Lucius, :"What do you mean "if Hong Kong wins"? ..... Fixed currency rates will always fail in the long run because they are a version of a command economy and do not have the self correcting mechanisms of a free market.".
Let me explain:
I don't mean " fixed ' fixed currency rates. I mean a currency attached to something stable such as gold or a basket of goods.In case of HK, they are substituting the US $ which under AG's guidance has been very stable and non-inflated, though by no means fixed.US$ has been adjusting according to inflation etc.The point is that HK
by trying TO MAINTAIN THE BUYING POWER of the NK$, gives savers, investors, stability , which is a prerequisite to good, stable growth.
By raising interest rates HK in essence is trying to correct if you will the now " irrational exuberance " of their recent inflationary
market speculations. Once people realize that the value of their Bank account $ is stable they'll come back, especially when you gat such high interest rates, and this bubble will pop and finish and we'll go back and start over again, this time a little more prudently with less speculation.
I don't advocate fixed rates.Devaluation always hurts the savings of the little guy and in fact rewards speculators, and it's an easy way out for incompetent goverments that can't maintain internal stability. They should be allowed to fall, as should probably happen to the present SAR goverment to hear it from Gary Ng.
TA |
