About TARELV

TARELV is currently an on-going research project on alternative currencies and/or alternative exchange rate pegging systems that is open to the participation and contributions by the like-minded professionals, practititoners and academics who may share similar visions on a worldwide basis.

Please feel free to leave any feedback and comments on how you would like to participate in this group effort to further fine tune the new TARELV related concepts and methods.

This TARELV idea was originally developed on the back of the author’s last 10-year’s research work (as of 2011) that started back in 2001 on a new form of real estate derivatives SwapRent and a new form of non-derivatives based home ownership structure FARJHO.

As the idea has grown more mature through the years and the need of a brand new exchange rate pegging system to replace the existing fiat currency concept and Chartalism has become more and more transparent these days, the author would like to start to work with other economists and practitioners with similar passion in this field to hopefully bring this new exchange rate system to life together.

What the author believes in is that where both Assignats and Mandats in France back in 1796 as well as Rentenmark in Germany back in 1924 had failed to stay on as a major currency concept, given the current state of the global economy and the quantitative finance methods, TARELV may have a chance to make it in 2011 and beyond.

For a more detailed introduction to the new FARJHO methodology to use equity sharing to own homes one home at a time using only member level debt financing, here is the link to my white paper on FARJHO (https://www.box.com/s/cc0de069ab5c3fd3007e) which is to be published as a sequel to my earlier article on SwapRent (https://www.box.com/s/v24qtqip4hlgff5l1646) published in the December 2009 issue of the Journal of Housing Finance International (HFI) by the Brussels-based International Union of Housing Finance (IUHF).

An easier first step to understand FARJHO is to watch this simple three-minute FARJHO introduction video. http://www.youtube.com/watch?v=UV0hUjAGUZg

0205 2015 Bernie Madoff’s Ponzi scheme in the making again – discussion with a centralized payment exchange company official trying to pump their new fiat cryptocurrency

Within the past week I came across and exchanged a few detailed email discussions with a dominant company trying to sell their new fiat cryptocurrency via a scheme that smacks of an IPO (Initial Public Offering) or a Private Placement sharing offering in the stock market. The problem is that they are not properly issuing a stock of a company through a normal securities broker dealer but rather trying to sell in the open market their own new fiat cryptocurrency themselves!

I see the company as perhaps having built a good payment system only, which has yet to be verified. For the version of the new fiat cryptocurrency that they are trying sell to the public on the payment exchange that they have built, it is a bit naive and may even be wishful thinking. They are also trying to keep a big chunk of each new issuance to themselves.

Even Uncle Sam may not be able to pull off such as good deal in issuing a new fiat national currency. I wonder how they could continue to hope to convince people to pay for it and use it. I was told by the official that they had recruited top tiered industry luminaries and ex-government officials as board members and hence the value of their new fiat currency is partially attributable to “who they are”. He tried hard to legitimize what they are doing and distance himself from having to do a security offering under the securities laws. I was not convinced. It is just too obvious.

What they are doing is like hoping to create wealth bubble out of thin air with a Ponzi game. Sooner or later it will burst when people come to realize there is no intrinsic value in their new fiat cryptocurrency. Their fiat cryptocurrency also seems to be primed to be used as a perfect pump and dump candidate.

Mark my words, it is a big disaster in the making. Watch out SEC!

0204 2015 For Bitcoins to call those national currencies fiat is like the pot calling the kettle black.

0204 2015 Digest of discussions occurred else where.

— On why the French Assinagts and Mandats did not succeed back in 1790

Thanks for providing us with some detailed historical info on the earlier French version of real estate backed currencies, Assignats and Mandats. As could be clearly observed even in your article, the French had the right idea but the wrong execution back in the 1790s, let alone the fact that they were backed by the stolen land!

Even the subsequent Rentenmarks circulated more than one hundred year later in 1924 did not have the necessary legal or technological infrastructure to make it work properly. That is the whole premise of launching the TARELV concept and the associated exchange rate pegging system in 2011 as the modern day new innovative quantitative finance knowhow and method such as FARJHO and the block chain payment ledger technology provided by the invention of Bitcoins could finally make these ideas realistic.

