Chapter 11

Currency is a crazy thing. Wheelan in thés chapter gives us a look at international trade and currency and the PPP which stands for purchasing power parity. In English that means the worth of currency when purchasing things. Wheel an suggests that the global market is separated by the currency.  Each government  controls their currencies value. An undervalued currency makes imports taxed and exports subsidized. On the other hand over value in currency does the opposite. It makes imports cheap and exports less competively priced. Then there is the gold standard which standardizes currency but that is for another day.

Chapter 11

Towards the beginning of the chapter, Wheelan compares international economics vs. economics within countries.
"International economics shouldn't be any different than economics within countries. National borders are political demarcations, not economic ones. . .Captial flows across international borders for the same reason it flows anywhere else: Investors are seeking the highest possible return" (245).
Wheelan emphasizes that just because we are separated by borders and use different currencies, international economics is  no different than economics within a single country because everyone has the same goal in economics: we want the "highest possible return". Wheelan goes on to describe the complexity of international transactions. Although it is no different than a transaction made within a single country, it is more complex because of the different currencies. Because of the lack of intrinsic value in both currencies, an American dollar doesn't have value in Japan, and yen doesn't have value in America. So Wheelan states, "If the American dollar is just a piece of paper, and the Japanese yen is just a piece of paper, then how much American paper should we swap for Japanese paper?" (246).

Chapter 11

Near the end of chapter eleven Wheelan states that "the goal of global economic policy should be to make it easier for nations to cooperate with one another." This seems straightforward yet the rest of the chapter covers how complex state of the global economy. It has become evident that the gold standard is a bad idea as it proved disastrous during the Great Depression. Before reading this chapter I did not have a good grasp of what the effects of a currencies strength are; it seems counterintuitive at first but a stronger currency doesn't necessarily mean the economy is strong, as was seen in Argentina when the peso, tied to the dollar, remained strong while the Argentinian economy languished. We don't have a perfect global economic policy that works to make cooperation seamless, but we can keep working to improve the state of global economic relations.

Chapter 11

What struck me most about this chapter was the section about our relationship with China due to loans, debt, interest rates and exchange rates. Personally it freaked me out. It kind of seems like we keep screwing over China and they keep letting us. Unfortunately the "not-so give and take" relationship is hurting both nations.  Wheelan pretty much summed up my fear when saying that although both China and the US are negatively impacted by the economic relationship, "still, that's an awfully powerful weapon to give a nation with which we often disagree." What if China gets together one day and says, "we want all of our money back, or else!" As much as we all hope that neither country would use war as a threat, in simple terms, history has proven that humans are mean to each other. I'm confused why exactly China hasn't become more upset about the money we owe them, and also why we keep borrowing money from them. It seems like a huge hole that just gets deeper and deeper. This is all fairly obvious but it really freaked me out and I feel like it should freak out other people too (cough the government).

Ch. 11.

Uuhh, what?! I think I missed something. I've been dealing with exchange rates for years now and never realized they were seen as a "good" that suffered from supply and demand. I thought it was just the tantamount (vocab word ha) of money but in another country's system, nothing more. It blows my mind how a country's money can be bought! Of course, I'm going to talk about the peso story. In Mexico everything is cheaper, no matter what it is. Of course imports are more expensive but the equal out to being less expensive than they would be here in the state, let alone England. It would be more profitable to sell dollars to get pesos because the pesos less valuable than the dollars. They go up in increments of 10 so 10 pesos should be one dollar but the exchange rate is off and recently the exchange rate has been hanging around 13 pesos to the dollar. People would think that things would be more expensive there but I can buy a liter of ice cream for the equivalent of about $1.20 or so. But goods like a huge plasma TV would cost around 3-5 thousand pesos, or 2-4 hundred dollars. That's not counting quality.
All this international stuff kind of confuses me. I understand how goods can vary drastically in cost from country to country, but their currency being an asset and form of trade is interesting.

