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Ok, so the exchange by the price of the raw material is just a barter exchange. That should theoretically not have the adverse impact on the economy on a large scale because it's being done IN ADDITION (!) to the paper tender. If some people would start hoarding raw metals, that would not seriously impact the business activity because the state can still print more paper tender.Originally Posted by Ramil
The economy of the various countries these days is tightly coupled and any kind of drastic change would have tremendous adverse implications for Russian economy as well.
You know what? I agree with you here. It's not intuitively fair. But the ghost of the Great Depression is always looming over the FAIR market economy. The periods of the slow economy. The FAIR deficit of goods as well as the FAIR great surplus of labour. Very few new enterprises are open whilst the old enterprises are closing at a regular pace. The FAIR high unemployment and FAIR low purchasing power. From a standpoint of a regular person, you don't care how the state should act, but you feel it would be FAIR for the state to interfere. So, the neoclassical economists would say: in this fair situation of the total fairness, but low living standards, let's stimulate the creation of the new enterprises first, and the employment and the purchasing power would follow. So, what do the new enterprises need? Money to start their business. Let's give them money UNFAIRLY AT THIS POINT. And when the new enterprises succeeded and covered the UNFAIR printed paper with FAIR goods and services, that effectively made that printed notes the FAIR money worth something. As a matter of fact, that is probably sophistry, but it works. The bottom line of each and every economic policy is to make the people work hard. You can motivate them by painting a pretty picture of them working hard now, but in the future them working somehow and have whatever they might need (=> from everyone according to his abilities, to everyone according to his needs => Communism), or you're painting a pretty picture of them working hard always and by that having a house, a family, a car, nice clothes, etc. (=> American dream => Capitalism). A golden standard is just another way of "putting a carrot before the donkey to make him run" as people believe the hard-earned money is theirs forever. The first food scarcity would make a wake-up call rather bluntly.
I think it should be a bit more specific than the "other countries". But, a short answer is the same: the financial system is tightly coupled with the US economy (as we could all have witnessed recently).
Exactly. That was is called the "purchasing power". Before any goods or service is produce an entrepreneur should answer himself a basic question: will anybody be purchasing it at all? Then he should answer another question of: HOW MUCH of it he should produce? If there are less working people outside, he would plan for less and lay off the extra workers he would not need. Those who were fired do not have money now to purchase other enterprises goods and services which make the other enterprises plan for less and lay off their workers as well. When the purchasing power is low, the amount of produced goods and services is low as well. Say, you're a manager of a developer team in Russia which exports oil and you purchase Chinese goods. Why should you care about the US economy, right? Because, the US is a major consumer of the Chinese goods as well. If the US economy is slowing down, it would create high unemployment and reduce the purchase power of the US consumers and the production in the US goes down. The US reduces consumption from China which causes China to produce less and deteriorate their consumer purchasing power. As a result, the US and China would need less energy to produce less goods and they would purchase less oil from Russia. That would mean firing some Russian oil miners and paying less taxes to the Russian government. That would mean the whole public sector in Russia would require a bigger slice of the budget and the Russian Government would cut their expenses subsidizing other enterprises and governmental contracts which would deteriorate Russian citizens purchasing power. Your company be it public or private would feel it does not have that much contracts anymore (either directly from the government or rolled down from that) and it would fire some of the developers. Your team would be smaller and other teams would be smaller. The higher management would think they could combine the two small teams into one and plant only one manager to oversee them. Thus, you've lost your job. Of course, I simplified things because Russia does not sell oil to the US directly, but to Europe, so they would be much more economical chains, but eventually they will hit each of us. The deficit of goods caused by the surplus of labour. Fair enough?
Now, I could call that sophistry, but I wouldn't because I like you.Using the USDs as a most traded currency does add some value to it, but it definitely does not turn it into the preferred reserve currency. It's a choice of each country how they are to save their capital. If they want to purchase the US bonds - it's their choice. If they want to purchase gold and keep it in the vaults - it's their choice. If they want to build more infrastructure like roads - it's their choice. It's a free market.
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