In earlier times, money as a medium of exchange and store of value was made of precious metals like gold and silver. Indian rupee, Indonesian rupiah derive their names from Rupa meaning silver. Dollar (US, Australia, Hong Kong, Singapore) derives from thaler named after Joachimsthal in Germany, where silver mines were located and from whose silver the currency thaler was made. Spain's currency peso (?origin of paisa) equivalent to a gold piece of eight or eight reales (presently Brazilian and Iranian currency) and Britain's guinea were tied to specific weight of gold. The rigid grounding of currency to gold or silver content and value, allowed negligent inflation over centuries except when there was a severe imbalance of supply and demand, as in crop failures or aftermath of devastation by war or plunder. The Indian rupee was valued at five to a dollar in 1968 and deficit spending and renouncing the gold standard let it debase to fifty a dollar two years ago (Currently $1 = Rs.40.00). The abandonment of the gold standard by America with profligate deficits has devalued the dollar from 350 yen to a hundred yen and from twenty-five cents for one Deutschmark, to a 1.6 dollars for one current Deutschmark (Euro), the present German currency.
The idea behind the Bretton Woods agreement after WW2 was that exchange rates between currencies should be fixed and some restraint maintained on large capital transfers. Since the US owned half the world's gold and was the largest creditor nation, whose currency the dollar was exchangeable for an ounce of gold for thirty-five dollars, the dollar was granted the status of the premier reserve or international currency to replace the British pound, tottering on its last legs due to wasteful spending in two world wars to destroy rising Germany to maintain British world hegemony and empire. The sorry consequence was loss of empire and status, to being the current lapdog and spear carrier of the newest white hunter America, now following in the predecessor's footsteps even more quickly in time. America misused the international reserve currency status of the dollar to prosecute the Vietnam War under President Johnson without raising taxes to fund the war. He had a benign excuse not to raise taxes, because he was trying to improve the living standards of poor Americans by his great society programs.
The result was rapidly rising inflation and trade, budget and current account deficits with cantankerous DeGaulle (and other nations) lining up at the gold window to exchange a pile of dollars. Nixon slammed the window shut and laid the foundation for floating currencies. He and his surrogate president Ford with repeated and possibly crippling head injuries sustained in his prior football career, failed to tame inflation leading to an upset victory by the pious but incompetent Carter who lost to Reagan, the demented ideologue without any sense or compass for right and wrong. Federal Reserve Chairman Volcker, an intelligent and honest public official (a rare breed) raised interest rates into the stratosphere (Prime lending rate 21%) to choke and squeeze out inflation. The dollar shot up in value and idiot Reagan with typical Republican incapability of thought, cut taxes immediately with a promise to cut spending later, which he failed to deliver. He increased defense spending massively and bankrupted the Soviet Union, mired in a losing war in Afghanistan. He also sowed the seeds of a future US bankruptcy.
The current idiot heir of Reagan blessed with congenital retardation instead of his mentor's dementia, is stuck in two losing wars (Afghanistan & Iraq) and a sinking economy, has doubled the rate of deficits to a trillion dollars per year. The newest Republican primate moron contending for the presidency wants to cut taxes even more and possibly start a third war with Iran while prolonging the present two wars to hundred years or more. He probably wants his name in the Guinness Book of records to replace the perpetrators of the Hundred Years War. Why is there such a large prevalence of severe mental handicaps in Republican candidates for the presidency or does it extend even to the entire party? In addition, recent Republican presidents think little of the Constitution they are sworn to uphold and even less of the Bible they swear by and on.( Nixon and his tawdry burglaries and secret bombings in Asia, Reagan and his Iran Contra and midget Bush and his use of fear to illegally spy on US citizens, torture and commit war crimes in contravention of Geneva Conventions)
In defense of the Democratic contenders, one has to concede that they are only stupid and dishonest at worst and evasive and liars at best. The Republicans are honest in that they unequivocally announce in advance that they intend to cut taxes. Once they win the election they fool the public that their taxes are cut more than those of the Republicans' rich donors who keep them in power. Thus the US electorate is stupid and gullible as Bill and Hillary Clinton have proved by masquerading as Democrats while they follow Republican policies of further enriching the rich by robbing the poor. Barak Obama is no less a hypocrite in his health plan and Middle East foreign policy. Some naive and trusting people believe that he is playing this game to win the election and then he will show his true populist colors. He has the same Wall Street, Hollywood and trial lawyer donors to whom he will be beholden. The young dreamers are destined for disappointment and disillusionment like the serial monogamist on his umpteenth marriage, banking on hope over experience.