Chapter 11

As I just recently visited France, I found this chapter intriguing as the fact that the dollar is significantly weaker than the Euro was definitely a hot topic of conversation for our group during our tour. In fact, Payton Kinkead traveled around with a calculator and the exchange rate to alert one of our group members just exactly how much they would be paying. We very early on decided it was best to buy something that we wouldn't think we would find or be able to buy in the United States because it was just not worth it. Reading this chapter reinforced that idea, because paying more out of pocket for something that you could find at any American mall becomes a big deal when the dollar is worth less than the Euro. It also reminded me that while I hear about the devaluation of the dollar, I don't really think much about it in my day to day life, apart from those 13 days in France. International companies really do care about the value of the currency, and I was shocked by the fact that when the "Japanese Yen appreciates the dollar by one yen, their annual operating earnings fall by $450 million". Or even more dramatically, Iceland's economic disaster when their banks failed but everyone was using multiple foreign currencies and unable to pay them back. I think the fact that so many countries are so dependable on different countries for financing that helps the Euro make sense because it is essentially as ridiculous as Illinois causing Iowa to go into recession. However, there is so much complexity and depth to the connecting monetary markets can have on each other and all of the possible solutions and outcomes, it's no wonder the challenge of aligning currencies still exist.

Chapter 11: International Economics

6.

In one of his examples discussing the rate changes in currency, Wheelan mentions "burgernomics"(250). He uses the example of McDonald's Big Mac prices in China compared to the United States (thus the term, burgernomics). Using the method of comparison in how much it costs two countries to purchase one item in their own monetary unit (such as buying a Big Mac), it would be expected that the ending payment for the item would be in relation to the actual value of the dollar or value of the currency used. However, in Wheelan's example, it was found that "the renminbi massively undervalued what 'burgernomics' would predict"(250). Wheelan then explains the problem, "The Chinese government has promoted economic policies that rely heavily on a "cheap" currency"(250). Every currency is different and unique, and in that sense they have different purchasing power depending on country and state of economic growth. Changes in the prices of goods and services in the international market is tricky - what one expects is not always what one receives.

Ch 11

The concept of weak currency being not necessarily a positive but not a negative entity in the economy struck me as interesting in this chapter because I am so accustomed to hearing about its negative effects. "There is nothing inherently good or bad about a "weak" or "strong" currency" Wheelan explains and validates with the clan that a weak currency incentivizes cheaper exports. This may hurt consumers, but so could an undervalued currency. Additionally it was interesting to hear how the exchange rate can affect and be amended to strengthen a particular currency.

Chapter 11

On page 231, he discussed the issue of inflation and used the example of a newspaper, saying that in Germany, their newspaper in one year was 70 million dollars cheaper then it was only two years later, and it had nothing to do with the newspaper, the newspaper didn't improve in quality or begin to reach new people, instead it all laid in their currency. There was so much inflation that their dollar became essentially worthless. People had to spend their paycheck a right when they got then because only a few hours later the price will have increased.  This goes back to a video that we watched in class where in a grocery store in Africa, all of the shelves were empty because the people had to buy everything they could before the price increased again. By he value of the goods aren't increasing causing the price to go up, but the value of the dollar is decreasing causing the items to appear to be more expensive.  He mentioned that in Latin America in the 80's, it was more beneficial to burn the money and use it for firewood then it was to actually spend it because at then least the money would be of at least some use.

CH. 11

The exchange rate for different currencies is complicated. It would be hard for countries or big companies to trade and keep track of all the rates. It seems like it would be a lot simpler if there was a set currency that countries and big companies could use. There could be a universal currency that would hold value you for everyone and there would not have to be price increases/decreases for the countries or big companies. Because the U.S. owes money back to certain countries it would be difficult to calculate how much money needed to be given back to these countries. Also how would countries know if they are getting back the actual amount that deserve. Having a universal trade currency could be nice, but then if that currency collapsed many countries would end up being screwed! Currency is very complex and there probably is no good way to go about solving this problem unless there was one universal currency. Except even that would have problems tied to it.

Chapter Eleven

What caught my attention in this chapter was the idea of a "soft currency." Wheelan tells a story about a time that he crossed into East Berlin and was given currency that wasn't good anywhere else and how he in fact had to leave his money there in an "account." This idea helps him explain his next example with Pepsi selling its product in the Soviet Union. Instead of selling their soda, Pepsi simply bartered with the Soviet Union and got Stolichnaya vodka instead. The vodka held actual value, therefore this system worked. The problems come when this trade doesn't work as orderly resulting in riots and chaos.

