“Economic therapy” called devaluation.

 

Low euro is like a “deflation” of the Euro. Is this good or bad ?

Lets talk about devaluation.

The idea being that the goods the nation has to offer will cost less with devaluation.

Good idea, right? Many countries have resorted to this economic maneuver in order to increase exports.

The question always is: are the benefits of the drug greater than the cost of theside effects?

The same concept needs to be applied to theEconomic therapycalleddevaluation.

Importing essential goods, like food, which must be imported because much of it is not available locally, suddenly costs more.

The increases in the cost of food adversely impacts morale.

I suggest to you that devaluation, like inflation, causes people to lose trust in the currency of the country.

The public feels ambushed by the government it has elected.

Everyone-from all socioeconomic groups-feel undermined by those they have chosen to lead their government.

Devaluation has short term benefits, but long term costs.

The benefits are easy to see: an increase in exports.

The costs are more difficult to assess or even notice.

People cut their saving, which impacts capital formation.

Consumption begins to increase as people start ridding themselves of money because it has an unstable value.

Most important of all, the lack of trust in government has its own repercussions,which are also hard to quantify, but they are there.

Devaluation is a mechanistic solution: cut prices, increase volume.

Related Posts

  • 76
    The European Debt Crisis Visualized http://www.bloomberg.com/
    Tags: europe, economy
  • 71
    There is no reason to further extend a European Union deadline for France to cut its budget deficit, the EU's top economic official said on Saturday, adding policy-makers should have learnt the lessons of the debt crisis and stuck to agreed rules. In June last year Paris got two more…
    Tags: cut, government, economy, economic, europe
  • 70
    Europe’s leaders argue that only deep budget cuts will revive the economy and inspire the necessary confidence among investors. The deal represents a major milestone for Greece, which was effectively shut out of the markets in 2010 when the debt crisis left it dependent on international bailouts to stay afloat.The…
    Tags: economic, costs, euro, countries, will, economy, europe
  • 67
    "There are no facts, only interpretations”, Friedrich Nietzsche once said. One needn’t be a nihilist or a relativist to be bemused at the latest radical rewriting of history from our official number-crunchers. Everything we thought we knew about the British economy’s performance over the past 15 years or so now…
    Tags: economy, drug, inflation, called, greater, europe
  • 64
      Feb 8 (Reuters) - If Greece is forced out of the euro zone, other countries will inevitably follow and the currency bloc will collapse, Greek Finance Minister Yanis Varoufakis said on Sunday. Greece's new leftist government is trying to re-negotiate its debt repayments and has begun to roll back…
    Tags: will, euro, europe, government, economy