Financial, Economic and Social Mood Update (December 1, 2017)
The US stock market continues to be very robust – the Dow Jones 30 Industrials Index reached a new record nominal high of 24,328 on November 30, 2017. The NASDAQ Composite Index hit a new record nominal high of 6914 (on November 28), as did the S&P 500 Index at a level of 2,658 (on November 30) and the Wilshire 5000 “Total Market Index” at the level of 27,508 (on November 30).
A friend on Facebook suggested that I take a slightly different approach with the monthly financial update. He suggested that I concentrate on one main issue in each blog, so that important concepts will become clearer to many more readers. I agree that this is an excellent suggestion, and we will therefore start with this right away.
Currency Exchange Rates
Currency exchange rates have existed for hundreds of years, but in today’s world they have become far more common and much more precise. The foreign exchange market (much like the bond market) is actually far bigger and thus perhaps even more important than the stock market in many ways. Most independent countries have their own unique national currency. Some countries use the national currency of a different country, and some countries have pooled their resources to create common “supra national” currencies, such as the European Euro or the SDR (Special Drawing Rights) used by major countries such as the USA, the European Union (mainly Germany), China, Japan and the UK.
Unfortunately, foreign currency exchange rates (much like everything else in our world) are used as “tools” by major world powers to influence and control other countries with less power. Major powers use foreign exchange rates much like they use diplomacy, military might, warfare, foreign trade, monetary policy, immigration policy, judicial courts of law, and popular vote elections – to expand their influence as they see fit. The United States of America (USA) has been the number one global economic power at least since the time of the Bretton-Woods Agreement of 1944. Before the USA it was likely the United Kingdom (Britain) since England defeated the Spanish Armada (Navy) in the 16th Century. Other major powers who challenged Anglo-American hegemony over the course of this period in history have included France (the Napoleonic Wars), Germany (World Wars One and Two), Japan (World War Two) and Russia (the Cold War). The main emerging global superpower of today is the People’s Republic of China.
The fluctuation in foreign exchange rates have made some people very prosperous (such as in many developed economies today), but in turn they have impoverished many people over the course of history. This can have massive worldwide consequences – a good example is the German hyperinflation of 1923, when the German Mark became virtually worthless. This and the ensuing economic depression of the late 1920s and early 1930s set the stage for the rise of political extremism, devastating world war and the Cold War which followed the world war.
The concrete example I will use for the effect of foreign exchange rates is that of the Philippines. The country has a population of 112 million today, making it the 12th most populous of 247 independent countries and dependencies around the world today.
The national currency used in the Philippines is the Peso, which has been the medium of exchange since the time of Spanish rule (1521-1898), American rule (1898-1946), Japanese military occupation (1942-1945) and since the time of Philippine independence (1946). The time period I have chosen for this example runs from 1860 until today – from the latter period of Spanish rule until now.
Here is the example I will give you of what has happened to the people in the Philippines since the year 1860 due to the deliberate manipulation of the foreign exchange rate between the US Dollar and the Philippine Peso – a feat basically accomplished by the US Federal Reserve System and by its predecessors before the Fed was established in 1913. On November 30, 2017 one US Dollar was worth 50.1337 Philippine Pesos. Assume that you owned $100 worth of Philippine Pesos on that date.
The American government fixed the value of the Philippine Peso at 2 Pesos to one US Dollar from 1898-1946, and this fixed rate held until 1956, or 10 years after Philippine independence from the USA. Everything else being equal, the $100 worth Philippine Pesos on November 30, 2017 was worth $2,507 from 1898-1956, or 25 TIMES AS MUCH.
Bad as this has been for the Philippines, the story does not end there. During the final years of Spanish rule in the Philippines from 1860-1897 one Philippine Peso was worth 27.7432 US Dollars – in other words, the relationship was the reverse of what has been since 1898. Everything else being equal, the $100 worth of Philippine Pesos on November 30, 2017 was worth $69,543 from 1860-1897, or 695 TIMES AS MUCH.
There many examples throughout the course of human history even worse that what I have just illustrated. The German hyperinflation of October 1923 ranks as the 5th worst example of currency depreciation ever. Instead of the 695-fold difference I illustrated above, Germany experienced a 9,522-fold collapse. This shows how an entire national economy can be destroyed, and how human beings can resort to such desperate measures – doing things they would otherwise never do.