Chapter 11

I agree completely with Wheelan when he is talking about how our countries economy should be exactly the same as other countries. He relates it back to politics with, "National borders are political demarcations, not economic ones" (244). People get caught up in how we need to protect our country from other countries when in reality we all need to work together and trade with each other to make the economy run smoothly. The question that came through my mind while reading this chapter was why not make the same currency for all countries, wouldn't that make everything more balanced and run even more smooth? I also didn't understand the part of the chapter that talks about fixed exchange rates it seems like more of a problem then it is helping anyone so why do we still have it around?

13

Literally it gets me so rattled how screwed up most of these governments are. Mostly about how governments put up so many ridiculous hurdles so that they can get bribes from people to get around them. Like to me if a government is putting all these hurdles up they should have no right at all to complain about their struggling economy. It just reminds me from a couple chapters ago about how hard it is to start business in undeveloped countries. Although this topic frustrates me, I found the quote very interesting about how "If a nation starts out skilled, it gets more skilled. If it starts out unskilled, it stays unskilled" (Wheelan 302), it just makes me wonder then how will these struggling countries ever develop? I understand that you need education to to get people to chives higher GDP but what can you do when you can't just ship high GDP people to a poor country. These countries have to be able to have the resources to support the high GDP people or else like Wheelan said they will go to places where their talents are more valuable. Give me answers Hoffner.

Chapter 10

The most interesting thing I found in this chapter was about the ripped and crumpled up rupees. I thought it was strange how the government recognizes those rupees and legitimate, but no Indian citizen will accept them. They totally lose their value, even though the bank still takes them. I wondered about how much wealth and economic growth India must lose because of this.

Chapter 10

My biggest take away from this chapter regarding the Federal Reserve is that it has a lot of power, a lot of options, and a lot of brain power to be able to solve any economic problems, yet even it always can't. This chapter, like many regarding the craziness of economics, was both uplifting and depressing. It is amazing how many stops the Fed can pull out to try to save us from what appears to be our own destruction. Yet they also have a good amount of power to stop us from getting there, by "taking away the punch bowl just as the party gets going". I cannot imagine the difficulty that would be involved in trying to guess future impacts inflation, loans, etc. will have on our economy. and hopefully one day it could be better solved. I think the fact that it is a private but government tied sector is the key to it's ability to be so successful, and make larger decisions so swiftly.

Chapter Ten

Reading chapter ten has given me a new awareness of the balancing game the federal reserve must play to keep inflation in check and keep the economy from running out of control. It is terrifying to realize that so much of our well being rests on paper that only has value because we believe it does. Letting inflation run rampant makes us feel rich for a very brief amount of time before it becomes a big problem while deflation is even worse. I was previously unaware of how important the federal reserve is in keeping the economy "healthy" through controlling inflation and monetary policy.

Chapter 10

On page 230, Wheelan talks about how in India, the people don't accept crumpled up notes, but not because the banks and tellers won't accept the torn or crumpled notes, but because the people around them won't accept them.  This goes to show how we as individuals have such a heavy effect on the things around us. Because the people don't accept the crumpled notes, we don't want them ourselves even though at the banks level they are accepted. If the bank accepts them then we should see the trade as perfectly accurate and ok but because the people see an issue with it, the completely discard the currency and to them they decide it isn't worth anything. When it is.  This also backs up the argument that money is faith... If we want to pay with bills because we say bills equal money, then bills equal money, it people say that rocks hold value, then rocks hold value and worth, and if people say that crumpled up notes don't count for anything, then to the people, crumpled up bills do not count for anything.

