This is some rather strange commentary here! First, no one
is very good at predicting future movements in interest rates,
inflation or unemployment, not least financial and foreign exchange
market movements which follow what economists call a random walk. If
you're concerned about adverse exchange rate movements, the I would
suggest hedging with some strategy using derivative securities. Second,
an exchange rate is an adjustment mechanism at the macroeconomic level
to deal with inflexible wages and prices in the short-run. In the
long-run, after the necessary macroeconomic adjustments have been made,
the economy operates at potential output, under the natural rate
hypothesis regarding interest and employment.Third, everyone on
here (and all of the financial journalists that fancy themselves as
financially savvy) seems to be considering only the nominal exchange
rates, that is, exchange rates viewed in the market. In reality, what
matters is the real exchange rate, which are nominal rates adjusted
with domestic price indexes. In the long-run, economists look at
exchange rates in purchasing power parity terms (PPP), which considers
a hypothetical basket of consumption in real terms.Fourth,
countries do no compete economically, and anyone that believes this,
including Fareed Zakaria, simply has failed to develop a sophisticated
background in trade theory and economics. No smart economist would
tell you that international trade is some game in which countries
compete.
Fifth, the American trade deficit does not matter because while
the capital account surplus reflects the gap between domestic saving
and investment, the US generates a net capital inflow which finances
primarily capital goods yielding a higher internal rate of return
and/or lower cost capital goods, as well as intermediate goods. Only
25% of US imports, according to data showing imports by final end use,
are strictly for consumption.Sixth, neither the Euro nor the
Yuan will displace the dollar as the world's reserve currency. Not
only do demographic trends favor the US, but the American economy
(especially the financial system) is far more sophisticated than that
of China and even Europe, including the UK. Indeed, while China has a
fixed nominal exchange rate to the dollar about which politicians,
financial journalists and union leaders complain incessantly, the real
exchange rate shows that the Yuan has shown a large tendency to drive
trade patterns based on comparative advantage. In fact, the
Yuan has depreciated in real terms precisely because fixing its nominal
rate to the dollar has resulted in a large increase in China's monetary
base, and consequently higher inflation has ensued. Furthermore, it
doesn't really matter if your currency is a reserve currency. What
matters is how your nation's central bank conducts monetary policy in
order to preserve the purchasing power of your currency. In that
respect, the developed countries have been doing well in the past 25
years or so for a variety of reasons. Even developing countries have
been doing much better at maintaining price level stability.
My suggestions: Hedge with derivatives or get paid in dollars
if possible and ensure that those dollars are deposited with a large
multinational bank (like HSBC, Citibank) so that you have access to
your wealth if the Argentine government decides to freeze withdrawls to
stem their foolish economic polices. It's very easy to have the
deposits transfered to a safe bank in the US. Foreigners in all
countries do it all the time, and in the lingo of a nation's balance of
payments accounting, it's called unilateral transfers.In the
meantime, if any employers are looking to hire a young and talented
American economist (with good Spanish skills) seeking to move to
Buenos Aires, contact me at [email protected], Marc Randal
is very good at predicting future movements in interest rates,
inflation or unemployment, not least financial and foreign exchange
market movements which follow what economists call a random walk. If
you're concerned about adverse exchange rate movements, the I would
suggest hedging with some strategy using derivative securities. Second,
an exchange rate is an adjustment mechanism at the macroeconomic level
to deal with inflexible wages and prices in the short-run. In the
long-run, after the necessary macroeconomic adjustments have been made,
the economy operates at potential output, under the natural rate
hypothesis regarding interest and employment.Third, everyone on
here (and all of the financial journalists that fancy themselves as
financially savvy) seems to be considering only the nominal exchange
rates, that is, exchange rates viewed in the market. In reality, what
matters is the real exchange rate, which are nominal rates adjusted
with domestic price indexes. In the long-run, economists look at
exchange rates in purchasing power parity terms (PPP), which considers
a hypothetical basket of consumption in real terms.Fourth,
countries do no compete economically, and anyone that believes this,
including Fareed Zakaria, simply has failed to develop a sophisticated
background in trade theory and economics. No smart economist would
tell you that international trade is some game in which countries
compete.
Fifth, the American trade deficit does not matter because while
the capital account surplus reflects the gap between domestic saving
and investment, the US generates a net capital inflow which finances
primarily capital goods yielding a higher internal rate of return
and/or lower cost capital goods, as well as intermediate goods. Only
25% of US imports, according to data showing imports by final end use,
are strictly for consumption.Sixth, neither the Euro nor the
Yuan will displace the dollar as the world's reserve currency. Not
only do demographic trends favor the US, but the American economy
(especially the financial system) is far more sophisticated than that
of China and even Europe, including the UK. Indeed, while China has a
fixed nominal exchange rate to the dollar about which politicians,
financial journalists and union leaders complain incessantly, the real
exchange rate shows that the Yuan has shown a large tendency to drive
trade patterns based on comparative advantage. In fact, the
Yuan has depreciated in real terms precisely because fixing its nominal
rate to the dollar has resulted in a large increase in China's monetary
base, and consequently higher inflation has ensued. Furthermore, it
doesn't really matter if your currency is a reserve currency. What
matters is how your nation's central bank conducts monetary policy in
order to preserve the purchasing power of your currency. In that
respect, the developed countries have been doing well in the past 25
years or so for a variety of reasons. Even developing countries have
been doing much better at maintaining price level stability.
My suggestions: Hedge with derivatives or get paid in dollars
if possible and ensure that those dollars are deposited with a large
multinational bank (like HSBC, Citibank) so that you have access to
your wealth if the Argentine government decides to freeze withdrawls to
stem their foolish economic polices. It's very easy to have the
deposits transfered to a safe bank in the US. Foreigners in all
countries do it all the time, and in the lingo of a nation's balance of
payments accounting, it's called unilateral transfers.In the
meantime, if any employers are looking to hire a young and talented
American economist (with good Spanish skills) seeking to move to
Buenos Aires, contact me at [email protected], Marc Randal