Let us look at Egypt (an autocratic corrupt tyranny posing as a democracy and with a suppressed press), India (a democracy of corrupt leaders and foolish ignorant voters without a genuine press) and the US (a plutarchy pretending to be a democracy with ignorant and foolish voters with a conniving and colluding press assisting the elite). Mubarak and his predecessors started food and fuel subsidies to numb the populace and make them turn a blind eye to the corrupt leaders holding power by manipulation. Presently Egypt spends nearly 200 billion Egyptian pounds subsidizing food and fuel for the poor. Its increasing population, reduced domestic grain harvest, rising grain prices, under and unemployment and rising religiosity bode an uncertain and violent future. The US Congress policy of mandatory ethanol production for a third of its gasoline replacement, is causing higher grain prices in the world and increasing hunger and unrest all over.
A subsidy policy for cooking gas and kerosene, a refusal to pass on the increased crude and cooking oil prices to consumers, providing sugar and fertilizer subsidies to companies, lead to burgeoning current and future budget deficits which this time the Indian Congress incurs and bequeaths to future governments and generations, merely to improve their chances of re-election in 2009. As kids in an English school we had to remember collective nouns for various animal groups, like a flock of geese, a pride of lions, a herd of cattle. From this and the previous paragraph, the reader should not be surprised that the collective noun Congress is used for a congress of baboons. How about a BJP of seniles, a SP of crooks, a BSP of demagogues and a CP of fools?
Every individual US taxpayer has to report and pay taxes on all income anywhere in the world. The Congress however exempts US corporations from paying taxes on the earnings of their foreign subsidiaries as long as the profits are kept abroad and local taxes are paid. This is why many US multinational corporations have wholly owned subsidiaries abroad and in tax havens like Bermuda, Channel Islands etc. This allows them to shelter income abroad, some of it by transfer pricing. A drug company can buy cheap base chemicals from India, transfer them at a minimal profit to a tax haven from where it can sell the same unimproved product at an exorbitant profit to the US, where the final product is synthesized and again sold at a minimal profit. The largest profit is garnered by the subsidiary in a tax haven, Many insurance and re-insurance companies are based in Bermuda and even tool making and engineering companies have their headquarters (a few rooms or mailbox) in Bermuda, while their manufacturing, sales and administrative offices are in the US.
The crowning indecency and shamelessness of the US Congress are-1) they have attached many more billions in complete giveaways to automobile and homebuilding companies as amendments to the bill to save homeowners in default or foreclosure with a few billion in loans and 2) the piece de resistance is that after an unprovoked attack on Iraq which is a war crime, followed by causing the death and displacement of millions of Iraqis, now they not only want to stay longer in Iraq which the Iraqis do not wish or want, but they want Iraqi oil revenues to pay for the US occupation. This is like a robber who enters a man's house, kills some of the occupants, drives out some more, then rapes the homeowner's wife and demands payment from the husband for protection of the woman, which includes regular raping of the woman.
Finally, when a party consistently spends more than it earns over a prolonged period, commonly it declares bankruptcy as Argentina did some years ago. Britain in its textile, dye and spice trade with Bengal before 1757 and its tea, silk and porcelain trade with China in the nineteenth century was depleting its gold coinage, so it conquered and de-industrialized India to become an exporter of raw cotton and importer of British cloth. It grew opium in India and forced Chinese into drug addiction to improve its trade balance. Another option that America uses is to support corrupt dictators who undersell their country's natural resources to enrich themselves individually. It helps them retain their corrupt power while impoverishing the population. This policy has been followed in Latin America, Middle East, Southeast Asia and Africa. A final and newest strategy is direct unprovoked attack for conquest and direct control of resources, as with Iraq. Reneging on debt with implied use of force is the final alternative I outlined in my www.atimes.com article 'Hobbesian Hell In The Making'.
As many economists and policy mavens have presaged, the large US dollar reserves that China, India and other developed countries are accumulating to finance US extravagant spending at the cost of depriving their own economies are nothing but fool's gold. The recent brouhaha in Congress about restrictions on investment in the US by sovereign wealth funds, the denial of purchase of Maytag and Unocal to China and port management to Dubai Ports World and the newest rule changes by the German Parliament, remind me of the ironic fate of the betraying spy in the movie 'Five Fingers', who is paid by the British with counterfeit money for betraying his own country and weeps for the rest of his life for the ironic wages of his sin.