Ch 10

What most interested me in chapter 10 was the fundamental steps the Federal Reserve takes to correctly distribute money. We talk about looking at the long term but in this case it was surprising that it is inefficient to look at the long run because our nations investments and expenditures rapidly change. I always assumed that a fast growing economy equaled a good economy. Without considering inflation and the stability of the current economy it seemed reasonable. Though this is not the case, which highlights the importance of the ferpderal reserve. Also the "purchasing power" we give to money fascinated me because the physical piece of paper that money is, is valueless. Yet, emotions are evoked whenever we see a dollar bill-validating its worth that we have given it. The questions I had from this chapter pertained to inflation and what our effect on it is. In my head I think of inflation as a balloon waiting to pop. Will our economy or any other nations economy ever pop, leaving all currency valueless? I there a way to efficiently reverse inflation?

Chapter 10

What struck me as most interesting (and frightening) was how politics relates to inflation. Throughout the year we have learned that politics plays a pretty major role in our economy but I never considered how it would impact the nitty gritty such as inflation. It's strange how easily our nation will fall for the brief beginning period of an "out of control inflation party." We think that we have stumbled into economic growth when in actuality we are heading downhill fast. I wonder if our momentary calm before the storm is due to ignorance, lack of information or simply our human nature to spend more money when we have it. It's scary to know that politicians take advantage of this false security in order to become re-elected. However it is reassuring to know that people like Paul Volcker (a former chair of the Fed) acknowledge the dangers of breaking the independence between the Federal Reserves and the executive branch.

Chapter Ten

Most teenagers (myself being included) don't go around thinking about things like inflation and how much the dollar is worth on a daily basis. We do however sometimes complain about not having enough money to buy the things that we want. Before this chapter I wondered why we couldn't simply print more money, I knew that it would cause serious consequences I just didn't know what they were. Econ does a good job of showing how everything is interrelated--there is a cause, and an effect. Printing more money would physically put more money in everyone's hands so for a brief period people could afford the things that they wanted. Until of course producers products became scare and the prices were raised. That same dollar is now worth less then it was before, meaning printing more money was useless. Although the whole system is much more complex then this, chapter ten did a good job of explaining what I had been wondering in laymens terms.

Ch. 10.

I had never completely understood inflation before. It was always a big word smart people used. Now I get to be a smart person! :) The way Wheelan  describes the steps, reasons and causes of inflation was fascinating to me, it totally explained the process in a way never heard before. "When demand exceeds supply, firms can charge more and still fill every boat or sell every computer." p. 221 If consumers demand more than the economy can produce, inflation happens because of higher prices. I understand this now. That's why money is "losing" it's value, and that's why we're paying higher prices for items that used to be so much "cheaper." As a sidenote, it was interesting to see how supply and demand from micro economics contributes to macroeconomics. If demand is greater than supply, it's bad. If supply is greater than demand, it's bad, even worse. There is a limit to how fast an economy can grow. We can't just sprout overnight like we can with our GDP numbers by adding a certain form of health care expense to the calculations. Economies have to balance and pace themselves.

Chapter 10

     The federal reserve seems like a really smart idea on our country's behalf. It protects us from loosing a ton of money and causing more trouble when we are in trouble like the stock market crash and things like that. Wheelan states it perfectly, "it is an awesome power" (219). The "speed limit" idea makes a lot of sense to me. We have to give ourself boundaries or else the market will crash and will destroy our country. Although some of us might go over the speed limit we all know that we could get caught and fined. If there is inflation we know that we are going "over" the speed limit and could get into some trouble. We need to give ourself rules and limits or else we would give out money that we don't have and end up with no money left after all.

CH 10

This chapter mentioned that the American economy can grow around 3 percent per year. Otherwise the inflation rate will go up, which is not good for our economy because the $1 cannot buy as much as it could before. I was wondering about China though. In class you told us that China's economy is growing at a much faster rate than the U.S. economy. How has the Chinese economy not suffered from this. Their inflation would go up and they would fall into an economic recession. It is confusing to me how their economy is able to grow so quickly and not suffer from it. My best guess is that because China was not as far as up as we were they were able to grow more quickly. People may think China will pass the U.S., but eventually China will have to slow down because there is not as much room for them to grow. If there is a better reason than what I just gave I'd like to know. Or if my reason I gave is very wrong I'd also like to know.