— On possible different types of real estate that could be used to back up currencies:

Absolutely. They are not mutually exclusive. All forms of real estate backing will happen sooner or later. Just remember that lien encumbered properties will not work very well, no matter how small a portion that lien may be. So a portion of the unencumbered equity of a decent office building, a hotel or an apartment could certainly work just fine if the owner is a credible and trustworthy entity.

— On why FARJHO Fund is better:

When you get to analyze the quality and characteristics of underlying assets, you will see the problems with conventional REITs. I understand that you may have mentioned that to express the generic concept.

A FARJHO Fund (or FARJHO itself) has many advantages. Here is to name a few: (1) It  is a pure un-leveraged equity, hence will never get foreclosed; (2) Via FARJHO, each batch of the t-coins will be mined and created by a group of regular homeowners in any part of the world, hence the de-centralized democracy nature that the crypto-currency enthusiasts love so much about could be maintained.

— On Bitcoin’s decentralized Utopian fantasy:

The abuse of fiat currencies and debts have proven in history repeatedly as the root cause of financial instability. In many currency crises, e.g. Asian, Ruble in 1998-1999  etc., the issuers were not the ones who manipulated them but rather the sudden lack of confidence by all participants. That is the problem. Lack of confidence all of a sudden.

Currencies need to be backed by assets, gold standard or real estate (German Rentenmark, French Assignats, Mandats etc.) just like debts need to be collaterized by real assets or equity to provide stability and confidence. That is a problem I was trying to address with TARELV way before these new Bitcoins things even came on stage.

Now for Bitcoins or any other current crypto currencies to claim to call those national currencies fiat is like the pot calling the kettle black.

The idea that these new digital currencies are decentralized or frictionless in transactions is simply a Utopian fantasy. Once they have gained momentum, they will still need many third parties to maintain their ongoing stability to become successful anyway or they die. Their success could only be transient and ephemeral. If they are successful in commanding confidence by finding a backer, layers of middlemen and interest groups will then also come in to impose transaction fees and could make it even worse than those currencies they were intended to replace.

Don’t we already see the same scenario replaying itself over and over again in modern politics? You overthrow a dictator and then came chaos until the next dictator comes again to provide stability.

So the crypto currency’s only advantage is tech oriented, i.e. payment efficiency.  Don’t expect them to come to build a Utopian libertarian society for you.

The real estate or home equity backed digital currencies (t-coins) that I am proposing is different because it is a wide open platform for all kinds of possible grassroots homeowners, for-profit institutions, non-profit organizations and national governments alike. It will be taken out of the monopoly of the government’s hands. For the lack of new terminology at the moment, it is a FARJHO fund from a group of homeowners in a geographical area who mine and create the new batch of t-coins.

To put it in a simple word, it will replace the bad “their” dictator with a new benign “our” democratic dictator.🙂

01/31/2015 Bitcoin is not enough – we need a new real asset backed Digital Currency

After many years of a long sabbatical leave, I am slowly back on my blog. First, the TARELV supercharged digital currency as a Bitcoins alternative that may bring FARJHO back to into action.

Within the past few years since 2006 I have been working on the new concept and the business method to quantify and create a tradable liquid market for home equity. For those who remembers that product is called FARJHO (Flexible And Reversible Joint Home Ownership). Basically we were trying to build a stock exchange for every single house and condo with each home being a stock that minority shareholders could trade in and out like they would buy and sell Google’s or Facebook’s shares on the stock exchange. Some of my previous work, which is on hold now, could be seen at http://farjho.com, http://wehomeowners.com or http://investorsally.com.

Following that new capability to extract the liquidity out of home equity, academically, I have also followed up to develop a concept and business method in 2009 to create a real estate value backed currency exchange rate pegging system called TARELV (Total Aggregate Real Estate and Land Value). Some of the previous research and blogs could be seen at http://tarelv.com.

TARELV was designed not as a new currency but rather a new foreign exchange backing or pegging system to provide fiat currencies a new life by backing each country’s currency through the value of their real estate via the FARJHO solution.

The problem with Bitcoin is that no matter what advantages they may provide in payment efficiency, it is in itself still a fiat currency with no real value to back it up.

