[Marxism] Robert Triffin and the monetary contradiction

Jurriaan Bendien andromeda246 at hetnet.nl
Mon Aug 2 17:15:41 MDT 2004


An interesting snippet from a pundit investor which I found on another
errand, relating to my earlier post about the "currency wars":

"The late economist Robert Triffin explained that there are two ways in
which an economy can adjust to excess demand caused by excess financing
(money supply growth). An increase in domestic prices is one way. Under
certain conditions, however, a current account deficit may "constitute the
main channel of adjustment to inflationary pressures and reduce
correspondingly the extent of domestic price increases."

Triffin also explained that as long as the excess demand persisted, any
measures that successfully reduced the current account deficit would boost
domestic prices, and any measures that successfully reduced the domestic
price level would boost the current account deficit. Only the removal of the
excess demand (the excess money) could solve both problems.

This is why we watch the money supply growth rate so closely - as long as
the money supply continues to grow at a fast pace then either: a) the
current account deficit will continue to grow until it eventually causes a
sharp downward adjustment in the Dollar's exchange rate, and a consequential
sharp rise in the gold price, or b) domestic prices will eventually
experience a substantial rise, thus boosting inflation hedges such as gold
and gold stocks.

This is also why the US monetary authorities are loathe to do anything to
specifically address the burgeoning current account deficit - this deficit
is the key to maintaining a reasonably stable price level in the face of
explosive money-supply growth."

From: http://www.gold-eagle.com/gold_digest_01/milhouse071601.html

Of course, "excess demand" (or excess capital) is a generality, because it
doesn't tell you who exactly owns most of that excess buying power. It
certainly isn't a majority of the American workers, employed or unemployed;
if anything mainly what they did, if they could, was buy homes on credit and
realise a capital gain that way. But anyway, here's the evolution of M3 for
the US$ (mid-year, seasonally adjusted, billions of dollars):

2000 6863.5
2001 7666.2
2002 8221.7
2003 8847.7
2004 9293.0

This suggests that the total money supply increased nominally by $2.5
trillion in five years, i.e. a one-third increase in the stock. Makes you
think, doesn't it.

Here's the evolution of the annual (negative) balance for the current
account deficit (billions of US$)

2000 -358.3
2001 -393.7
2002 -480.9
2003 -541.8
2004 -600 (crude estimate)

This is a nominal increase in the last five years of about $242 billion,
i.e. a whopper two-thirds increase in the annual current account deficit. As
regards gold prices, here's some averages (troy ounce, London PM fix):

2000 - $275
2001 - $271
2002 - $308
2003 - $363
2004 - $392

That's about a $117 increase per ounce over five years, or a 42% increase in
the market value of gold. Here's the exchange rate of the US$ against the
euro (averages):

2000 - 1.08 euro
2001 - 1.11 euro
2002 - 1.05 euro
2003 - 0.88 euro
2004 - 0.82 euro ?

The decline of the US$ against the euro was 24% over five years. And,
finally, here's the exchange rate of the US$ against the Yen (averages):

2000 - 115.906
2001 - 125.485
2002 - 119.855
2003 - 109.950
2004 -  108.500 ?

The decline of the US$ against the Yen was about 6% over five years.

I should really adjust some of this data for the CPI, but somebody else can
do it, I think you can see the point.

Jurriaan

















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