Index
1. Extract
2. Why austerity?
3. Why devaluation?
4. What to do to avoid the austerity policies?
5. What to do to avoid currency devaluation?
6. Conclusion
1. Extract
Austerity and currency devaluation are two
policies currently affecting several countries. Austerity is the main problem
of economic policy of the United States and the countries of Southern Europe,
Portugal, Spain, Cyprus, Italy and Greece, while devaluation is present in
Latin American countries such as Venezuela and Argentina. These facts make it
clear that millions of people around the world suffer the consequences of
austerity and devaluation.
2. Why
austerity?
Governments impose austerity policies due to
lack of money to meet the needs of society.
3. Why
currency devaluation?
Governments devalue the currencies of their
countries for two main reasons:
a) To get more money in national currency,
since the amount of money in circulation theoretically should be in relation to
the amount of international reserves which consist dollars USA and /or gold,
and
b) To compete more effectively in international
markets, since currency devaluation reduces prices of their export products.
4. What
to do to avoid the austerity?
The austerity solution is very simple:
a) Issuing more money in national currency to
meet the requirements of the factors involved in the economic process.
b) No international organization or any country
has the authority to impose on another country how much money issue or not.
c) The only limitation for the countries is the
availability of foreign currency, i.e. the amount of dollars to buy into
international markets.
d) If a country does not have enough foreign
currency ---dollars --- a problem arise because it cannot pay its external
commitments. In that case, countries have two options:
- Produce more, better and at a competitive
price to sell more in international markets and so to obtain extra dollars and
/ or
- Borrow money to the financial system, which
ultimately is bad for the country, because international debts tend to become
eternal, as it is very difficult to pay them in full because of the burden of
interest.
e) We affirm therefore that governments are
free to issue all the money in local currency to meet the needs of their
economies and for that reason are not justified to subject people to the
painful effects of the austerity policies. The concept of inorganic money is
something absurd without intellectual base basis in reality, because money cannot
be inorganic; money is simply a medium of exchange.
f) The gold backing of money is an illusion,
because all the gold in the world would not be enough to support all of the
money in circulation. Money is a trust instrument, i.e., paper and coins with
no intrinsic value that circulate through the good faith and acceptance as a
means of payment on the part of economic actors, nothing more.
g) The dollar of the United States of America
does not have enough gold backing; consequently, all the world's currencies
using the dollar as a backup not have enough support.
5. What
to do to avoid currency devaluation?
a) The devaluation to address the fiscal
deficit does not make sense because if it is true that governments get more
money in first instance, at medium term they lose because of the inflation of
all goods and services they buy. Therefore, devaluation for fiscal purposes is
absurd.
b) Furthermore, the devaluation to improve
competitiveness in international markets is not justified, because markets do
their purchases in base not only of lower prices but also on factors such as
quality and security of supply. Price is one of the variables that determine
the buying decision in foreign markets but it is not the only or the most
important.
6. Conclusion
Lack of money should not limit economic growth
and should not be the cause of the poverty of nations. The reason is very
simple: because countries are free to issue all the money in local currency
that require their economies.
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