That is where FARJHO and hence TARELV could help. Imagine a new block chain technology backed digital currency (say t-coin for now) that was mined and created since day one by an equivalent amount of partial home equity extracted via a FARJHO contract? Hence this new t-coin will always have a minimum floor value of that original partial home equity amount and could be exchanged back (convertible) into the home equity any time. This could be done in any country in due course so that means t-coins could be mined and created in many parts of the world and utilized universally.

These new real asset backed digital currencies will therefore have both the advantages of the block chain technology that Bitcoin has and the real value backing that the current fiat currencies in circulation do not have. There is a very simple way that we could mine these new types of asset backed digital currency and make it work through FARJHO.

More to come later.

06/18/2011 Weekly round-up of TARELV, SwapRent and FARJHO discussions from various Linkedin Groups

Here below is a weekly round-up of some more useful discussions from questions on TARELV, SwapRent and FARJHO.

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On the separation of shelter value vs. investment value provided by FARJHO and SwapRent:

Yes, it is all about  providing consumers with more new choices under the free enterprise capitalism principles and helping the less wealthy people without having to turn the country into a socialist welfare state so that we could still be economically competitive on the world stage. Sometimes people do have to think outside the box to look for those innovative ideas to make it happen.

Both FARJHO and SwapRent give consumers the ability to separate the Shelter Value (Use or Usufruct Value) away from the Investment Value (Financial or Economic Value). Having the ability to make investment decisions is a double edged sword and it does cut both ways in terms of winning and losing.

Having these new choices made available to them, home owners could finally decide for the first time on whether they may or may not want to participate in the investment games while enjoying a 100% of Shelter Value at all time through FARJHO or SwapRent so that neighborhood stability and social harmony could be ensured.

They could leave those real estate punting games to people who are more suited or more interested in pursuing under a free market. When the punters lose their shirts the home owners’ on-going occupancy stability would not be affected under either FARJHO or SwapRent arrangements.

Thanks again and I look forward to more inputs and comments.

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On Assignats used in France back in 1790 during the French Revolution:

Thanks for this additional info. Somehow they never taught us about these monetary histories back in my Micro and Macro Econ courses at business schools, let alone the Econ 101 that I took during university days. Or perhaps they did but I simply goofed back then since I was an engineering major.

But the engineering background may just come in handy now to create a new generation of land-based money by applying my research in recent years on property derivatives to back up these new land-based currency concepts.

The land connections of both the French Assignats and the German Rentenmarks seemed to be very simplistic legal claims on the properties. It wasn’t practical to really convert the currency to the title ownership of those underlying properties. Back then they had no real quantitative finance knowledge and/or methodologies to make that kind of currencies realistic.

With the new methodologies and marketplaces of both SwapRent and FARJHO, these land-based currency ideas could finally indeed have a chance to become realistic with a lasting value.

For a simple introduction about SwapRent and FARJHO, please visit http://www.PeoplesAlly.org. Thanks.

06/11/2011 Weekly round-up of TARELV discussions from various Linkedin Groups

Here below is a weekly round-up of some more useful discussions from questions on TARELV that I would like to share with the readers.

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On distancing TARELV from Wall Street’s hands:

….. While I sympathize with your political views (see our own web site at http://www.peoplesally.org) but that is a different subject. TARELV is purely an academic and grassroots intellectual proposal for a fresh start to try to build a financial system under capitalism in the right direction. Our value is to break the intellectual hostage Wall Street has held on Main Street and bring the economic benefits directly to the working class people and let them have their fair shares in the system so that they would not turn our country into a socialist state.

Wall Street will not be able to swindle you again because of TARELV. They don’t own it. In fact, a new type of currency pegged on and backed by real financial asset value may stop the government cronies from printing money irresponsibly to bail out their Wall Street buddies to continue to swindle you. It will serve as a handcuff on the politicians not to steal more money from the future taxpayers to dish out to their cronies today. TARELV is your friend …

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On TARELV being a new exchange rate system between national TARELV currencies:

….. Thanks for the comments. Tarelv is actually intended to be a national currency as an extension of the present free market capitalism. So you will have American Tarelv, Japanese Tarelv, European Tarelv etc. and you can still trade them based on their exchange rate, say long US-T against JN-T in the open market. That is where a JN-T would be worth a lot more vs. a DN-T, Danish Tarelv due to the different state of economic activities in each country.

