited until our money values were adjusted to the pre-war parity, then these particular arguments would have no force. But in doing what he did in the actual circumstances of last spring, he was just asking for trouble. For he was committing himself to force down money-wages and all money-values, without any idea how it was to be done.

    ……

    His experts made, I think, two serious mistakes. In the first place I suspect that they miscalculated the degree of the maladjustment of money values, which would result from restoring sterling to its pre-war gold parity, because they attended to index numbers of prices which were irrelevant or inappropriate to the matter in hand. If you want to know whether sterling values are adjusting themselves to an improvement in the exchange, it is useless to consider, for example, the price of raw cotton in Liverpool. This must adjust itself to a movement of the exchange, because, in the case of an imported raw material, the parity of international values is necessarily maintained almost hour by hour. But it is not sensible to argue from this that the money wages of dockers or of charwomen and the cost of postage or of travelling by train also adjust themselves hour by hour in accordance with the foreign exchanges. Yet this, I fancy, is what the Treasury did.

    They compared the usual wholesale index numbers here and in America, and— since these are made up to the extent of at least two-thirds from the raw materials of international commerce, the prices of which necessarily adjust themselves to the exchanges— the true disparity of internal prices was watered down to a fraction of its true value. This led them to think that the gap to be bridged was perhaps 2 or 3 per cent., instead of the true figure of 10 or 12 per cent., which was the indication given by the index numbers of the cost of living, of the level of wages, and of the prices of our manufactured exports—which indexes are a much better rough-and-ready guide for this purpose, particularly if they agree with one another, than are the index numbers of wholesale prices. But I think that Mr. Churchill’s experts also misunderstood and underrated the technical difficulty of bringing about a general reduction of internal money values.’

    And more along the same lines. Keynes understood that what matters is the relative cost of adding value, measured in a common currency.

    Nothing to see here.

  3. The Dork of Cork. Says:

    July 2010

    “The situation is identical to that during the early 1930′s when countries’ economies degraded into buying and selling currencies to obtain value which in that period was represented by gold. Now, value is represented by crude oil. The depression was ended by countries raising wages relative to capital and by abandoning gold pegs. The only way out of the ongoing economic/energy crisis is for nations to revalue labor upward – by increasing worker productive capacity, skill and capability – and by ‘going off oil’ as they went off gold 70+ years ago. This means the US must put people to work directly with small capital inputs, even at hand labor while at the same time cutting energy imports and becoming a net long- term oil exporter. This means a reduction in energy/oil consumption to less than 1/3 of current or -5 million barrels per day! (The 1973 embargo represented a -10% reduction).This means no cars, no consumption, no mass or industrial ‘scaled’ production or ‘moderistic’ Andy Warholism. We do this or it is done to us.

    The alternative is to find and exploit the extra 4 or so excess Saudi Arabias needed to flood the oil market and drive real input prices down.

    The absurdity of modernity is the desire to embrace real values – of any kind – when the only value the economy allows is obtaining wealth. Organic or ‘tribal’ values are incompatible with the mercenary ones. The latter are directed toward the immediate, the transient, the most wasteful and dishonest, which impute the ‘value’ of economic externalities to zero. We’ve spent decades sanctifying expedients as if they were worthy substitutes for restraint, discipline, justice or common sense”

    http://www.economic-undertow.com/2010/07/18/the-value-crisis/

    May I suggest (once we leave the eurozone) we start paying labour to engage in labour intensive , fuel light rail freight again.

    http://www.youtube.com/watch?v=Phza7V0EbJg

    http://www.geograph.ie/photo/3168859

  4. The Dork of Cork. Says:

    July 2010

    “The situation is identical to that during the early 1930′s when countries’ economies degraded into buying and selling currencies to obtain value which in that period was represented by gold. Now, value is represented by crude oil. The depression was ended by countries raising wages relative to capital and by abandoning gold pegs. The only way out of the ongoing economic/energy crisis is for nations to revalue labor upward – by increasing worker productive capacity, skill and capability – and by ‘going off oil’ as they went off gold 70+ years ago. This means the US must put people to work directly with small capital inputs, even at hand labor while at the same time cutting energy imports and becoming a net long- term oil exporter. This means a reduction in energy/oil consumption to less than 1/3 of current or -5 million barrels per day! (The 1973 embargo represented a -10% reduction).This means no cars, no consumption, no mass or industrial ‘scaled’ production or ‘moderistic’ Andy Warholism. We do this or it is done to us.

    The alternative is to find and exploit the extra 4 or so excess Saudi Arabias needed to flood the oil market and drive real input prices down.

    The absurdity of modernity is the desire to embrace real values – of any kind – when the only value the economy allows is obtaining wealth. Organic or ‘tribal’ values are incompatible with the mercenary ones. The latter are directed toward the immediate, the transient, the most wasteful and dishonest, which impute the ‘value’ of economic externalities to zero. We’ve spent decades sanctifying expedients as if they were worthy substitutes for restraint, discipline, justice or common sense”

    http://www.economic-undertow.com/2010/07/18/the-value-crisis/

    May I suggest (once we leave the eurozone) we start paying labour to engage in labour intensive , fuel light rail freight again.

  5. The Dork of Cork. Says:

    http://www.youtube.com/watch?v=Phza7V0EbJg

    http://www.geograph.ie/photo/3168859

  6. The Dork of Cork. Says:

    http://www.geograph.ie/photo/3166196

    http://www.youtube.com/watch?v=FjyEsh-dCmM

    Notice the LABOUR………….

