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"Globally competitive" is a function of exchange rates precisely as much as of price levels, and at least as much as it is of the quality of your manufactures. Countries subject to German wage suppression driven mercantilism can retaliate by discounting their currencies until they have restored foreign balance. Indeed, in a true floating currency system they do not even need to actively retaliate, as this is the equilibrium condition for a floating rate system.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 1st, 2011 at 03:32:07 AM EST
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But we continue to avoid a true floating-rate system. Since Bretton Woods ended we have seen 40 years of surrogates of fixed exchange rate systems. Possibly because Central Banks don't want to, or don't know how to, regulate and then hedge against the foreign currency exposure of their domestic economies.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Sep 1st, 2011 at 04:19:15 AM EST
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The USA is a good example of a place where a seemingly innocent meme ("tax relief") takes root, and eventually upends the entire country. It happened over 50 years. But still...

Beware these seemingly benign transformations. They tend to metastasize and become religion.

by Upstate NY on Wed Sep 7th, 2011 at 05:15:18 PM EST
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