So Tarelvs represent really a new national exchange rate pegging system rather than a new universal currency on its own. It has individual nationalities.

It will provide an automatic self-healing effect when strong Tarelvs are exchanged into weak Tarelvs to produce goods at a cheaper cost for multi-national corporations. This will help create more economic activities in the country facing economic problems. The reason why people are reluctant to help countries in trouble now is simply due to the fact that few people see there would be economic productivity for them to repay. With no fresh money pumped into the country there would indeed be no productivity. So if the national Tarelv is pegged and backed by the value of a portion of the real estate and land value then the foreigners would feel more secure in investing in that country again. So the capital flow will automatically level the playing fields among countries.

The “total aggregate real estate and land value” is the national asset that is much more fair and equitable, unlike gold, silver or any other commodities that only bless those who were born with them or those were strong enough to rob them. They are limited in nature and therefore unsuitable to serve as widely distributed currencies. That universal scarcity nature could only promote more crimes and oftentimes, more wars.

I never fully understood the fuss or hype about Bitcoin or those digital Linden dollars stuff. To me they are no more than the beads they give you when you are at a Club Med resort facility. Once you are out of the circles they have zero value (I still have some of them at home as souvenir.) but for those party animals at the resorts they mean everything to them then and there in order to get the next beer.

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On TARELV vs. Rentenmarks:

….. Well, to my great relief, the Tarelv idea wasn’t totally off the mark after all, Renten Mark that is.

I am not an economic historian and the Tarelv idea was organically developed solely on the back of my last 10-year’s research work on real estate derivatives and a new form of home ownership structure. Please see my other two discussions on SwapRent and FARJHO posted in your group.

One question I still have is that why the Rentenmark had such a short life span even though it did the job that it was originally created for? Some economic historians could really offer some help here.

The modern derivatives or quantitative finance techniques such as SwapRent and FARJHO may help create a sounder foundation for implementing the real estate money idea. It may give the policy makers and economists more alternatives to consider rather than beating the dead horse between the only two choices of fiat money and commodity money again.

Wouldn’t a new Greek Tarelv currency may help Greece with a chance to attract more fresh foreign capital to revitalize their own domestic economic prosperity again? If they failed, at least the foreigners could be left with a few pieces of Greek Islands to call home to!

In my humble view, fiat money based on Chartalism theory seems to be a total illusionary bubble in the global financial marketplace waiting to burst. It seems that we are not too far away of that awakening point now.

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On TARELV being an exchange rate pegging system vs. simply a new oddity currency:

….. “Convertibility” is the word to distinguish what a currency is vs. what an exchange rate mechanism is that makes a particular currency viable.

I like very much and respect the open mind attitude towards free market competition. The spirit of Tarelv is exactly that, finding the most competitive financial asset to back up the currency claims so that citizens of not just one country but around the globe may have confidence in holding and using them.

That is more and more important these days since in a flat world we are economically getting closer and closer through technologies and improved transportation means. One sovereign entity’s desire to make some Fiat money “legal tender” under Chartalism for its own citizens in one country may no longer serve the purposes anymore if foreigners do not agree. You got to put your own sovereign land on the line in order to gain the confidence of the foreigners to hold your otherwise worthless paper notes or electronic digits.

Otherwise a national currency “without convertibility” could indeed become beads in a Club Med resort, BitCoins for online techies or AnarchoJesse Labor Notes for that small New Hampshire neighborhood, etc.

06/04/2011 TARELV – Equity based property derivatives vs. fractional interests in mortgage notes as a new form of currency? – Part 1

Is the debt form of a claim on a financial asset better or is an equity form of claims on financial assets better to serve as a new form of currency for a sovereign community?  
 
Before I get to answer that question, I would like to first clarify again that the word “derivative” has been grossly misunderstood and has been mis-used in the media, especially in recent times after the global financial crises had happened.
 