  7. Fiatluxjnr Says:

    That nice Mr. Draghi says that there is plenty of goodwill but on the bank debt deal he cannot illegally print money…
    http://www.irishtimes.com/newspaper/finance/2012/1207/1224327609919.html
    How valuable is goodwill…in terms of spending power?

  8. Michael Hennigan - Finfacts Says:

    American manufacturing became more productive by ‘shipping’ jobs abroad.

    http://www.washingtonmonthly.com/magazine/january_february_2012/features/the_myth_of_american_productiv034576.php

  9. Joseph Ryan Says:

    @Fiatluxjrn

    Re Ir Times Draghi quote

    ““The ECB cannot undertake any agreement – cannot enter into any agreement – that is being viewed as monetary financing, that would be forbidden by article 123 of the treaty,” he said. “So, other than that, there is plenty of goodwill.”

    Article 123 of the EU treaty, known as the “no-bailout clause”, forbids the ECB from providing overdraft facilities or other forms of credit to any central government or public body.”

    The ECB provided an overdraft facility to the Irish government the day it cashed the first PN note, having forced Anglo onto the government.

    No amount of ELA/PN/CB/ECB circles of confusion and debt can disguise the fact that the ECB has already provided an overdraft facility to the Irish government. It is just the payback terms that are issue.

    The fact that it has already bought Greek, Irish and Portuguese bonds could also be construed as government financing.

    One other point. ECB ‘theft’.
    What ECB or EZ statute allows the ECB to make hold onto profit made on the purchase of Irish bonds?
    If the activity itself is ‘illegal’ (or outside its remit), how can the retention of profits from that activity not be illegal?
    How much profit on Irish bonds is the ECB holding at present?
    Do you think that we will get some transparency?

  10. The Dork of Cork. Says:

    Germany and the UK taking the Piss ?

    http://www.decc.gov.uk/en/content/cms/news/pn12_159/pn12_159.aspx

    “We have found the best mechanism to reduce co2 emissions is to introduce a NAMA system in each vassal country.

    This will close down almost all Industry within 5 years.~

    PS
    I made some observations earlier in the Year about the British income section of its current account going into record negative numbers.

    Its real goods trade deficit with Germany continues to increase……

    It has made the choice of hooking into the Rhine /Rhur industrial system whatever else happens…..

    I.e it has gone for real goods over income from the PIigs (and the UK has always had a income from the rest of the world)
    So this is a very big deal me thinks.

  11. The Dork of Cork. Says:

    UK trade balance with Germany (£million)

    Y2011 Q2 : – 4,350
    Y2011 Q3 : – 4,351
    Y2011 Q4 : – 4,580

    Y2012 Q1 : – 4,712
    Y2012 Q2 : – 5,045
    Y2012 Q3 : – 5,846

    Above is real stuff.

    See previous BIS paper for financial stuff

  12. The Dork of Cork. Says:

    http://www.smmt.co.uk/2012/12/november-new-car-registrations-confirm-uk-market-as-second-largest-in-eu/

    The Brits Vant German stuff

    Jan – Nov
    BMW 3 : 41,340
    Volks Golf : 59,465
    Volks Polo :39,401
    Merc C class : 35,328
    BMW 1 : 31,292………..

    Depression ? what depression ?

  13. Gavin Kostick Says:

    Interesting review article on the history of the ECB here:

    http://www.thenation.com/article/171596/more-imperfect-union-european-central-bank#

    With discussion at Crooked Timber with familiar names (hello Kevin).

    http://crookedtimber.org/2012/12/06/the-ecbs-new-role/#comments

  14. Gavin Kostick Says:

    A couple of quotes from The Nation. Henry Farrell reviewing Harold James’s book.

    “The ECB had already started providing liquidity to banks in trouble. It now suggested to countries like Ireland that it would continue to support their banks only if the government adopted austerity measures and stuck to them. Italy was told in a secret letter that it needed to change its wage-bargaining system and to open up its public sector as an imperative, with the implication that the ECB would stop supporting Italy’s bonds if it didn’t comply. The new initiative of Outright Monetary Transactions formalizes and extends the ECB’s ability to shape the economic policy of weaker states, together with other EU institutions.”

    And:

    “Yet his history, when combined with recent events, also supports a more pessimistic reading. An institution that was designed to be free of politics, maintaining its existence in an international environment outside the control of any one government, has become intensely politicized. The ECB, for better or worse, is now embroiled in politics. But then, perhaps that was always the inevitable result. The apparent alchemy by means of which divisive questions of monetary policy were consigned to the realm of technocratic decision-making was never more than clever language and confidence tricks. The basic problems and imbalances remained (albeit in a disguised form) and have now re-emerged, leading to even more vitriolic debates among the eurozone’s members over who should bear the costs of adjustment: Should they be mutualized, or borne by the “delinquent” states alone?”

  15. Kevin Donoghue Says:

    And hello to you, Gavin. I hope you’re keeping well.

  16. Gavin Kostick Says:

    Personally all is well, Kevin with a lot of good projects.

    Things are tough though in the arts sector, as you might imagine. Lots of discussion in theatre of where we’re at, how/whether people are surviving and what sort of work is important. I’m cautiously pleased to see the budget move to October as it was hammering ticket sales where it was. I think the major festivals will stand it – we’ll see.

Leave a Reply