Isidro Ramos
27 Nov 2007

 

 

Archbishop Oscar V. Cruz, here is a copy of the author’s view that could explain some of the Philippine peso paradox. It is simple enough to be understood by a layman but not the corner bystander. I could only hope SP would print without incurring copyrights.

  Robert Kiyosaki, author: Why the Rich Get Richer:  “It was pretty easy to understand foreign exchange back in the mid-‘60s, since much of the world was following the Bretton Woods Agreement. Enacted in 1944, this agreement made the U.S. dollar the global medium of exchange. Because the U.S. dollar was pegged to gold, figuring exchange rates was a cinch. If we purchased too much from Japan, then the Japanese could ask us for gold. If we had less gold, we had less money.

 “In 1971, President Richard Nixon changed everything by removing the U.S. dollar from the gold standard. Suddenly, the dollar was still the world’s currency, but now it was backed by nothing. The United States was free to print as much money as it wanted, and the world went along. Because of this change, understanding foreign exchange became a bit more complex.

Today, to understand the world of currency, you need to think a little differently — essentially because things don’t make sense. For example, today, the United States is perceived to be the richest country in the world. In reality, though, we’re the biggest debtor nation in the world. And who are we indebted to? What many consider to be a Third World country: China. The irony is that many Americans think we’re rich and China is poor. Exactly the opposite is true. This is because the removal of gold’s backing from paper money has created a virtual explosion in credit and liquidity.

  “The sheer amount of liquidity around the globe is incalculable. This excess funny money causes people to feel rich and almost everything to be more expensive. Today, stocks, real estate, automobiles, and gasoline become more expensive as the dollar becomes cheaper. While some people do become richer in this system, funny money actually punishes working people who save money. It devalues the value of your work and your savings, even though you may feel wealthier.

  “In overly simplistic terms, China and many countries in the world today lend us billions of dollars to buy their goods. They send us products like computers, televisions, cars, candies, and wines, and we send them funny money in return. Since they can’t spend those dollars at home, they simply lend them back to us so we’ll buy more of their products. That would be like me going to my local grocery store and asking them for a loan so I could buy their tomatoes. A logical person would say, “That makes no sense.”

  “Yet it’s exactly what happened after 1971, and to many highly educated people — bankers and politicians, for instance — it somehow does make sense.”

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