Generically speaking, the word means what it means. Anything that is derived from something else is a “derivative”. Therefore “money” is in fact the world’s first “financial derivative”. It helped people save the troubles associated with a bartering system to swap goods for goods, to swap services for services or to swap goods for services and vice versa.
 
Hence the economic utility of a “financial derivative” could easily be understood. It is simply an alternative form of a claim on an asset that may serve better as a medium to swap between claims on different goods or services.
 
There are different derivatives such as simple derivatives vs. complex derivatives just as there are different types of people, i.e. thin people vs. fat people or care-free persons vs. deep thinkers, etc. There are good derivatives vs. bad derivatives just like there are good cholesterol vs. bad cholesterol in our human bodies. There are also derivatives based on equity ownerships vs. derivatives based on loose credit claims just as there are glass-and-steel building built on rock solid foundations vs. tall buildings that were hastily erected on quick sand that may be doomed to collapse.
 
So to carry on the conversation we would first have to let in those who could distinguish between the intellectual academic meaning of financial derivatives to join the conversation and let out those derivatives-bashers in public media who do not care about knowledge based intellectual pursuits.
 
The point I wanted to make is not another defense of derivatives but is rather that yes indeed, a currency should in fact be considered a form of a claim and hence a form of “financial derivatives” on certain assets a sovereign community owns. However, that unfortunately has not been the case in our modern world. The paper currencies, regarded as legal tenders and issued by may countries are in fact, very vague on what they are backed by.
 
The second question is that whether a claim of the equity ownership of financial assets that a country owns is better and safer than a claim on a debt obligation either collateralized on some financial assets or simply on the country’s verbal promise of its ability to pay better and safer.
 
These will be the subjects that I would like to continue to work on in future blog posts here in the coming months, hopefully with the active participation from many of the SwapRent.com blog readers. I have also set up a new group on Linkedin under the title “TARELV. Please feel free to sign up and leave your comments there as well.  
 

05/02/2011 The New TARELV backed foreign exchange rate system and SwapRent (SM)

As could be anticipated, SwapRent makes a precise new financial instrument with a robust mathematical model to make the TARELV based new exchange rate system a reality.

With reference to my two earlier blog posts, one on 04/12/2011 A new exchange rate pegging system based on and backed by each country’s total aggregate real estate and land value (TARELV) (http://swaprent.com/blog/2011/04/12/04122011-a-new-exchange-rate-pegging-system-based-on-and-backed-by-each-countrys-total-aggregate-real-estate-and-land-value-tarelv/ ) and the other on 02/20/2011 It is not Keynesian. It is not Monetarist. Perhaps we could call it SwapRentism? Any better suggestions? (http://swaprent.com/blog/2011/02/19/02202011-it-is-not-keynesian-it-is-not-monetarist-perhaps-we-could-call-it-swaprentism-any-better-suggestions/ ) the linkage between an external exchange rate for a country and the internal domestic free market based operation for swapping cash for an economic ownership of real estate could be established.

While the domestic money could sit in the bank deposit accounts to earn interests for any defined maturity date, it could also be turned into a claim on economic real estate ownership for any maturity date and earn a market based rent, i.e. the SwapRent rate through an exchange or a marketplace such as REIDeX. (http://www.REIDeX.com)

As a result, this new free market based operation between cash and real estate exposures could offer the collateral security that a foreign entity would need to gain confidence in holding this country’s external debt in the form of its currency, either in paper notes, coins or electronic bank records.  

The new uninhibited free market based capital market operation between cash and real estate exposures through SwapRent (SM) contracts could offer the enhanced liquidity to the holders and hence further confidence than those offered by the conventional legal forms of real estate and land ownership. A SwapRent (SM) contract could therefore even become a legal tender like the country’s own treasury securities.

04/12/2011 A new exchange rate pegging system based on and backed by each country’s total aggregate real estate and land value (TARELV)

This is an idea that first propped up in my head when I was a junior FX and gold options trader at Chemical Bank in the late 80’s. Puzzled and bewildered by the vague and imprecise ways that global currencies are valued, the quest for a viable alternative method has been with me throughout my entire career in the banking, risk management, financial services and real estate industries.  