10

Something that I found very curious in this chapter was how our country works so much more then every other country in the world, but our economy struggles still. I did some research and found that the French end up working 499 hours less then we do per year. Plus France's inflation rate is lower then ours which sets their country up better to have a stronger economy since interest rates aren't so high. So the question that raises my attention is so if we as Americans took a step back from working so much and tried to enjoy life rather then always worried about having more money, would it help our economy in the long run? Since lots of inflation ruins our economy a lot then would it be better if we stopped rushing to spend out money to quickly? My final word is that since Wheelan discusses how governments can settle their debt by "pulling the inflation rip cord" which in essence seems to screw everyone but the government, so I know that the federal reserve has done much to limit financial crisis but is there any way to make it to so we help our economy for longer then the short term.

Chapter 10: The Federal Reserve

The Gold standard, I've heard a lot about it but I've never understood what it implied. Our modern currency doesn't have any value because we don't use the gold standard. That means with the dollar, "you can't take them to the government and demand anything in return"(Wheelan 229). This brings me to the functions of currency. "Firstly it serves as a means of exchange"(229) This is great for me because that means I don't have to accept Hostess cupcakes as a means of currency when I work at the local Hostess cupcake factory. "Second, it serves as a unit of account"(229) This means we can clearly see how each item we want to buy or sell can be measured against another product, because their worth is measured on the same scale. "Third, money must be portable and durable"(229) If money wasn't durable the government would have to produce more and more which is expensive. Also, It has to be portable for the ease of purchase. "Last, money must be relatively scarce so that it can serve as store value."(229) These concept could also be seen in U.S. prisons. Inmates used some quantity of mackerel as a currency. Mackeral doesn't spoil and has worth because it can be eaten.

Chapter 10: The Federal Reserve

7.

The Federal Reserve has a difficult job: they can slow or quicken the economic growth of the United States and impact the global market in doing so. In the past, I have never given much thought to The Federal Reserve. If someone asked me what they did or how they did it, I would not have an answer for them. Wheelan broadened my narrow view of the work they do and how much power they retain. He brought up a good summation I appreciate, "Monetary policy is tricky business. Done right, it facilitates economic growth and cushions the economy from shocks that might otherwise wreak havoc. Done wrong, it can cause pain and misery"(242) which brings me to my next revelation: Interest Rates. I have heard of interest rates and have a very basic understanding of how they work and what they impact, but again Wheelan helped me to understand the concept better. The Federal Reserve uses interest rates to regulate the economy. If it is growing too quickly, they increase rates and the reverse is also true. The more out of hand the economy gets, the more painful it is to bring it back to a good rate. Paraphrasing Wheelan, he compares the economy to taking away the punch bowl from a party that's just gotten started. Yes, it's annoying to some, but the idea of the future has to be taken into account. Obviously no host would take the punch bowl away from a party that just began, but the basic idea still applies on a greater scale. With a private party, you have a certain number of people that attend and you know who they are, what their values are, and how they behave in advance. Now take that party and magnify it to approximately 316,148,990 people you don't know. They all spend differently, act differently, and make right and wrong decisions. You cannot control who attends the party and that's the problem The Federal Reserve must face. 

Chapter 1

Charles Wheelan juxtaposes the relationship of democracy to government and the relationship of the free market to economies. I find this idea highly intriguing. After taking Government I was reminded of the remarkable aspects of the United States of America's governing system. However, I also became torn due to the the failures democracy still has: how it let's people slip through the cracks. Charles Wheelan's comparison changed how I view free market economies. I used to swing from one extreme view of the free market economy being hurtful and selfish to it being the best economic option there is and ever will be. Today I understand it is neither like Charles Wheelan states it is, "a decent, if flawed, choice among bad alternatives."

Introduction

"Most of the great ideas in economics are intuitive when dressings of complexity are peeled away." Charles Wheelan states this towards the end of the introduction. Earlier in the introduction he substantiates this claim with logical summaries of human behavior while using economics, such as the financial crisis hot potato game, the possibility of politicians creating poor economic policy for political gain, and the improper outlook Americans have on reforming health care. All of these issues I have wondered about but the numbers and foreign terms used by economists in news articles or on NPR led to my deeming them over my head issues.