While I started the efforts to bring the economic advantages of financial derivatives to the mom and pop home owners after the turn of the millennium, these new exchange rate ideas have become more and more concrete but not at a degree that I could start talking about it without having a fear of being considered eccentric.

Efforts in residential real estate derivatives, institutional commercial property derivatives, SwapRent and then FARJHO have proved to be more acceptable by the masses and practical enough for making a living at the same time than devoting my spare time to creating a new jaw dropping financial instrument for the central banks. Having said that I did not foresee back then that I would be selling the SwapRent related concepts and methods as alternative economic policy management tools to many governments within the past few years either.

Rather than spending time on explaining the various problems of the existing exchange rate systems which are well known to many people already, I thought I should better focus on explaining why a new exchange rate system based on the total aggregate value of a country’s real estate and land could be better. Bear in mind that the proposed method is a suggested valuation methodology that may lead to a more precise and scientific consensus of a fair value of an exchange rate vs. that of any other currencies, the real operation of the exchange rate trading mechanism would of course continue to maintain a free market based operation.

So what are the positive arguments for a new exchange rate system based on a country’s total aggregate real estate value? Here a few starters.

1. First it simply reflects what a currency’s worth is much better with some real substance behind it. Total Aggregate Real Estate and Land Value (TARELV) reflects a country’s wealth better than a GDP number since the real estate value is more a passive investment than a GDP number that has too much volatility due to the human involvement factor. It is the same difference between an investment in a real estate property vs. an investment in a business (securities related). The business activities could go zero like a company stock could go to zero but properties would always maintain their utility value and never become zero. 

2. Legally the real estate property value of a country could better serve as a collateral for the country’s currency (a form of debt) just the same way as a person’s house serves as collateral for his/her mortgage. This could inject the necessary confidence into the foreign persons that hold the country’s currency. This would serve better the financial markets better as the world moves from a one super power dominated monopolistic world to a oligopolistic world that has many economic and political powers. To further appreciate this point, one could simply imagine a person wishes to issue a currency or any negotiable instrument, it is much better if this currency is based on his house as the collateral rather than simply based on his words or his bluffing power. 

3. Real estates and land are better than gold or any other commodities since real estate and land have real utility value. Gold may could go back to become a useless metal when people suddenly start to realize that it is nothing more valuable than a tulip bulb. At most it could become another generic exchange medium like any other precious metals or stones in a barter like system. Its value to back other country’s paper currency from hoarding it does not make any economic sense.

4. The system may be subject to much less opportunities for manipulation by a country’s central bank’s scheming monetary policies or unscrupulous politicians’ wish to artificially depreciate and inflate out of their country’s external debts.

5. This new system would also automatically make the country’s government to direct its national resources to more productive uses to maintain the country’s economic health and steady growth by putting the Main Street economic activities on an even or higher priority with the non-productive financial asset manipulations in stock and bond markets on Wall Street.

6. The fluctuation of the exchange rates based on the real estate and land value would automatically adjust to the economic cycles in a “self-healing” fashion. When the real estate and land value declines and the exchange rate may become weak and hence may make the country’s exports more price competitive and increase its economic activities. It would also attract more foreign capital inflows. When the exchange rate increases vs. other currencies, the reverse would be true. It would become more expensive to export and hence reduced economic activities to prevent inflation from getting out of hand. There would also be more capital outflows based on enhanced investment opportunities in other countries. This would help create more global economic growth harmony since capital will flow to wherever it is cheaper to produce goods due to a temporary relatively weaker economy. This would be very different from the capital flight from a weak economy under the current exchange rate system.

To be continued …..

04/02/2011 Dispelling harmful myths about the need of a weaker currency

No other economic topic is more confusing and has been least properly understood by the public than the exchange rate system. Politicians love to use it for the opportunistic advantage it offers to blame foreigners for their fellow countrymen’s failure to economically compete. Academics love to use it to make a point for a half baked truth.

They may all have a point. The problem is that the points will all have only half of the truth. The politicians’ opponents and the academic’s rivals could all be right at the same time since there are always two sides to an exchange rate’s impact on the economy more like there are always two sides of a coin. More often than not it is completely futile to make an argument on what is better to have, a stronger exchange rate or a weaker exchange rate, for a specific short term purpose.

For short term purposes, when a country’s currency is stronger it is good for the assets and when it is weaker it is good for the country’s liabilities. A weaker exchange rate may help stimulate the domestic economy by creating more foreign demands for its commodities and goods but it will cause a permanent wholesale destruction of the country’s aggregate wealth in the global market place. A stronger currency may serve to slow down its domestic economic activities and hence lower inflationary pressure by reducing foreign demand but it may create permanent wholesale advantage and sudden increased wealth for every one of its citizens.

Over the long run, a country with a stronger currency commands confidence and respect of every human being on earth, could easily afford to develop more leading edge scientific discoveries and engineering monuments, let alone a much stronger military defence force. It also naturally speaks much louder in global politics, attracts top talents to migrate and work for it to further enhance its competitiveness. Therefore the strength of a country’s exchange rate is really a report card of its government’s performance, as fully discussed in my prior blog post on

10/15/2010, “Foreign exchange rate is the competency report card of a government’s ability to manage a country’s economy “. (http://swaprent.com/blog/2010/10/15/10152010-foreign-exchange-rate-is-the-competency-report-card-of-a-governments-ability-to-manage-a-countrys-economy/)

So next time you read an op-ed commentary, hear a comment by a guest speaker on TV, or study an academic paper arguing for weaker currency, perhaps you would like to find out whether the person has a political agenda trying to spin a story to confuse the public or perhaps he/she is simply a complete moron.

Hoping to gain short term export advantage to create temporary transient job opportunities instead of focusing the collective efforts on increasing longer term productivity or economic competitiveness by promoting diligence, hard working ethics and/or innovations will simply continue the wholesale destruction of our country’s wealth and eventually reduce us from a major league super power to a little league wienie power.

10/15/2010 Foreign exchange rate is the competency report card of a government’s ability to manage a country’s economy

It is quite a amazing how the current Administration of our government has tried and almost accomplished the goal of brainwashing or duping the American public into believing a lower US Dollar value is good for us. They even got many financially illiterate politicians (Congressmen) to sing their tunes with them. 

Try to imagine that your kid comes home back from school with a D on his report card, argues with you and tries to brainwash you that an F should be better so that he would be able to compete with other more diligent and industrious kids? Furthermore he complains that the rules need to be changed so that the other kids should not study hard and instead should be playing more like he does? He calls the bad grades on his report card a “manipulation” by those hard working kids. He even labels those industrious kids “Grade Manipulators”.

The simple truth is that a lower exchange rate would produce the immediate wholesale sell-off of a country’s wealth in the global marketplace, not increasing any genuine economic competitiveness. Economic competitiveness is produced through productivity and innovations, not by artificially altering exchange rate so that incompetent politicians could cosmetically buy some more time to hang on to their jobs a bit longer.

Competent governments in managing the country’s economy will be rewarded with a stronger currency and hence increased national wealth. Responsible and hardworking citizens under an incompetent government, on the other hand, will lose their personal wealth instantly in the global marketplace when their national currency is devaluated, no matter how hard they may have worked individually. 

There is no quicker way to make the US lose its position as the No. 1 economy of the world and its associated super power status than de-valuating the US dollars. Foreigners with a stronger currency would then be able to buy our treasured assets in a fire sale. In addition, with a weak currency, the US would not be able to compete in the global marketplace to buy commodities such as crude oils, rare earth materials, gold, silver, platinum, food, crops, other raw materials etc. The cost to produce manufactured goods in America will be getting harder and harder as well as more and more costly. It will make the US lose even more economic competitiveness and get our country in a downward spinning vicious cycle. The list of the potential problems and disasters goes on and on …

Perhaps it is time that the parents sit down with their kids for a serious talk? 

P.S. I made a keynote speech for ISDA’s Annual General Meeting held in Singapore back in March 2006 regarding the China’s role in the global financial market. In that speech I spoke about the exchange rate issues. The points are still quite valid. Here are the links to the presentation and the speech video.

http://www.slideshare.net/SwapRent/aeft-isda-2006-agm-keynote-speech-in-singapore

http://www.slideshare.net/SwapRent/day-1-3-web-custom

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